As filed with the Securities and Exchange Commission on May 17, 1999.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-5890
GCI, INC.
(Exact name of registrant as specified in its charter)
STATE OF ALASKA 91-1820757
(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)
Registrant's telephone number, including area code: (907) 265-5600
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$180,000,000 9.75% Senior Notes due August 2007
1
<PAGE>
<TABLE>
GCI, INC.
A WHOLLY OWNED SUBSIDIARY OF GENERAL COMMUNICATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<CAPTION>
Page No.
--------
<S> <C>
Cautionary Statement Regarding Forward-Looking Statements.................................................3
PART I. FINANCIAL INFORMATION
Item l. Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998.................................................5
Consolidated Statements of Operations for the
three months ended March 31, 1999
(unaudited) and 1998 (unaudited)..................................................7
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1999
(unaudited) and 1998 (unaudited)..................................................8
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 (unaudited)
and 1998 (unaudited)..............................................................9
Notes to Interim Condensed Consolidated Financial
Statements........................................................................10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..........................................................................36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................36
Item 6. Exhibits and Reports on Form 8-K.....................................................37
Other items are omitted as they are not applicable.
SIGNATURES................................................................................................38
</TABLE>
2
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1996 ("Securities Reform Act"). These statements may be
preceded by, followed by, or include the words "believes," "expects,"
"anticipates," or similar expressions. For those statements, the Company claims
protection of the safe-harbor for forward-looking statements contained in the
Securities Reform Act. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance and achievements of the Company, or industry results, to
differ materially from future results, performance or achievements expressed or
implied by such statements. The reader is cautioned that important factors, such
as the following risks, uncertainties, and other factors, in addition to those
contained elsewhere in this document, could affect future results of the
Company, its long-distance telecommunication services, local access services,
Internet services and cable services and could cause those results to differ
materially from those expressed in the forward-looking statements:
- Material adverse changes in the economic conditions in the markets
served by the Company;
- The efficacy of the rules and regulations to be adopted by the Federal
Communications Commission ("FCC") and state public regulatory agencies
to implement the provisions of the 1996 Telecom Act; the outcome of
litigation relative thereto; and the impact of regulatory changes
relating to access reform;
- The Company's responses to competitive products, services and pricing,
including pricing pressures, technological developments, alternative
routing developments, and the ability to offer combined service
packages that include local, cable and Internet services; the extent
and pace at which different competitive environments develop for each
segment of the Company's business; the extent and duration for which
competitors from each segment of the telecommunications industry are
able to offer combined or full service packages prior to the Company
being able to do so; the degree to which the Company experiences
material competitive impacts to its traditional service offerings prior
to achieving adequate local service entry; and competitor responses to
the Company's products and services and overall market acceptance of
such products and services;
- The outcome of negotiations with Incumbent Local Exchange Carriers
("ILECs") and state regulatory arbitrations and approvals with respect
to interconnection agreements; and the ability to purchase unbundled
network elements or wholesale services from ILECs at a price sufficient
to permit the profitable offering of local exchange service at
competitive rates;
- Success and market acceptance for new initiatives, many of which are
untested; the level and timing of the growth and profitability of new
initiatives, particularly local access services, Internet (consumer and
business) services and wireless services; start-up costs associated
with entering new markets, including advertising and promotional
efforts; successful deployment of new systems and applications to
support new initiatives; and local conditions and obstacles;
- Uncertainties inherent in new business strategies, new product launches
and development plans, including local access services, Internet
services, wireless services, digital video services, cable modem
services, and transmission services;
- Rapid technological changes;
- Development and financing of telecommunication, local access, wireless,
Internet and cable networks and services;
- Future financial performance, including the availability, terms and
deployment of capital; the impact of regulatory and competitive
developments on capital outlays, and the ability to achieve cost
savings and realize productivity improvements;
- Availability of qualified personnel;
- Changes in, or failure, or inability, to comply with, government
regulations, including, without limitation,
3
<PAGE>
regulations of the FCC, the Alaska Public Utilities Commission
("APUC"), and adverse outcomes from regulatory proceedings;
- The cost of the Company's Year 2000 compliance efforts;
- Uncertainties in federal military spending levels and military base
closures in markets in which the Company operates; and
- Other risks detailed from time to time in the Company's periodic
reports filed with the Securities and Exchange Commission.
These forward-looking statements (and such risks, uncertainties and other
factors) are made only as of the date of this report and the Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained in this document to reflect any
change in the Company's expectations with regard to those statements or any
other change in events, conditions or circumstances on which any such statement
is based. Readers are cautioned not to put undue reliance on such forward
looking statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
GCI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 1999 1998
- --------------------------------------------------------------------- ----------------- -----------------
(Amounts in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,169 12,008
----------------- -----------------
Receivables:
Trade 39,019 38,890
Income taxes 2,262 4,262
Other 379 412
----------------- -----------------
41,660 43,564
Less allowance for doubtful receivables 1,384 887
----------------- -----------------
Net receivables 40,276 42,677
Prepaid and other current assets 2,547 2,212
Deferred income taxes, net 1,978 1,947
Inventories 1,611 1,878
Notes receivable 628 650
----------------- -----------------
Total current assets 53,209 61,372
----------------- -----------------
Property and equipment in service, net 316,071 199,827
Construction in progress 4,654 119,395
----------------- -----------------
Net property and equipment 320,725 319,222
----------------- -----------------
Other assets:
Cable franchise agreements, net of amortization 194,017 195,308
Other intangible assets, net of amortization 45,065 45,391
Deferred loan and senior notes costs, net of amortization 9,577 9,877
Transponder deposit (note 5) 9,100 9,100
Notes receivable 1,522 1,432
Other assets, at cost, net of amortization 4,345 4,982
----------------- -----------------
Total other assets 263,626 266,090
----------------- -----------------
Total assets $ 637,560 646,684
================= =================
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
5 (Continued)
<PAGE>
<TABLE>
GCI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- --------------------------------------------------------------------------- --------------- --------------
(Amounts in thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 3) $ 1,836 1,799
Current maturities of obligations under capital leases 527 511
Accounts payable 26,736 27,550
Accrued interest 3,694 8,072
Accrued payroll and payroll related obligations 7,013 6,555
Accrued liabilities 3,662 3,197
Subscriber deposits and deferred revenues 5,983 5,300
--------------- --------------
Total current liabilities 49,451 52,984
Long-term debt, excluding current maturities (note 3) 354,338 349,858
Obligations under capital leases, including related party obligations,
excluding current maturities 1,536 1,675
Deferred income taxes, net of deferred income tax benefit 33,246 38,275
Other liabilities 3,229 3,317
--------------- --------------
Total liabilities 441,800 446,109
--------------- --------------
Stockholders' equity (note 6):
Class A common stock (no par). Authorized 10,000 shares; issued
and outstanding 100 shares at March 31, 1999 and December 31, 1998
206,622 206,622
Paid-in capital 2,983 2,933
Retained deficit (13,845) (8,980)
--------------- --------------
Total stockholders' equity 195,760 200,575
--------------- --------------
Commitments and contingencies (notes 5 and 6)
Total liabilities and stockholders' equity $ 637,560 646,684
=============== ==============
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
GCI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
1999 1998
-------------- --------------
(Amounts in thousands except
per share amounts)
<S> <C> <C>
Revenues (note 4) $ 61,338 58,152
Cost of sales and services 27,870 27,315
Selling, general and administrative 23,538 20,334
Depreciation and amortization 10,298 8,066
-------------- --------------
Operating income (loss) (368) 2,437
Interest expense, net 6,960 4,944
-------------- --------------
Net loss before income taxes and cumulative effect of a change
in accounting principle (7,328) (2,507)
Income tax benefit 2,807 891
-------------- --------------
Net loss before cumulative effect of a change in accounting
principle (4,521) (1,616)
Cumulative effect of a change in accounting principle, net of income tax
benefit of $245 344 ---
-------------- --------------
Net loss $ (4,865) (1,616)
============== ==============
Basic loss per common share:
Loss before cumulative effect of a change in accounting principle
$ (45,210) (16,160)
Cumulative effect of a change in accounting principle 3,440 ---
-------------- --------------
Net loss $ (48,650) (16,160)
============== ==============
Diluted loss per common share:
Loss before cumulative effect of a change in accounting principle
$ (45,210) (16,160)
Cumulative effect of a change in accounting principle 3,440 ---
-------------- --------------
Net loss $ (48,650) (16,160)
============== ==============
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
GCI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<CAPTION>
(Unaudited) Shares of
(Amounts in thousands) Class A Common Class A Common Paid-in Retained
Stock Stock Capital Deficit
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 100 $ 206,622 --- (2,183)
Net loss --- --- --- (1,616)
Contribution from GCI --- --- 245 ---
-----------------------------------------------------------------
Balances at March 31, 1998 100 $ 206,622 245 (3,799)
=================================================================
Balances at December 31, 1998 100 $ 206,622 2,933 (8,980)
Net loss --- --- --- (4,865)
Contribution from GCI --- --- 50 ---
-----------------------------------------------------------------
Balances at March 31, 1999 100 $ 206,622 2,983 (13,845)
=================================================================
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
GCI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
------------- -------------
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,865) (1,616)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization 10,298 8,066
Amortization charged to selling, general and administrative 430 115
Deferred income tax (benefit) expense (3,052) 1,969
Deferred compensation and compensatory stock options 172 78
Bad debt expense, net of write-offs 497 115
Write-off of unamortized start-up costs 589 ---
Other noncash income and expense items 74 (26)
Change in operating assets and liabilities (note 2) (3,956) (14,342)
-------------- --------------
Net cash provided (used) by operating activities 187 (5,641)
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment, including construction period
interest (9,882) (28,167)
Restricted cash investment --- 13,152
Purchases of other assets (391) (1,275)
Notes receivable issued (193) (30)
Payments received on notes receivable 15 95
-------------- --------------
Net cash used in investing activities (10,451) (16,225)
-------------- --------------
Cash flows from financing activities:
Long-term borrowings - bank debt and leases 4,884 24,027
Repayments of long-term borrowings and capital lease obligations (490) (443)
Payment of debt issuance costs (7) (1,078)
Cash contribution from GCI 38 245
-------------- --------------
Net cash provided by financing activities 4,425 22,751
-------------- --------------
Net increase (decrease) in cash and cash equivalents (5,839) 885
Cash and cash equivalents at beginning of period 12,008 3,048
-------------- --------------
Cash and cash equivalents at end of period $ 6,169 3,933
============== ==============
See accompanying notes to interim condensed consolidated financial statements.
</TABLE>
9
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
Basis of Presentation
GCI, Inc. was incorporated in 1997 to effect the issuance of senior
notes as further described in GCI, Inc.'s December 31, 1998 annual
report on Form 10-K. GCI, Inc., as a wholly owned subsidiary of
General Communication, Inc. ("GCI"), received through its initial
capitalization all ownership interests in subsidiaries previously
held by GCI.
(a) Business
GCI, Inc. and its direct and indirect subsidiaries
(collectively, the "Company") offer long-distance telephone
service between Anchorage, Fairbanks, Juneau, and other
communities in Alaska and the remaining United States and
foreign countries. Cable television services are offered
throughout Alaska and facilities-based competitive local access
services are offered in Anchorage, Alaska. The Company provides
services to certain common carriers terminating traffic in
Alaska, interstate and intrastate private line services,
Internet services, managed services to certain commercial
customers and sells and services dedicated communications
systems and related equipment. Private network point-to-point
data and voice transmission services between Alaska, Hawaii and
the western contiguous United States are offered and the
Company owns and leases capacity on two undersea fiber optic
cables used in the transmission of interstate private line,
switched message long-distance and Internet services between
Alaska and the remaining United States and foreign countries.
(b) Organization
The consolidated financial statements include the accounts of
GCI, Inc., GCI, Inc.'s wholly-owned subsidiary GCI Holdings,
Inc., GCI Holdings, Inc.'s wholly-owned subsidiaries GCI
Communication Corp., GCI Communication Services, Inc. and GCI
Cable, Inc., GCI Communication Services, Inc.'s wholly-owned
subsidiary GCI Leasing Co., Inc., GCI Transport Company, Inc.,
GCI Transport Company, Inc.'s wholly-owned subsidiaries GCI
Fiber Co., Inc. and Fiber Hold Company, Inc. and GCI Fiber Co.,
Inc.'s and Fiber Hold Company, Inc.'s wholly owned partnership
Alaska United Fiber System Partnership.
(c) Net Loss Per Common Share
<TABLE>
Shares used to calculate net loss per common share consist of
the following (amounts in thousands):
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- ---------
<S> <C> <C>
Weighted average common shares outstanding 100 100
Common equivalent shares outstanding --- ---
----------- ---------
100 100
=========== =========
</TABLE>
Basic and diluted loss per share calculations at March 31, 1999
and 1998 are based on GCI, Inc.'s weighted average outstanding
shares of common stock which are not publicly traded. GCI, Inc.
has no outstanding common stock equivalents.
10 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(d) Cumulative Effect of a Change in Accounting Principle
In April 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities". SOP 98-5
provides guidance on the financial reporting of start-up costs
and organization costs and requires costs of start-up
activities and organization costs to be expensed as incurred.
SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. Management of the Company
adopted SOP 98-5 in the first quarter of 1999 resulting in the
recognition of a one-time expense of $344,000 (net of income
tax benefit of $245,000) associated with the write-off of
unamortized start-up costs. Pro forma first quarter 1998 net
loss and net loss per common share approximate amounts
reflected in the accompanying interim condensed consolidated
financial statements.
(e) Reclassifications
Reclassifications have been made to the 1998 financial
statements to make them comparable with the 1999 presentation.
(f) Other
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
interim condensed consolidated financial statements include the
consolidated accounts of GCI, Inc. and its wholly owned
subsidiaries with all significant intercompany transactions
eliminated. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three-month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For further information,
refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
11 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Consolidated Statements of Cash Flows Supplemental Disclosures
<TABLE>
Changes in operating assets and liabilities consist of:
<CAPTION>
Three-month periods ended March 31, 1999 1998
------------- ------------
(Amounts in thousands)
<S> <C> <C>
Increase in receivables $ (96) (3,910)
Decrease in income tax receivable --- (2,861)
Increase in prepaid and other current assets (335) (373)
(Increase) decrease in inventory 267 (411)
Decrease in accounts payable (814) (3,443)
Increase (decrease) in accrued liabilities 465 (582)
Increase in accrued payroll and payroll related obligations 458 997
Decrease in accrued interest (4,378) (4,109)
Increase in deferred revenues 683 327
Increase (decrease) in other liabilities (206) 23
------------- ------------
$ (3,956) (14,342)
============= ============
</TABLE>
No income taxes were paid and no income tax refunds were received
during the three-month periods ended March 31, 1999 and 1998.
Interest paid totaled $12,890,000 and $10,767,000 during the
three-month periods ended March 31, 1999 and 1998, respectively.
(3) Long-term Debt
On January 27, 1998, the Company, through Alaska United Fiber System
Partnership ("Alaska United"), closed a $75,000,000 project finance
facility ("Fiber Facility") to construct a fiber optic cable system
connecting Anchorage, Fairbanks, Valdez, Whittier, Juneau and Seattle
as further described in note 5. Borrowings under the Fiber Facility
totaled $66,108,000 at March 31, 1999. In April 1999, borrowings
under the Fiber Facility totaled $75,000,000, the maximum amount
available under the Fiber Facility agreement.
(4) Industry Segments Data
The Company's reportable segments are business units that offer
different products. The reportable segments are each managed
separately because they manage and offer distinct products with
different production and delivery processes.
The Company has four reportable segments as follows:
Long-distance services. A full range of common-carrier
long-distance services are offered to business, government, other
telecommunications companies and consumer customers, through its
networks of fiber optic cables, digital microwave, and fixed and
transportable satellite earth stations.
Cable services. The Company provides cable television services to
residential, commercial and government users in the State of
Alaska. The Company's cable systems serve 26 communities and
areas in Alaska, including the state's three largest urban areas,
Anchorage, Fairbanks and Juneau. Anchorage cable plant upgrades
in 1998 enabled the Company to offer digital cable
12 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
television services and retail cable modem service (through its
Internet services segment) in Anchorage, complementing its
existing service offerings. The Company plans to expand its
product offerings as plant upgrades are completed in other
communities in Alaska.
Local access services. The Company introduced facilities based
competitive local exchange services in Anchorage in 1997. The
Company has announced plans to ultimately provide similar
competitive local exchange services in Alaska's other major
population centers, as access is allowed by the Alaska Public
Utilities Commission.
Internet services. The Company began offering wholesale and
retail Internet services in 1998. Deployment of the new undersea
fiber optic cable (see note 5) allows the Company to offer
enhanced services with high-bandwidth requirements.
Services provided by the Company that are included in the "Other"
segment in the tables that follow are managed services, product sales
and cellular telephone services. Included in the Other segment are
the results of insignificant business units described above which do
meet the quantitative thresholds for determining reportable segments.
None of these business units have ever met the quantitative
thresholds for determining reportable segments. Also included in the
Other segment are corporate related expenses, including marketing,
customer service, management information systems, accounting, legal
and regulatory, human resources and other general and administrative
expenses.
The Company evaluates performance and allocates resources based on
(1) earnings or loss from operations before depreciation,
amortization, net interest expense, income taxes and cumulative
effect of a change in accounting principle, and (2) operating income
or loss. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting
policies included in the Company's annual report on Form 10-K at
December 31, 1998. Intersegment sales are recorded at cost plus an
agreed upon intercompany profit.
All revenues are earned through sales of services and products within
the United States of America. All of the Company's long-lived assets
are located within the United States of America.
<TABLE>
Summarized financial information concerning the Company's reportable
segments follows for the quarters ended March 31, 1999 and 1998
(amounts in thousands):
<CAPTION>
Long- Local
Distance Cable Access Internet
Services Services Services Services Other Total
------------------------------------------------------------------------
1999
----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Intersegment $ 1,902 613 660 --- --- 3,175
External 37,542 15,062 3,714 1,969 3,051 61,338
------------------------------------------------------------------------
Total revenues $39,444 15,675 4,374 1,969 3,051 64,513
========================================================================
</TABLE>
13 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Long- Local
Distance Cable Access Internet
Services Services Services Services Other Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) from operations
before depreciation, amortization,
net interest expense, income taxes
and cumulative effect of a change
in accounting principle $12,859 8,673 (230) (1,782) (9,339) 10,181
========================================================================
Operating income (loss) $ 9,288 4,282 (1,040) (2,034) (10,613) (117)
========================================================================
1998
----
Revenues:
Intersegment $ --- 317 --- --- --- 317
External 38,651 14,201 1,013 903 3,384 58,152
------------------------------------------------------------------------
Total revenues $38,651 14,518 1,013 903 3,384 58,469
========================================================================
Earnings (loss) from operations
before depreciation,
amortization, net interest
expense and income taxes $14,290 7,136 (1,361) 377 (9,936) 10,506
========================================================================
Operating income (loss) $12,117 3,512 (2,428) 242 (11,003) 2,440
========================================================================
</TABLE>
<TABLE>
A reconciliation of total segment revenues to consolidated revenues
follows:
<CAPTION>
Quarters ended March 31, 1999 1998
------------- --------------
<S> <C> <C>
Total segment revenues $ 64,513 58,469
Less intersegment revenues eliminated in consolidation (3,175) (317)
------------- --------------
Consolidated revenues $ 61,338 58,152
============= ==============
</TABLE>
14 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
A reconciliation of total segment earnings from operations before
depreciation, amortization, net interest expense, income taxes and
cumulative effect of a change in accounting principle to consolidated
net loss before income taxes and cumulative change in accounting
principle follows:
<CAPTION>
Quarters ended March 31, 1999 1998
-------------- --------------
<S> <C> <C>
Total segment earnings from operations before depreciation,
amortization, net interest expense, income taxes and
cumulative effect of a change in accounting principle $ 10,181 10,506
Less intersegment contribution eliminated in consolidation (251) (3)
-------------- --------------
Consolidated earnings from operations before
depreciation, amortization, net interest expense,
income taxes and cumulative effect of a change in
accounting principle 9,930 10,503
Depreciation and amortization 10,298 8,066
-------------- --------------
Consolidated operating income (loss) (368) 2,437
Interest expense, net (6,960) (4,944)
-------------- --------------
Consolidated net loss before income taxes and
cumulative effect of a change in accounting
principle $ (7,328) (2,507)
============== ==============
</TABLE>
<TABLE>
A reconciliation of total segment operating income (loss) to
consolidated net loss before income taxes and cumulative effect of a
change in accounting principle follows:
<CAPTION>
Quarters ended March 31, 1999 1998
------------- --------------
<S> <C> <C>
Total segment operating income (loss) $ (117) 2,440
Less intersegment contribution eliminated in consolidation (251) (3)
------------- --------------
Consolidated operating income (loss) (368) 2,437
Interest expense, net (6,960) (4,944)
------------- --------------
Consolidated net loss before income taxes and
cumulative effect of a change in accounting
principle $ (7,328) (2,507)
============= ==============
</TABLE>
(5) Commitments and Contingencies
Deferred Compensation Plan
The Company's non-qualified, unfunded deferred compensation plan
provides a means by which certain employees may elect to defer
receipt of designated percentages or amounts of their compensation
and provides 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
15 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of the Company with respect to deferred compensation plan benefits.
Compensation deferred pursuant to the plan totaled $118,000 and $0
during the three-month periods ended March 31, 1999 and 1998,
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 launch of the satellite in August 1998 failed. The Company did
not assume launch risk and the launch has been rescheduled for the
first quarter of 2000. The Company will continue to lease transponder
capacity until the delivery of the transponders on the replacement
satellite. The balance payable upon expected delivery of the
transponders during the first quarter of 2000, in addition to the
$9.1 million deposit previously paid, totals approximately $43.5
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 $555,000 was
recorded at March 31, 1999 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 and Disputes
The Company is from time to time involved in various lawsuits, legal
proceedings and regulatory matters that have arisen in the normal
course of business. 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, results
of operations or liquidity of the Company.
Cable Service Rate Reregulation
Effective March 31, 1999, the rates for cable programming services
(service tiers above basic service) are no longer regulated. This
regulation ended pursuant to provisions of the Telecommunications Act
of 1996 and the regulations adopted pursuant thereto by the Federal
Communications Commission ("FCC").
Federal law still permits regulation of basic service rates. However,
Alaska state law provides that cable television service is exempt
from regulation by the Alaska Public Utilities Commission ("APUC")
unless 25% of a system's subscribers request such regulation by
filing a petition with the APUC. At March 31, 1999, only the Juneau
system is subject to APUC regulation of its basic service rates. No
petition requesting regulation has been filed for any other system.
(The Juneau system serves 8.3% of the Company's total basic service
subscribers at March 31, 1999.) 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.
Undersea Fiber Optic Cable Contract Commitment
The Company signed a contract in July 1997 for construction of the
undersea portion of a fiber optic cable system connecting the cities
of Anchorage, Juneau, and Seattle via a subsea route. The total
system is expected to cost approximately $125 million. Subsea and
terrestrial connections extended the fiber optic cable to Fairbanks
via Whittier and Valdez. Construction efforts began in
16 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 1998 and were completed in early February 1999. Commercial
services commenced in February 1999. Pursuant to the contract, the
Company has paid $86.3 million through December 31, 1998 and $424,000
during the three-month period ended March 31, 1999, and will pay the
remaining balance in installments in April 1999. Approximately $39.4
million of proceeds from the 1997 public offerings (see the Company's
December 31, 1998 annual report on Form 10-K), net of the $9.1
million paid in 1997, were contributed to Alaska United. In January
1998, the Company secured $75 million in bank financing to fund the
remaining cost of construction and deployment, of which $66.1 million
was outstanding at March 31, 1999 (see note 3).
Year 2000
In 1997, the Company initiated a plan to identify, assess and
remediate Year 2000 issues within each of its significant computer
programs and certain equipment which contain micro-processors. The
plan is addressing the issue of computer programs and embedded
computer chips being unable to distinguish between the year 1900 and
the year 2000, if a program or chip uses only two digits rather than
four to define the applicable year. The Company has divided the plan
into two major phases. The first phase, including team formation,
inventory assessment, compliance assessment and risk assessment, were
completed during 1998. The second phase, including
resolution/remediation, validation, contingency planning and sign-off
acceptance, was in progress at December 31, 1998. Systems which have
been determined not to be Year 2000 compliant are being either
replaced or reprogrammed, and thereafter tested for Year 2000
compliance. The plan anticipates that by mid-1999 the conversion,
implementation and testing phases will be completed. The current
budget for the total cost of remediation (including replacement
software and hardware) and testing, as set forth in the plan, is
approximately $4.0 million.
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the
Company's systems, regarding their plans and progress in addressing
their Year 2000 issues. The Company has received varying information
from such third parties on the state of compliance or expected
compliance. Contingency plans continue to be developed in the event
that any critical supplier or customer is not compliant. The failure
to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities
or operations. Such failures could materially and adversely affect
the Company's operations, liquidity and financial condition. Due to
the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of
third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's operations, liquidity or
financial condition.
17 (Continued)
<PAGE>
GCI, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) Subsequent Event
GCI issued 20,000 shares of convertible redeemable accreting
preferred stock ("Preferred Stock") on April 30, 1999. Proceeds
totaling $20 million (before payment of costs and expenses) will be
used for general corporate purposes, to repay outstanding GCI, Inc.
indebtedness, , and to provide additional liquidity. The Company's
amended Senior Holdings Loan facilities limit use of such proceeds.
18
<PAGE>
PART I.
ITEM 2.
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 Interim Condensed Consolidated Financial Statements and the notes
thereto. See - Cautionary Statement Regarding Forward-Looking Statements.
GCI, Inc. was incorporated in 1997 to effect the issuance of Senior Notes as
further described in the Company's 1998 annual report on Form 10-K. GCI, Inc., a
wholly-owned subsidiary of General Communication, Inc. ("GCI"), received through
its initial capitalization all ownership interests in subsidiaries previously
held by GCI. Shares of GCI's class A common stock are traded on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol GNCMA.
Shares of GCI's class B common stock are traded on the Over-the-Counter market.
OVERVIEW
The Company has experienced significant growth in recent years through both
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided largely through the Company's financing
activities.
Long-distance services. The Company's provision of interstate and intrastate
long-distance services to residential, commercial and governmental customers and
to other common carriers (principally MCI WorldCom and Sprint) accounted for
approximately 92.7% of the Company's total long-distance services revenues
during the first quarter of 1999. Factors that have the greatest impact on
year-to-year changes in long-distance 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.
The Company's long-distance cost of sales and services has consisted principally
of the direct costs of providing services, including local access charges paid
to Local Exchange Carriers ("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
WorldCom'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. During the first quarter of 1999, local access charges
accounted for 44.4% of long-distance cost of sales and services, fees paid to
other long-distance carriers represented 31.1%, satellite transponder lease and
undersea fiber maintenance costs represented 11.8%, telecommunications equipment
accounted for 1.9%, network solutions and outsourcing costs represented 5.2% and
other costs represented 5.6% of long-distance cost of sales and services.
The Company's long-distance selling, general, and administrative expenses have
consisted of operating and engineering, customer service, sales and
communications, management information systems, 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, insurance and property taxes). A significant portion of
long-distance selling, general, and administrative expenses, 23.9% during the
first quarter of 1999, represents the cost of the Company's advertising,
promotion and market analysis programs.
19 (Continued)
<PAGE>
Long-distance services face significant competition from AT&T Alascom, Inc.,
long-distance resellers, and from local telephone companies that have entered
the long-distance market. Revenues derived from other common carriers increased
3.5% in the first quarter of 1999 as compared to the first quarter of 1998. The
number of active long-distance residential, commercial and small business
customers decreased 2.5% in the first quarter of 1999 as compared to the same
period of 1998, and increased 4.4% as compared to the fourth quarter of 1998.
The Company believes its approach to developing, pricing, and providing
long-distance services and bundling different business segment services will
continue to allow it to be competitive in providing those services.
Other common carrier traffic routed to the Company for termination in Alaska is
largely dependent on traffic routed to MCI WorldCom and Sprint by their
customers. Pricing pressures, new program offerings and market consolidation
continue to evolve in the markets served by MCI WorldCom and Sprint. If, as a
result, their traffic is reduced, or if their competitors' costs to terminate or
originate traffic in Alaska are reduced, the Company's traffic will also likely
be reduced, and the Company's pricing may be reduced to respond to competitive
pressures. The Company is unable to predict the effect on the Company of such
changes, however given the materiality of other common carrier revenues to the
Company, a significant reduction in traffic or pricing could have a material
adverse effect on the Company's financial position, results of operations and
liquidity.
Services included in the Other segment as described in note 4 to the
accompanying interim condensed consolidated financial statements are included in
the Long-distance Services segment for purposes of this Management's Discussion
and Analysis.
Cable services. During the first quarter of 1999, cable revenues represented
24.6% of consolidated revenues. The cable systems serve 26 communities and areas
in Alaska, including the state's three largest population centers, Anchorage,
Fairbanks and Juneau.
The Company generates cable services revenues from three primary sources: (1)
programming services, including monthly basic or premium subscriptions and
pay-per-view movies or other one-time events, such as sporting events; (2)
equipment rentals or installation; and (3) advertising sales. During the first
quarter of 1999 programming services generated 86.1% of total cable services
revenues, equipment rental and installation fees accounted for 8.6% of such
revenues, advertising sales accounted for 4.0% of such revenues, and other
services accounted for the remaining 1.3% 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' cost of sales and selling, general and administrative
expenses have consisted principally of programming and copyright expenses,
labor, maintenance and repairs, marketing and advertising and rental expense.
During the first quarter of 1999 programming and copyright expenses represented
approximately 46.1% of total cable cost of sales and selling, general and
administrative expenses. Marketing and advertising costs represented
approximately 8.5% of such total expenses.
Cable services face competition from alternative methods of receiving and
distributing television signals and from other sources of news, information and
entertainment. The Company believes its cable television services will continue
to be competitive based on providing, at reasonable prices, a greater variety of
programming and other communication services than are available off-air or
through other alternative delivery sources and upon superior technical
performance and customer service.
20 (Continued)
<PAGE>
Local access services. The Company generates local access services revenues from
four primary sources: (1) business and residential basic dial tone revenues; (2)
business private line and special access revenues; (3) reciprocal access
revenues from the incumbent LEC serving Anchorage; and (4) business and
residential features and other charges, including voice mail, caller ID,
distinctive ring, inside wiring and subscriber line charges. Effective March
1999 the Company expects to transition to the "bill and keep" cost settlement
method for termination of traffic on its and other's facilities. Local exchange
services revenues totaled $3.7 million representing 6.0% of consolidated
revenues in the first quarter of 1999. The primary factors that contribute to
year-to-year changes in local access services revenues are the average number of
business and residential subscribers to the Company's services during a given
reporting period and the average monthly rates charged for non-traffic sensitive
services.
Operating and engineering expenses represented approximately 4.4% of total local
access services cost of sales and selling, general and administrative expenses
during the first quarter of 1999. Marketing and advertising costs represented
approximately 6.5% of such total expenses, customer service and general and
administrative costs represented approximately 50.4% of such total expenses, and
local access cost of sales represented approximately 38.7% of such total
expenses. The Company expects that it will continue to generate operating losses
from local exchange services during 1999.
The Company's local access services face significant competition from ATU and
AT&T Alascom, Inc. The Company believes its approach to developing, pricing, and
providing local access services will allow it to be competitive in providing
those services.
Internet services. The Company began offering Internet services in several
markets in Alaska during 1998. The Company generates Internet services revenues
from three primary sources: (1) access product services, including commercial
Dial-in Access ("DIAS"), Internet Service Provider ("ISP") DIAS, and retail
dial-up service revenues; (2) SchoolAccess(TM) DIAS and server revenues; and (3)
network management services. Internet services revenues totaled $2.0 million
representing 3.2% of total revenues in the first quarter of 1999. The primary
factors that contribute to year-to-year changes in Internet services revenues
are average monthly subscription rates, the number of additional premium
features selected, and the average number of subscribers to the Company's
services during a given reporting period.
Operating and general and administrative expenses represented approximately
68.5% of total Internet services cost of sales and selling, general and
administrative expenses during the first quarter of 1999. Internet cost of sales
represented approximately 24.2% of such total expenses and marketing and
advertising represented approximately 7.3% of such total expenses.
Significant new marketing campaigns were introduced in February and March 1999
featuring bundled residential and commercial Internet products. Additional
bandwidth was made available to the Company's Internet segment resulting from
completion of the Alaska United Project (see the Company's December 31, 1998
annual report on Form 10-K). The new Internet offerings are coupled with the
Company's long-distance and local services offerings and provide free basic
Internet services if certain long-distance or local services plans are selected.
Value-added premium Internet features are available for additional charges.
The Company competes with a number of Internet service providers in its markets.
The Company believes its approach to developing, pricing, and providing Internet
services will allow it to be competitive in providing those services.
Other services, other expenses and net loss. Telecommunications services
revenues reported in the Other segment as described in note 4 to the
accompanying interim condensed consolidated financial statements have been
attributable to corporate network management contracts, telecommunications
equipment sales and service, other miscellaneous revenues (including revenues
from prepaid and debit calling cards, the
21 (Continued)
<PAGE>
installation and leasing of customers' very small aperture terminal ("Vsat")
equipment, and fees charged to MCI WorldCom and Sprint for certain billing
services), and costs associated with PCS wireless communications services. The
Company began developing plans for PCS service deployment in 1995 and
subsequently conducted a technical trial of its candidate technology. The
Company has invested approximately $2.2 million in its PCS license at March 31,
1999. PCS licensees are required to offer service to at least one-third of their
market population within five years or risk losing their licenses. Service must
be extended to two-thirds of the population within 10 years. The Company
continues to reevaluate its wireless strategy and expects that such strategy
will allow retention of the PCS license pursuant to its terms.
Depreciation and amortization and interest expense on a consolidated basis is
expected to be higher in 1999 as compared to 1998 resulting primarily from
additional depreciation on 1998 and 1999 capital expenditures, additional
outstanding long-term debt and a reduction in the amount of capitalized
construction period interest following placement of the Alaska United undersea
fiber optic cable into service in early February 1999. As a result, the Company
anticipates recording net losses in 1999.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth selected Statement of Operations data 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:
(Underlying data rounded to the nearest thousands)
<CAPTION>
Three Months Ended Percentage
March 31, Change
1999 vs.
(Unaudited) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data:
Revenues
Long-distance services 66.2% 72.4% (3.6%)
Cable services 24.6% 24.4% 6.3%
Local access services 6.0% 1.7% 270.0%
Internet services 3.2% 1.5% 122.2%
---------------------------------------
Total revenues 100.0% 100.0% 5.3%
Cost of sales and services 45.4% 47.0% 2.0%
Selling, general and administrative
expenses 38.4% 35.0% 15.8%
Depreciation and amortization 16.8% 13.9% 27.2%
---------------------------------------
Operating income (loss) (0.6%) 4.1% (116.7%)
Net loss before income taxes
and cumulative effect of a
change in accounting principle (11.9%) (4.3%) (192.0%)
Net loss before cumulative
effect of a change in
accounting principle (7.4%) (2.8%) (181.3%)
Net loss (7.9%) (2.8%) (206.3%)
</TABLE>
22 (Continued)
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Percentage
March 31, Change
1999 vs.
(Unaudited) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Other Operating Data (1):
Cable operating income (2) 17.2% 15.5% 18.2%
Local operating loss (3) (56.8%) (320.0%) 34.4%
Internet operating income (4) 0.0% 33.3% 100.0%
<FN>
- -----------------------------
(1) Includes customer service, marketing and advertising costs.
(2) Computed as a percentage of total cable services revenues.
(3) Computed as a percentage of total local access services revenues.
(4) Computed as a percentage of total Internet services revenues.
</FN>
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 ("1999") COMPARED TO THREE MONTHS ENDED MARCH
31, 1998 ("1998")
Revenues. Total revenues increased 5.3% from $58.2 million in 1998 to $61.3
million in 1999. Long-distance revenues from commercial, residential,
governmental, and other common carrier customers decreased 4.3% from $39.3
million in 1998 to $37.6 million in 1999. The long-distance revenue decline in
1999 was largely due to the following:
- 1.2% decrease in interstate minutes of use to 156.7 million minutes
off-set by a 5.92% increase in intrastate minutes of use to 34.8
million minutes;
- 2.5% reduction in the number of active residential, small business and
commercial customers billed from 87,800 at March 31, 1998 to 85,600 at
March 31, 1999; and
- 6.9% reduction in the Company's average rate per minute on
long-distance traffic from $0.173 per minute in 1998 to $0.161 per
minute in 1999. The decrease in rates resulted from the Company's
promotion of and customers' enrollment in new calling plans offering
discounted rates and length of service rebates, such new plans being
prompted in part by the Company's primary long-distance competitor,
AT&T Alascom, reducing its rates and entry of LECs into long-distance
markets served by the Company.
The decrease in long-distance revenues was partially off-set by the following:
- New revenues in 1999 totaling $575,000 from the lease of three DS3
circuits on Alaska United facilities within Alaska, and between Alaska
and the lower 48 states; and
- 3.5% increase in revenues from other common carriers (principally MCI
WorldCom and Sprint), from $14.4 million in 1998 to $14.9 million in
1999.
Cable revenues increased 6.3% from $14.2 million in 1998 to $15.1 million in
1999. Programming services revenues increased 7.35% to $13.0 million in 1999
resulting from an increase of approximately 2,500 basic subscribers served by
the Company, an increase of $1.78 in revenue per average basic subscriber per
month and increased pay-per-view and premium service revenues. New facility
construction efforts in the summer of 1998 resulted in additional homes passed
which contributed to additional subscribers and revenues in 1999. Other factors
included facility upgrades which allowed the introduction of digital cable
services in Anchorage in the fourth quarter of 1998, increased promotional and
advertising efforts in the fourth quarter of 1998 and the first quarter of 1999,
and increases in basic and premium service rates in certain locations in the
second quarter of 1998. Advertising sales revenues increased 23.6% to $607,000
in 1999 due to increased promotion of the Company's advertising and ad insertion
capabilities. Equipment rental and
23 (Continued)
<PAGE>
installation revenues increased 19.6% to $1.3 million in 1999 due to increased
equipment rentals and installation services provided by the Cable services
industry segment.
Local access services revenues increased from $1.0 million in 1998 to $3.7
million in 1999. At March 31, 1999 approximately 31,500 lines were in service
and approximately 1,800 additional lines were awaiting connection.
Internet services revenues increased from $903,000 in 1998 to $2.0 million in
1999. The Company had approximately 20,500 active residential, commercial and
small business retail dial-up subscribers to its Internet service at March 31,
1999.
Cost of sales and services. Cost of sales and services totaled $27.3 million in
1998 and $27.9 million in 1999. As a percentage of total revenues, cost of sales
and services decreased from 47.0% in 1998 to 45.4% in 1999. The decrease in cost
of sales and services as a percentage of revenues is primarily attributed to
changes in the Company's product mix due to the continuing development of new
product lines (local access services and Internet), and reduced long-distance
cost of sales as a percentage of long-distance revenues. The overall margin
improvement was partially offset by increased cable services cost of sales as a
percentage of cable services revenues.
The decrease in long-distance cost of sales and services as a percentage of
revenues is primarily attributed to avoidance of access charges resulting from
the Company's distribution and termination of its traffic on its own network
instead of paying other carriers to distribute and terminate its traffic.
Partially offsetting the 1999 decrease as compared to 1998 was a refund received
in the first quarter of 1998 totaling approximately $1.1 million from a local
exchange carrier in respect of its earnings that exceeded regulatory
requirements. The Company expects margins to widen as increasing amounts of
traffic are carried on its own facilities.
Cable cost of sales and services as a percentage of revenues is less as a
percentage of revenues than are long-distance, local access and Internet
services cost of sales and services. Cable services rate increases did not keep
pace with increases in programming and copyright costs in 1999. Programming
costs increased on most of the Company's offerings and the Company incurred
additional costs on new programming introduced in 1998.
Local access services cost of sales and services totaled 52.5% and 86.3% as a
percentage of the 1999 and 1998 local access services revenues, respectively.
Internet services cost of sales and services totaled 21.1% and 46.7% as a
percentage of the 1999 and 1998 Internet services revenues, respectively. The
Company's local access operations commenced in 1997 and Internet services
operations commenced in 1998. Fluctuations in cost of sales and services as a
percentage of revenues are expected to occur as new product lines mature.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 15.8% from $20.3 million in 1998 to $23.5
million in 1999, and, as a percentage of revenues, increased from 35.0% in 1998
to 38.3% in 1999. The 1999 increase resulted from:
- Internet services operating, engineering, sales, customer service and
administrative cost increases, from $96,000 in 1998 as compared to $1.2
million in 1999. The Company gradually introduced its Internet services
through the third quarter of 1998 and increased advertising efforts in
the fourth quarter of 1998 and first quarter of 1999. The increase in
costs was necessary to provide the operations, engineering, customer
service and support infrastructure necessary to accommodate expected
growth in the Company's Internet services customer base.
24 (Continued)
<PAGE>
- Local access services operating, engineering, sales, customer service
and administrative cost increased from $2.2 million in 1998 as compared
to $3.1 million in 1999. The Company initiated local access services in
September 1997. The increase was necessary to provide the operations,
engineering, customer service and support infrastructure necessary to
accommodate the growth in the Company's local access services customer
base.
- Increased long-distance sales, advertising, telemarketing, carrier
relations, business development and rural services costs totaling $3.1
million in 1998 compared to $4.8 million in 1999. Increased selling
costs were associated with the introduction of various marketing plans
and other proprietary rate plans and cross promotion of products and
services.
- Increased allowance for doubtful accounts receivable.
Depreciation and amortization. Depreciation and amortization expense increased
27.2% from $8.1 million in 1998 to $10.3 million in 1999. The increase is
attributable to the Company's investment in $58.4 million of facilities placed
into service during 1998 for which a full year of depreciation will be recorded
during 1999, the $117.3 million of facilities placed into service in the first
quarter of 1999 for which 11 months of depreciation will be recorded during 1999
and the $7.0 million of facilities placed into service in the first quarter of
1999 for which a partial year of depreciation will be recorded during 1999.
Facilities placed into service during the first quarter of 1999 consist
primarily of the Alaska United undersea fiber optic cable completed in early
February 1999.
Interest expense, net. Interest expense, net of interest income, increased 42.9%
from $4.9 million in 1998 to $7.0 million in 1999. This increase resulted
primarily from increases in the Company's average outstanding indebtedness
resulting primarily from construction of new long-distance and Internet
facilities, expansion and upgrades of cable television facilities, and
investment in local access services equipment and facilities. During 1998
interest expense was offset in part by capitalized construction period interest.
During 1999 the Company will experience a significant reduction in the amount of
construction period interest capitalized due to the completion of the Alaska
United undersea fiber optic cable which was placed into service in early
February 1999.
Income tax benefit. GCI, Inc., as a wholly owned subsidiary and member of the
GCI controlled group of corporations, files its income tax returns as part of
the consolidated group of corporations under GCI. Accordingly, the following
discussions of income tax benefit and net operating loss carryforwards reflect
the consolidated group's activity and balances. Income tax benefit increased
from $891,000 in 1998 to $3.1 million in 1999 due to the Company incurring a
larger net loss before income taxes and cumulative effect of a change in
accounting principle in 1999 as compared to 1998. The Company's effective income
tax rate increased from 35.5% in 1998 to 38.6% in 1999 due to the increased net
loss and the proportional amount of items that are nondeductible for income tax
purposes.
In conjunction with the 1996 Cable Companies acquisition, the Company incurred a
net deferred income tax liability of $24.4 million and acquired net operating
losses totaling $57.6 million. The Company determined that approximately $20
million of the acquired net operating losses would not be utilized for income
tax purposes, and elected with its December 31, 1996 income tax returns to
forego utilization of such acquired losses under Internal Revenue Code section
1.1502-32(b)(4). Deferred tax assets were not recorded associated with the
foregone losses and, accordingly, no valuation allowance was provided. At March
31, 1999, the Company has (1) tax net operating loss carryforwards of
approximately $70.0 million that will begin expiring in 2008 if not utilized,
and (2) alternative minimum tax credit carryforwards of approximately $2.0
million available to offset regular income taxes payable in future years. The
Company's utilization of remaining net operating loss carryforwards is subject
to certain limitations pursuant to Internal Revenue Code section 382.
25 (Continued)
<PAGE>
Tax benefits associated with recorded deferred tax assets 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. The Company estimates that its effective income
tax rate for financial statement purposes will be approximately 38% in 1999. The
Company expects that its operations will generate net income before income taxes
during the carryforward periods to allow utilization of loss carryforwards for
which no allowance has been established.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
<TABLE>
The following chart provides selected unaudited statement of operations data
from the Company's quarterly results of operations during 1999 and 1998:
<CAPTION>
First Second Third Fourth Total
(Unaudited) Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------------
1999 (Dollars in thousands, except per share amounts)
----
<S> <C> <C>
Revenues
Long-distance services $ 40,593 40,593
Cable services 15,062 15,062
Local access services 3,714 3,714
Internet services 1,969 1,969
-----------------------------------------------------------------------
Total revenues 61,338 61,338
Operating loss (368) (368)
Net loss before income taxes and
cumulative effect of a change in
accounting principle (7,328) (7,328)
Net loss before cumulative effect
of a change in accounting
principle (4,521) (4,521)
Net loss $ (4,865) (4,865)
=======================================================================
Basic loss per share:
Loss before cumulative effect of a change
in accounting principle $ (45,210) (45,210)
Cumulative effect of a change
in accounting principle 3,440 3,440
-----------------------------------------------------------------------
Net loss $ (48,650) (48,650)
=======================================================================
Diluted loss per share:
Loss before cumulative effect
of a change in accounting
principle $ (45,210) (45,210)
Cumulative effect of a change
in accounting principle 3,440 3,440
-----------------------------------------------------------------------
Net loss $ (48,650) (48,650)
=======================================================================
</TABLE>
26 (Continued)
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth Total
(Unaudited) Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------------
1998
----
<S> <C> <C> <C> <C> <C>
Revenues
Long-distance services $ 42,034 45,838 44,478 42,306 174,656
Cable services 14,201 14,041 14,484 14,914 57,640
Local access services 1,014 2,048 2,744 4,102 9,908
Internet services 903 1,014 1,060 1,614 4,591
-----------------------------------------------------------------------
Total revenues 58,152 62,941 62,766 62,936 246,795
Operating income 2,437 1,447 1,730 3,230 8,844
Net loss $ (1,616) (2,066) (2,076) (1,039) (6,797)
=======================================================================
Basic net loss per share $ (16,160) (20,660) (20,760) (10,390) (67,970)
=======================================================================
Diluted net loss per share $ (16,160) (20,660) (20,760) (10,390) (67,970)
=======================================================================
</TABLE>
Revenues. Total revenues for the quarter ended March 31, 1999 ("first quarter of
1999") were $61.3 million, representing a 2.5% decrease from total revenues in
the quarter ended December 31, 1998 ("fourth quarter of 1998") of $62.9 million.
The decrease in long-distance services revenues resulted primarily a one-time
$1.6 million product sale in the fourth quarter of 1998. Partially offsetting
this decrease were additional revenues associated with a 4.4% increase in the
number of active long-distance residential, small business and commercial
customers billed from 81,900 at December 31, 1998 to 85,600 at March 31, 1999.
The Company's long-distance average-rate-per-minute remained constant at $0.16
during 1999 as compared to 1998. Revenues from other common carriers
(principally MCI WorldCom and Sprint) increased from $14.6 million in the fourth
quarter of 1998 to $14.9 million in the first quarter of 1999.
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 spend more time at home and tend to watch more
television during these months. Local service operations are not expected to
exhibit significant seasonality. The Company's ability to implement construction
projects is also hampered during the winter months because of cold temperatures,
snow and short daylight hours.
Cost of sales and services. Cost of sales and services decreased 6.1% from $29.7
million in the fourth quarter of 1998 to $27.9 million in the first quarter of
1999. The decrease in cost of sales and services resulted primarily from a
one-time $1.3 million product cost of sale in the fourth quarter of 1998. As a
percentage of revenues, the first quarter of 1999 cost of sales and services was
45.4% as compared to 47.2 % for the fourth quarter of 1998. The decrease in the
cost of sales and services as a percentage of revenues is primarily due to the
growth of the Company's new product lines and avoidance of access charges
resulting from the Company's distribution and termination of its traffic on its
own network instead of paying other carriers to distribute and terminate its
traffic.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $500,000 in the first quarter of 1999 from
$23.0 million in the fourth quarter of 1998. As a percentage of revenues, first
quarter of 1999 selling, general and administrative expenses were 38.4% as
compared to 36.5% for the fourth quarter of 1998.
Net loss. The Company reported a net loss of $4.9 million for the first quarter
of 1999 as compared to a net loss of $1.1 million during the fourth quarter of
1998. In addition to the impact of factors described above, the increased net
loss was attributable to increased depreciation and interest expense incurred
during the first quarter of 1999 as compared to the fourth quarter of 1998 due
to the placement of the Alaska United
27 (Continued)
<PAGE>
undersea fiber optic cable into service in early February 1999. During the
fourth quarter of 1998, capitalized construction period interest served to
reduce interest expense. Interest capitalization ceased when the Alaska United
undersea fiber optic cable was placed into service.
LIQUIDITY AND CAPITAL RESOURCES
The Company's first quarter of 1999 ("1999") cash flows from operating
activities totaled $187,000, net of changes in the components of working
capital. An additional source of cash during 1999 was long-term borrowings of
$4.9 million. The Company's expenditures for property and equipment, including
construction in progress, totaled $9.9 million and $28.2 million in 1999 and the
first quarter of 1998 ("1998"), respectively. Uses of cash during 1999 also
included repayment of $490,000 of long-term borrowings and capital lease
obligations and purchases of other assets totaling $391,000.
Net receivables decreased $2.4 million from December 31, 1998 to March 31, 1999.
The decrease resulted from a $2.0 million reclassification of income tax
receivable to long-term deferred tax asset as the Company has utilized all net
operating losses against income taxes paid in prior periods, therefore
refundable amounts are now included in long-term deferred tax asset and will be
realized as future taxable income is generated.
Working capital totaled $3.8 million at March 31, 1999, a $4.6 million decrease
from the working capital of $8.4 million as of December 31, 1998. The decrease
in working capital is primarily attributed to the investment of current assets
in long-term capital assets.
The Holdings $200,000,000 ($150,000,000 as amended) and $50,000,000 credit
facilities mature June 30, 2005. The Holdings Loan facilities were amended in
April 1999 (see below) and bear interest, as amended, at either Libor plus 1.00%
to 2.50%, depending on the leverage ratio of Holdings and certain of its
subsidiaries, or at the greater of the prime rate or the federal funds effective
rate (as defined) plus 0.05%, in each case plus an additional 0.00% to 1.375%,
depending on the leverage ratio of Holdings and certain of its subsidiaries.
$106.7 million were drawn on the credit facilities as of March 31, 1999 and
December 31, 1998.
On April 13, 1999, the Company amended its Holdings credit facilities. These
amendments contain, among other things, provisions for payment of a one-time
amendment fee of 0.25% of the aggregate commitment, an increase in the
commitment fee by 0.125% per annum on the unused portion of the commitment, and
an increase in the interest rate of 0.25%. The amended facilities reduce the
aggregate commitment by $50 million to $200 million, and limit capital
expenditures to $35 million in 1999, $35 million in 2000 with no limits
thereafter (excluding amounts to be paid for purchased satellite transponder
facilities). The amended facilities require that Holdings receive $20 million in
proceeds from a GCI preferred stock issuance by May 31, 1999 (see below).
Holding's credit facilities and GCI, Inc.'s senior notes contain restrictions on
the operations and activities of the Company, including requirements that the
Company comply with certain financial covenants and financial ratios. Under the
amended Holding's credit facility, Holdings may not permit the ratio of senior
debt to annualized operating cash flow (as defined) of Holdings and certain of
its subsidiaries to exceed 3.5 to 1.0 through March 31, 1999 (3.0 to 1.0 from
April 1, 1999 through December 31, 1999), total debt to annualized operating
cash flow to exceed 7.0 to 1.0 from closing of the amendments to June 30, 1999
(6.25 to 1.00 from July 1, 1999 through March 31, 2000), and annualized
operating cash flow to interest expense to exceed 1.5 to 1.0 from closing of the
amendments to September 30, 1999 (1.75 to 1.0 from October 1, 1999 through
December 31, 1999). Each of the foregoing ratios decreases in specified
increments during the life of the credit facility. The credit facility requires
Holdings to maintain a ratio of annualized operating cash flow to debt service
of Holdings and certain of its 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
28 (Continued)
<PAGE>
thereafter). The senior notes impose a requirement that the leverage ratio of
GCI, Inc. and certain of its subsidiaries not exceed 7.5 to 1.0 prior to
December 31, 1999 and 6.0 to 1.0 thereafter, subject to the ability of GCI, Inc.
and certain of its subsidiaries to incur specified permitted indebtedness
without regard to such ratios.
On January 27, 1998 Alaska United closed a $75 million project finance facility
("Fiber Facility") to construct a fiber optic cable system connecting Anchorage,
Fairbanks, Valdez, Whittier, Juneau and Seattle. The Fiber Facility bears
interest at either Libor plus 3.0%, or at the lender's prime rate plus 1.75%.
The interest rate will decline to Libor plus 2.5%-2.75%, or, at the Company's
option, the lender's prime rate plus 1.25%-1.5% after the project completion
date and when the loan balance is $60,000,000 or less. Alaska United is required
to pay a commitment fee equal to 0.375% per annum on the unused portion of the
commitment. $66.1 million was borrowed under the facility at March 31, 1999. The
Fiber Facility is a 10-year term loan that is interest only for the first 5
years. The facility can be extended an additional two years at any time between
the second and fifth anniversary of closing the facility if the Company can
demonstrate projected revenues from certain capacity commitments will be
sufficient to pay all operating costs, interest, and principal installments
based on the extended maturity.
The Fiber Facility contains, among others, covenants requiring certain
intercompany loans and advances in order to maintain specific levels of cash
flow necessary to pay operating costs, interest and principal installments. The
Fiber Facility also contains a guarantee that requires, among other terms and
conditions, Alaska United complete the project by the completion date and pay
any non-budgeted costs of the project. All of Alaska United's assets, as well as
a pledge of the partnership interests' owning Alaska United, collateralize the
Fiber Facility. Construction of the fiber facility was completed and the
facility was placed into service on February 4, 1999. The project was completed
on-budget.
The Company will use approximately one-half of the Alaska United system capacity
in addition to its existing owned and leased facilities to carry its own
traffic. One of the Company's large commercial customers signed agreements in
February and March 1999 for the immediate lease of three DS3 circuits on Alaska
United facilities within Alaska, and between Alaska and the lower 48 states. The
lease agreements provide for three year terms, with renewal options for
additional terms. The Company continues to pursue opportunities to lease
additional capacity on its system.
The Company's expenditures for property and equipment, including construction in
progress, totaled $9.9 million and $28.2 million during 1999 and 1998,
respectively. The Company anticipates that its capital expenditures in 1999 may
total as much as $35 million. Planned capital expenditures over the next five
years include those necessary for continued expansion of the Company's
long-distance, local exchange and Internet facilities, the development and
construction of a PCS network, and continued upgrades to its cable television
plant, and approximately $43.5 million for satellite transponders. Sources of
funds for these planned capital expenditures are expected to include internally
generated cash flows and borrowings under the Company's credit facilities
described above.
The Company's ability to invest in discretionary capital and other projects will
depend upon its future cash flows and access to borrowings under its credit
facilities. Management anticipates that cash flow generated by the Company and
borrowings under its credit facilities will be sufficient to fund capital
expenditures and its working capital requirements. Should cash flows be
insufficient to support additional borrowings, such investment in capital
expenditures will likely be reduced.
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 launch of the satellite in August 1998
failed. The Company did not assume launch risk and the launch has been
rescheduled for the first quarter of 2000. The Company will continue to lease
transponder capacity until the
29 (Continued)
<PAGE>
delivery of the transponders on the replacement satellite. The balance payable
upon expected delivery of the transponders during the first quarter of 2000, in
addition to the $9.1 million deposit previously paid, totals approximately $43.5
million.
GCI issued 20,000 shares of convertible redeemable accreting preferred stock
("Preferred Stock") on April 30, 1999. Proceeds totaling $20 million (before
payment of costs and expenses) will be used for general corporate purposes, to
repay outstanding GCI, Inc. indebtedness, and to provide additional liquidity.
The Company's amended Senior Holdings Loan facilities limit use of such
proceeds. The Preferred Stock contains a $1,000 per share liquidation
preference, plus accrued but unpaid dividends and fees. Dividends are payable
semi-annually at the rate of 8.5% of the liquidation preference. Prior to the
four-year anniversary following closing, dividends are payable, at GCI's option,
in cash or in additional fully-paid shares of Preferred Stock. Dividends are
payable only in cash following the four-year anniversary of closing. Mandatory
redemption is required 12 years from the date of closing.
GCI may redeem the Preferred Stock after the four-year anniversary of its
issuance, and must redeem the Preferred Stock upon the occurrence of a
triggering event. The holders may convert the Preferred Stock into GCI Class A
common stock at any time after the four-year anniversary of the issuance of the
Preferred Stock, at a price of $5.55 per share. At any time subsequent to the
third anniversary following closing, and assuming the stock is trading at no
less than two times the conversion price, GCI may require immediate conversion.
The Preferred Stock, subject to lender approval, is exchangeable in whole or in
part, at GCI's option, into subordinated debt with terms and conditions
comparable to those governing the Preferred Stock. The Preferred Stock is senior
to all other classes of GCI's equity securities, and has voting rights equal to
that number of shares of common stock into which it can be converted.
Holders of the Preferred Stock shares will have the right to vote on all matters
presented for vote to the holders of GCI common stock on an as-converted basis.
Additionally, the Preferred Stock offering requires as long as the Preferred
Stock shares remain outstanding and unconverted, the holders of it will have the
right to vote, as a class, and GCI must obtain the written consent of holders of
a majority (or higher as required by Alaska law) of that stock to take certain
actions, some of which require shareholder approval necessitating amendment of
GCI's Articles of Incorporation.
With the issuance of the Preferred Stock shares, the holders of that stock may
recommend one individual to GCI's Board of Directors ("Board"). Under the terms
of the Preferred Stock offering, the Board will expand its size from the present
nine to ten seats and, upon qualification, appoint that individual to that new
seat to serve until the next shareholder meeting. At that shareholder meeting,
the individual would be required to stand for election to complete the term of
the class of directors to which the individual was assigned. The offering also
provides that the Board include the individual recommended by those holders on
the subsequent Board slate for election of directors and actively to seek the
election of that individual to the Board. The offering further provides that,
should the holders of common stock of GCI not elect that individual, the holders
of the Preferred Stock Shares will have the right to appoint an observer at the
meetings of the Board. The offering also provides that these rights of the
holders of Preferred Stock shares relating to the Board seat and observer are to
remain effective so long as any of the Preferred Stock shares remain
outstanding.
The long-distance services, local access services, cable services, Internet
services and wireless services industries are experiencing increasing
competition and rapid technological changes. The Company's future results of
operations will be affected by its ability to react to changes in the
competitive environment and by its ability to fund and implement new
technologies. The Company is unable to determine how competition, technological
changes and its net operating losses will affect its ability to obtain
financing.
30 (Continued)
<PAGE>
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including fixed charges, through its cash
flows from operating activities, existing cash, cash equivalents, short-term
investments, credit facilities, and other external financing and equity sources.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133. In June 1998, the Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
years beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge criteria are met. Special accounting
for qualifying hedges allow a derivative's gains or losses to offset related
results on the hedged item in the income statement and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. Management of the Company expects that adoption
of SFAS No. 133 will not have a material impact on the Company's year-end 2000
financial statements.
EITF 98-14. In March 1999, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") issued EITF Issue 98-14, "Debtor's
Accounting for Changes in Line-of-Credit or Revolving Debt Arrangements". EITF
Issue 98-14 establishes guidelines regarding unamortized costs associated with a
modified line-of-credit or revolving-debt arrangement and requires a debtor to
compare the new and old borrowing capacities upon the modification of
line-of-credit or revolving-debt arrangements. If the new borrowing capacity is
equal to or greater than the old borrowing capacity, the debtor should defer and
amortize any unamortized deferred costs over the term of the new arrangement. If
the new borrowing capacity is less than that available under the previous
arrangement, the debtor should amortize fees paid to the creditor and
third-party costs over the new term, any unamortized costs from the old
arrangement should be written off in proportion to the decreases in borrowing
capacity, with remaining unamortized costs attributable to the old arrangement
amortized over the term of the new arrangement. Management of the Company
expects that adoption of EITF Issue 98-14 will result in a charge to interest
expense of approximately $470,000 in the second quarter of 1999 resulting from
the amended Holdings Loan Facilities agreements' reduced borrowing capacity.
YEAR 2000 COSTS
Many financial information and operational systems in use today may not be able
to interpret dates after December 31, 1999 because such systems allow only two
digits to indicate the year in a date. As a result, such systems are unable to
distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequences on the operations of an entity and the integrity of information
processing. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a shut down in a
company's operations, a temporary inability to process transactions, send
invoices or engage in similar normal business activities. This potential problem
is referred to as the "Year 2000" or "Y2K" issue.
State of readiness. The Company has undertaken various initiatives to evaluate
the Year 2000 readiness of the products and services sold by the Company
("Products"), the information technology systems used in the Company's
operations ("IT Systems"), its non-IT systems, such as power to its facilities,
HVAC systems, building security, voice mail and other systems, as well as the
readiness of its customers and suppliers. The Company has identified eight Year
2000 target areas that cover the entire scope of the Company's business and has
internally established teams committed to completing an 8-step Compliance
Validation Process ("CVP") for each target area. Each team is expected to fully
complete this process on or before September 1, 1999. The table below identifies
the Company's target areas as well as the 8-step CVP with its expected timeline.
Team activity is currently focused towards the process of completing Phase 2.
31 (Continued)
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------
Year 2000 Target Areas Compliance Validation Process
----------------------------------------------- --------------------------------------------------------------------
<S> <C> <C>
1. Business Computer Systems PHASE 1
2. Technical Infrastructure 1. Team Formation Completed 1st quarter 1997
3. End-User Computing 2. Inventory Assessment Completed 4th quarter 1998
4. Switching and Head-end Equipment 3. Compliance Assessment Completed 4th quarter 1998
5. Logistics 4. Risk Assessment Completed 4th quarter 1998
6. Facilities
7. Customers ------------------------------- ------------------------------------
8. Suppliers/Key Service Providers PHASE 2
5. Resolution/Remediation Expected completion 2nd quarter 1999
6. Validation Expected completion 3rd quarter 1999
7. Contingency Plan Expected completion 3rd quarter 1999
8. Sign-Off Acceptance Expected completion 4th quarter 1999
----------------------------------------------- ------------------------------- ------------------------------------
</TABLE>
In 1997, the Company established a corporate-wide Year 2000 task force to
address Y2K issues. This effort is comprehensive and encompasses software,
hardware, electronic data interchange, networks, PC's, facilities, embedded
chips, century certification, supplier and customer readiness, contingency
planning, and domestic and international operations. The Company is currently on
schedule and is more than 75% complete as of March 31, 1999. The Company has
tested, replaced or upgraded most of its critical business applications and
systems and has begun the century testing phase for these critical technology
systems. The target date to repair or replace the remaining critical business
information systems is June 30, 1999. The Company is assessing its telephone and
cable systems and equipment and the target date to complete equipment and
facilities efforts is also June 30, 1999. The Company has prioritized its
third-party relationships as critical, severe or sustainable, has completed the
assessment phase for third parties, has requested a Y2K contract warranty in
many new key contracts and is developing contingency plans for critical third
parties, including key customers, suppliers and other service providers. An
assessment of its key customers showed that no significant impact to the Company
is expected due to customer Y2K problems. The Company continues to evaluate
other telecommunication companies which purchase the Company's services.
With respect to the Company's relationships with third parties, the Company
relies both domestically and internationally upon various vendors, governmental
agencies, utility companies, telecommunications service companies, delivery
service companies and other service providers. Although these service providers
are outside the Company's control, the Company has mailed letters to those with
whom it believes its relationships are material and has verbally communicated
with some of its strategic customers to determine the extent to which interfaces
with such entities are vulnerable to Year 2000 issues and whether products and
services purchased from or by such entities are Year 2000 ready.
Over 400 companies have been contacted directly by mail, by telephone, through
on-site visits or through inquiry of their Y2K Internet web sites to determine
their state of readiness. Responses vary from confirmation that the supply of
products or services provided to the Company will continue without interruption
or delay through the year 2000, to providing their plans for making their
products or service delivery systems Y2K compliant. The Company is currently
evaluating the sufficiency of the responses received from these third parties.
The Company intends to complete follow-up activities, including but not limited
to site surveys, phone surveys and mailings, with significant vendors and
service providers as part of the Phase 2 validation.
32 (Continued)
<PAGE>
Costs to address year 2000 issues. Costs related to the Y2K issue are expensed
as incurred and are funded through the Company's operating cash flows and its
credit agreements. Through March 31, 1999, the Company has expensed incremental
remediation costs totaling $1.4 million, with remaining incremental remediation
costs estimated at approximately $2.6 million. Management must balance the
requirements for funding discretionary capital expenditures with required year
2000 efforts given its limited resources. The Company has not deferred any
critical information technology projects because of its Year 2000 program
efforts, which are being addressed primarily through a dedicated team within the
Company's information technology group.
Time and cost estimates are based on currently available information and could
be affected by the ability to correct all relevant computer codes and equipment,
and the Y2K readiness of the Company's business partners, among other factors.
At this time, the Company does not possess information necessary to estimate the
potential financial impact of Year 2000 compliance issues relating to its
vendors, customers and other third parties.
Risk of year 2000 issues. If necessary modifications and conversions by the
Company are not made on a timely basis, or if key third parties are not Y2K
ready, Y2K problems could have a material adverse effect on the Company's
financial condition, results of operations and liquidity. However, the Company
is focusing on identifying and addressing all aspects of its operations that may
be affected by the Year 2000 issue and is addressing the most critical
applications first.
Although the Company considers them unlikely, the Company believes that the
following several situations, not in any particular order, make up the Company's
most reasonably likely worst case Year 2000 scenarios:
- Disruption of Electrical Power Supplies Resulting from Extended
Regional Power Failure(s). The Company's major switching and
information systems are protected by emergency standby electrical
generators in the event of short-term power outages. If electrical
supplies from regional electric utilities are disrupted for longer
periods of time, the Company may be required to power-down its
electronic switching, head-end and computer equipment. The Company is
closely monitoring electrical utilities that provide service to the
Company for their Year 2000 readiness. Based on their progress reports
and completion of assessments, the Company believes that there will be
no significant impact on its operations in the major communities served
by the Company. Many of the electrical companies serving smaller rural
communities employ equipment that is manual or controlled by non
date-effecting equipment, however they may experience outages if they
do not receive fuel from their suppliers.
- Disruption of a Significant Customer's Ability to Accept Products or
Pay Invoices. The Company's significant customers are large,
well-informed customers, mostly in the telecommunications and oil and
gas industries, who are disclosing information to their vendors that
indicates they are well along the path toward Year 2000 compliance.
These customers have demonstrated their awareness of the Year 2000
issue by issuing requirements of their suppliers and indicating the
stages of identification and remediation which they consider adequate
for progressive calendar quarters leading up to the century mark. The
Company's significant customers, moreover, are substantial companies
that the Company believes would be able to make adjustments in their
processes as required to cause timely payment of invoices.
- Disruption of Supplies and Materials. In early 1998 the Company began
an ongoing process of surveying its vendors with regard to their Year
2000 readiness and is now in the process of assessing and cataloging
their responses to the survey. The Company is hopeful of receiving
adequate responses from remaining critical vendors and many
non-critical vendors by June 30, 1999. The Company expects to work with
vendors that show a need for assistance or that provide inadequate
responses, and in many cases expects that survey results will be
refined significantly by such work. Where ultimate survey results show
that the need arises, the Company will arrange for back-up vendors
before the changeover date. Supplies and materials necessary for
invoicing and other functions will be acquired in bulk prior to
December 31, 1999 to provide an adequate inventory to bridge up to
three months of vendor supply chain disruptions.
33 (Continued)
<PAGE>
- Disruption of the Company's Administrative and Billing IT Systems. The
Company has completed an upgrade of its current financial software
systems to state-of-the-art systems and such process has required Year
2000 compliance in the various invitations for proposals. Year 2000
testing is occurring as upgrades proceed and, in addition, will occur
after all upgrades are completed at the end of the first quarter of
1999. The Company's billing and information systems continue to be
assessed and remediated. System processes have been prioritized so that
critical date-sensitive systems and functionality are remediated first.
Non-critical systems and functionality are remediated following
critical systems. The Company's efforts are proceeding on-target and
on-budget. Accordingly, the Company believes that, after assessment and
remediation, if any disruptions do occur, such will be dealt with
promptly and will be no more severe with respect to correction or
impact than would be an unexpected billing or information system error.
- Disruption of the Company's Non-IT Systems. The Company continues to
conduct a comprehensive assessment of all non-IT systems, including
among other things its switching and head-end systems and operations,
with respect to both embedded processors and obvious computer control.
For some systems, upgrades are already scheduled and it is expected
that the Phase 1 assessments will highlight by the end of the second
quarter of 1999 any further remediation needs. Considering the nature
of the equipment and systems involved, the Company expects that the
timing of assessment to be such that it will be able to complete any
remediation efforts on a reasonably short schedule, and in any case
before arrival of the Year 2000. The Company also believes that, after
such assessment and remediation, if any disruptions do occur, such will
be dealt with promptly and will be no more severe with respect to
correction or impact than would be an unexpected breakdown of
well-maintained equipment.
- De-Listing of Company as a Vendor to Certain Customers. Several of the
Company's principal customers have required updated reports in the form
of answers to extensive multiple-choice surveys on the Company's Year
2000 compliance efforts. According to these customers, failure to reply
to the readiness survey would have led to de-listing as a service
supplier at the present time, resulting in possible disqualification to
bid on procurements requiring service delivery in the future. The
Company has responded to these reports on a timely basis. The Company
has not been disqualified as a supplier to any customers. Several
significant customers have scheduled monitoring meetings during 1999.
Contingency plans. The Company is in the process of developing specific
contingency plans for potential Year 2000 disruptions. The aforementioned 8-step
Compliance Validation Process includes contingency planning by each team and
such plans, as developed, will be carefully reviewed by the Company. The Company
is developing contingency plans for its most critical areas, but details of such
plans will depend on the Company's final assessment of the problem as well as
the evaluation and success of its remediation efforts. Future disclosures will
include contingency plans as they become available.
ALASKA ECONOMY
The Company offers telecommunication and video 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. The economy of
Alaska is dependent upon the natural resource industries, and 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 Company.
Oil revenues over the past several years have contributed in excess of 75% of
the revenues from all segments of the Alaska economy and are expected to account
for 73% in 1999.
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. Market prices for North Slope oil
declined to below $10 per barrel in 1998, well below the average price per
barrel used by the State of Alaska to budget its oil related revenues. Oil
companies and service providers have announced cost cutting measures to offset a
portion of the declining revenues. Oil company and related oil field service
company layoffs reportedly will result in a reduction of oil industry jobs by at
least 39 percent in 1999.
34 (Continued)
<PAGE>
The effects of low oil prices will impact the state of Alaska's economy, and is
expected to particularly hurt state and local government and oil service
companies. As much as half of the drilling fleet that worked on the slope in
1998 could be idle during 1999. Oil field service and drilling contractors cut
operating costs to adjust for decreasing production and exploration. The
Company, as an outsourcing services provider to the oil industry, reduced its
outsourcing work force by 8 employees in February 1999.
Since oil revenues to the state of Alaska are expected to fall significantly
short of budgeted revenues, (estimated at $1.04 billion for the coming budget
year), the Governor of the state of Alaska has announced his intention to
implement cost-cutting and revenue enhancing measures. The State of Alaska
maintains surplus accounts that are intended to fund budgetary shortfalls and
would be expected to fund a portion of the revenue shortfall.
BP Amoco announced in April 1999 its intention to purchase ARCO for $26.8
billion. BP Amoco and ARCO together reportedly hold approximately 75 percent of
the ownership of the Alaska North Slope oil fields and in the company that
operates the Trans-Alaska Pipeline System. Alaska law stipulates that no single
company can hold drilling leases to more than 500,000 onshore state-owned acres.
The BP Amoco-ARCO combination would control about 860,000 acres, however the
companies have reportedly said they will give up 360,000 acres to comply with
Alaska laws. Realignment of operations following the acquisition reportedly will
result in the layoff of 400 positions in Alaska.
No assurance can be given that 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 royalties. The
Company is not able to predict the effect of declines in the price of North
Slope oil or the acquisition of ARCO by BP Amoco on Alaska's economy or on the
Company.
35 (Continued)
<PAGE>
SEASONALITY
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 local access services revenues
are not expected to exhibit significant seasonality. The Company's Internet
access services are expected to reflect seasonality trends similar to the cable
television segment. The Company's ability to implement construction projects is
reduced during the winter months because of cold temperatures, snow and short
daylight hours.
INFLATION
The Company does not believe that inflation has a significant effect on its
operations.
PART I.
ITEM 3. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
The Company's Senior Holdings Loan carries interest rate risk. Amounts borrowed
under this Agreement bear interest at either Libor plus 1.0% to 2.5%, depending
on the leverage ratio of Holdings and certain of its subsidiaries, or at the
greater of the prime rate or the federal funds effective rate (as defined) plus
0.05%, in each case plus an additional 0.0% to 1.375%, depending on the leverage
ratio of Holdings and certain of its subsidiaries. Should the Libor rate, the
lenders' base rate or the leverage ratios change, the Company's interest expense
will increase or decrease accordingly. As of March 31, 1999, the Company had
borrowed $106.7 million subject to interest rate risk. On this amount, a 1%
increase in the interest rate would cost the Company $1,067,000 in additional
gross interest cost on an annualized basis.
The Company's Fiber Facility carries interest rate risk. Amounts borrowed under
this Agreement bear interest at either Libor plus 3.0%, or at the Company's
choice, the lender's prime rate plus 1.75%. The interest rate will decline to
Libor plus 2.5%-2.75%, or at the Company's choice, the lender's prime rate plus
1.25%-1.5% after the project completion date and when the loan balance is
$60,000,000 or less. Should the Libor rate, the lenders' base rate or the
leverage ratios change, the Company's interest expense will increase or decrease
accordingly. As of March 31, 1999, the Company had borrowed $66.1 million
subject to interest rate risk. On this amount, a 1% increase in the interest
rate would cost the Company $661,000 in additional gross interest cost on an
annualized basis.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding pending legal proceedings to which the Company
is a party is included in Note 5 of Notes to Interim Condensed
Consolidated Financial Statements and is incorporated herein by
reference.
36
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.72 - Consent and First Amendment to Credit
Agreements dated November 14, 1997 *
Exhibit 10.73 - Second Amendment to $200,000,000 Amended and
Restated Credit Agreement *
Exhibit 10.74 - Second Amendment to $50,000,000 Amended and
Restated Credit Agreement *
Exhibit 10.75 - Third Amendment to $200,000,000 Amended and
Restated Credit Agreement *
Exhibit 10.76 - Third Amendment to $50,000,000 Amended and
Restated Credit Agreement *
Exhibit 10.77 - General Communication, Inc. Preferred Stock
Purchase Agreement *
Exhibit 10.78 - Revised Qualified Employee Stock Purchase
Plan of General Communication, Inc. *
Exhibit 10.79 - Statement of Stock Designation *
Exhibit 27 - Financial Data Schedule *
(b) Reports on Form 8-K filed during the quarter ended March 31, 1999
- None
---------------------
* Filed herewith.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GCI, INC.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------------- ------------------
<S> <C> <C>
/s/ President and Director May 14, 1999
- -------------------------------------- (Principal Executive Officer) ------------------
Ronald A. Duncan
/s/ Vice President and Director May 14, 1999
- -------------------------------------- ------------------
G. Wilson Hughes
/s/ Secretary, Treasurer and Director May 14, 1999
- -------------------------------------- (Principal Financial and Accounting Officer) ------------------
John M. Lowber
38
</TABLE>
CONSENT AND FIRST AMENDMENT
January 27, 1998
TO MEMBERS ON THE ATTACHED DISTRIBUTION LIST:
Re: Credit Agreements dated November 14, 1997 between GCI Holdings, Inc.
("Borrower"), NationsBank of Texas, N.A., as Administrative Agent (the
"Administrative Agent"), Credit Lyonnais New York Branch, as
Documentation Agent (the "Documentation Agent"), and TD
Securities(USA), Inc., as Syndication Agent (the "Syndication Agent"),
and the other Lenders party thereto (the "Credit Agreements")
Gentlemen:
Capitalized terms used herein but not defined, shall have the meaning
ascribed thereto in the Credit Agreements. Borrower has informed the
Administrative Agent that it seeks to make changes to certain Project Agreements
which were previously distributed to the Lenders. Pursuant to the terms of the
Credit Agreements, the consent of the Majority Lenders is required with respect
to certain changes to the Completion Guaranty, draft dated January 27, 1998 (the
"Changes"). In addition, certain Restricted Subsidiaries of Borrower seek to
enter into a Fiber Exchange Agreement, the GCI Subordination Agreement, the AU
Subordination Agreement, and General Contractor Agreement as described on the
attached Exhibit A (the "Additional Agreements") and have requested that these
Additional Agreements be permitted under Section 7.09 of the Credit Agreement
and that Schedule 1.01B attached as Exhibit A supersede and replace Schedule
1.10B currently attached to the Credit Agreement. Finally, the Administrative
Agent seeks to enter into a Non-Disturbance Agreement with Credit Lyonnais New
York Branch, as Administrative Agent under the AUSP Credit Agreement (the
"Non-Disturbance Agreement").
Lenders hereby (i) consent to the Changes, (ii) confirm that the draft
of the Project Agreements described on Exhibit A shall be the drafts referred to
in the definition of "Project Agreements" in the Credit Agreements, (iii) agree
that the Additional Agreements shall be permitted under Section 7.09 of the
Credit Agreement, and Schedule 1.01B attached as Exhibit A shall supersede and
replace Schedule 1.10B currently attached to the Credit Agreement, and (iv)
consent to the execution, delivery, and performance by the Administrative Agent
of the Additional Agreements to which it is a party and the Non-Disturbance
Agreement.
By the Borrower's acknowledgement and agreement herewith, the Borrower
hereby represents and warrants that no Event of Default or Default exists. The
Borrower furthermore acknowledges that nothing in this Consent and First
Amendment (i) shall affect the Borrower's obligations under the Credit
Agreements or the other Loan Papers executed in connection therewith, which
remain valid, binding and enforceable, except as amended hereby, or (ii) shall
constitute a waiver by the undersigned of any of its rights or remedies, now or
at any time in the future, with respect to any requirement under the Credit
Agreements or the other Loan Papers or with respect to an Event of Default or
Default, occurring now or at any time in the future.
This Consent and First Amendment shall be a "Loan Paper" as defined in
the Credit Agreements.
<PAGE>
This Consent and First Amendment may be executed in counterparts (and
by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract. Delivery of an executed signature page to this Consent and
First Amendment by facsimile transmission shall be as effective as delivery of a
manually signed counterpart of this Consent and First Amendment.
THIS WRITTEN CONSENT AND FIRST AMENDMENT TOGETHER WITH THE CREDIT
AGREEMENT AND THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL ARGUMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
Please sign in the space below to acknowledge your consent and
agreement with the foregoing.
NATIONSBANK OF TEXAS, N.A., as
Administrative Agent
/s/
By: Whitney L. Busse
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent
/s/
By: Mark D. Thorsheim
Its: Vice President
TD SECURITIES (USA), INC., as Syndication
Agent
/s/
By: David G. Parker
Its: Vice President
<PAGE>
Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.,
Individually, as a Lender
/s/
By: Whitney L. Busse
Its: Vice President
TORONTO DOMINION (TEXAS), INC.,
Individually as a Lender
/s/
By: Jimmy Simien
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, Individually as a Lender
/s/
By: Mark D. Thorsheim
Its: Vice President
COBANK, ACB, Individually as a Lender
/s/
By: John McFarlane
Its: Vice President
By:
<PAGE>
Its:
BANQUE PARIBAS, Individually as a Lender
/s/
By: Thomas Brandt
Its: Vice President
/s/
By: David Pastre
Its: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually as a Lender
/s/
By: William D. Strittmatter
Its: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY, Individually as a Lender
/s/
By: T. Morgan Edwards II
Its: Deputy General Manager
UNION BANK OF CALIFORNIA, N.A., Individually
as a Lender
/s/
By: Sonia L. Isaacs
<PAGE>
Its: Vice President
BANK OF HAWAII, Individually as a Lender
/s/
By: Elizabeth O. MacLean
Its: Vice President
THE BANK OF NEW YORK, Individually as a Lender
/s/
By: Edward F. Ryan, Jr.
Its: Senior Vice President
BANQUE NATIONALE DE PARIS, Individually as a Lender
/s/
By: Serge Desrayaud
Its: Vice President
/s/
By: Marcus C. Jones
Its: Vice President
CITY NATIONAL BANK, Individually as a Lender
<PAGE>
/s/
By: Rod P. Bollins
Its: Vice President
FIRST NATIONAL BANK OF MARYLAND, Individually
as a Lender
/s/
By: Christoper L. Smith
Its: Vice President
FLEET NATIONAL BANK, Individually as a Lender
/s/
By: Chris Swindell
Its: Vice President
THE FUJI BANK, LIMITED, LOS ANGELES AGENCY,
Individually as a Lender
/s/
By: Masahito Fukuda
Its: Joint General Manager
THE SUMITOMO BANK, LIMITED, Individually
as a Lender
/s/
By: Goro Hirai
Its: Joint General Manager
<PAGE>
NATIONAL BANK OF ALASKA, Individually
as a Lender
/s/
By: Particia Jelley Benz
Its: Vice President
GCI HOLDINGS, INC.
/s/
By: John M. Lowber
Its: Secretary/Treasurer
<PAGE>
EXHIBIT A
SCHEDULE 1.01B
AUSP FINANCING AGREEMENTS; PROJECT AGREEMENTS
Credit and Security Agreement dated as of January 27, 1998, among
Alaska United Fiber System Partnership as Borrower, and the Lenders referred to
therein, and Credit Lyonnais New York Branch as Administrative Agent,
NationsBank of Texas, N.A. as Syndication Agent and TD Securities (USA) Inc. as
Documentation Agent.
Completion Guaranty dated as of January 27, 1998, by GCI Holdings,
Inc., as Guarantor in favor of Credit Lyonnais New York Branch as Administrative
Agent for the Lenders referred to therein.
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, GCI Holdings, Inc., GCI Transport Co., Inc.,
and Credit Lyonnais New York Branch as Administrative Agent for the Lenders
referred to therein.
Operation and Maintenance Contract dated as of January 27, 1998,
between Alaska United Fiber System Partnership and GCI Communication Corp.
Depositary Agreement dated as of January 27, 1998, between Alaska
United Fiber System Partnership and Credit Lyonnais New York Branch as
Administrative Agent for the Lenders referred to therein.
Intercompany Notes by Alaska United Fiber System Partnership to the GCI
Holdings, Inc.
Lease Agreement dated as of January 27, 1998, between GCI Communication
Corp. as Lessee, and Alaska United Fiber System Partnership as Lessor.
Lease Guaranty Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership and Credit Lyonnais New
York Branch as Administrative Agent.
Operating Keep Well Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership, and Credit Lyonnais New
York Branch as Administrative Agent.
Subordination Agreement dated as of January 27, 1998, among GCI Cable,
Inc., Credit Lyonnais New York Branch, as Administrative Agent under the AUSP
Credit Agreement, and NationsBank of Texas, N.A., as Administrative Agent.
<PAGE>
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, Credit Lyonnais New York Branch, as
Administrative Agent under the AUSP Credit Agreement, and NationsBank of Texas,
N.A., as Administrative Agent.
SECOND AMENDMENT TO $200,000,000 AMENDED
AND RESTATED CREDIT AGREEMENT
SECOND AMENDMENT TO $200,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 3rd day of July, 1998 and entered into
among GCI HOLDINGS, INC., an Alaskan corporation (herein, together with its
successors and assigns, called the "Borrower"), the Lenders (as defined in the
Credit Agreement as defined below), NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), a national banking association, as Administrative
Agent for itself and the Lenders (the "Administrative Agent"), CREDIT LYONNAIS
NEW YORK BRANCH, as Documentation Agent and TD SECURITIES (USA), INC. as
Syndication Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a $200,000,000 Amended and Restated Credit Agreement, dated November 14,
1997, as amended by that certain Consent and First Amendment, dated January 27,
1998 (as amended and as further amended, restated or otherwise modified from
time to time, the "Credit Agreement") and a $50,000,000 Amended and Restated
Credit Agreement, dated as of November 14, 1997 (as amended by that certain
Consent and First Amendment, dated January 27, 1998 and that certain Second
Amendment to Amended and Restated Credit Agreement dated as of the date hereof
and as further amended, restated or otherwise modified from time to time, the
"Revolver/Term Credit Agreement");
WHEREAS, the Borrower has requested that, among other things, certain
financial covenants of the Credit Agreement be amended;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed to modify the Credit Agreement upon the terms and conditions set forth
below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
(a) In General. Unless specifically defined or redefined below,
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
(b) Definition of Operating Cash Flow. The definition of "Operating
Cash Flow" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
-1-
<PAGE>
"Operating Cash Flow" means, for the Borrower and the
Restricted Subsidiaries, for any period, determined in accordance with
GAAP, the consolidated net income (loss) for such period taken as a
single accounting period, excluding extraordinary gains and losses,
plus the sum of the following amounts for such period to the extent
included in the determination of such consolidated net income: (a)
depreciation expense, (b) amortization expense and other non-cash
charges reducing income, (c) Net Total Interest Expense, (d) cash
income tax expense for the Borrower and Restricted Subsidiaries, (e)
deferred income Taxes for the Borrower and Restricted Subsidiaries,
plus (f) for the fiscal quarter in which the Borrower purchases the
transponders pursuant to that certain Transponder Purchase Agreement
for Galaxy X, dated August 24, 1995, among GCI Communication Corp. and
Hughes Communications Galaxy, Inc., now held by PanAmSat Corp., as
assignee, and that certain Transponder Service Agreement, dated August
24, 1995, among General Communication Corp. and Hughes Communications
Satellite Services, Inc. (the "Galaxy X Transponders"), now held by
PanAmSat Corp., as assignee, the annualized amount of economic savings
of the Borrower resulting from the Borrower's direct purchase of such
Galaxy X Transponders instead of leasing such Galaxy X Transponders
from GCI Satellite Co., Inc. and leasing transponders from other
providers; provided, the calculation is made after giving effect to
acquisitions and dispositions of assets of the Borrower or any
Restricted Subsidiary during such period as if such transactions had
occurred on the first day of such period.
(c) Addition of definition of "Year 2000 Compliant" . The following
definition of "Year 2000 Compliant" shall be added in alphabetical order to
Article I of the Credit Agreement:
"Year 2000 Compliant" means, with respect to a Person, that
all computer hardware and software that are material to the business
and operations of such Person will on a timely basis be able to perform
properly date-sensitive functions for all dates before and after
January 1, 2000, including functions with respect to any leap year.
SECTION 2. Addition of Section 5.19. The following Section 5.19 shall
be added to the end of Article V of the Credit Agreement:
5.19 Year 2000 Compliance.
(a) The Borrower has (i) undertaken a detailed review and
assessment of all areas within its business and operations that could
be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer hardware and software used by the Borrower may be unable
to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999 (including
recognizing and performing properly date-sensitive functions in leap
years)), (ii) developed a detailed plan, timeline and budget for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in
-2-
<PAGE>
accordance with that timetable and budget. The aggregate costs to and
charges by the Borrower related to the Year 2000 Problem and being Year
2000 Compliant shall not exceed an amount which could result in a
Material Adverse Change.
(b) The Borrower is in the process of making inquiry of each
of its key suppliers, vendors and customers as to whether such Person
will on a timely basis be Year 2000 Compliant in all material respects.
"Key suppliers, vendors and customers" refers to those suppliers,
vendors and customers of the Borrower the business failure of which
could result in a Material Adverse Change.
SECTION 3. Addition of Section 6.17. The following Section 6.17 shall
be added to the end of Article VI of the Credit Agreement:
6.17 Year 2000 Compliance. The Borrower will promptly notify
the Administrative Agent in the event the Borrower discovers or
determines that any computer application (including those of its
suppliers and vendors) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 Compliant
on a timely basis, except to the extent that such failure could not be
reasonably expected to cause a Material Adverse Change.
SECTION 4. Amendment to Section 7.01(a). Section 7.01(a) in Article VII
of the Credit Agreement is amended and restated in its entirety to read as
follows:
(a) Total Leverage Ratio. At all times during the term hereof, the
Total Leverage Ratio shall not be greater during the following time periods than
the ratio set forth opposite such time periods:
Time Period Maximum Ratio
----------- -------------
From the Closing Date
through December 31, 1998 7.00 to 1.00
January 1, 1999 through
March 31,1999 6.50 to 1.00
April 1, 1999 through
December 31, 1999 6.00 to 1.00
January 1, 2000
and thereafter 5.50 to 1.00
SECTION 5. Amendment to Section 7.01(e). Section 7.01(e) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
-3-
<PAGE>
(e) Fixed Charges Coverage Ratio. Commencing January 1, 2001,
and at all times thereafter during the term hereof, the Fixed Charges
Coverage Ratio shall not be less during the following time periods than
the ratio set forth opposite such time periods:
Time Period Minimum Ratio
----------- -------------
From January 1, 2001 through
March 31, 2003 1.00 to 1.00
April 1, 2003 and thereafter 1.05 to 1.00
SECTION 6. Amendment to Section 7.01(f). Section 7.01(f) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(f) Capital Expenditures. Capital Expenditures (not including
any Galaxy X Transponder (as defined in the definition of Operating
Cash Flow) purchases) paid or incurred by the Borrower and the
Restricted Subsidiaries shall not exceed, in the aggregate, the
following amounts during the following years, provided that, any unused
portion for any such year may be used during the following fiscal year
only (but not thereafter):
Fiscal Year Maximum Amount
----------- --------------
1998 $90,000,000
1999 $80,000,000
2000 $90,000,000
2001 and thereafter Not Applicable
SECTION 7. Amendment to Section 7.10. Section 7.10 in Article VII of
the Credit Agreement is amended by deleting the "and" before subparagraph (h)
thereof, removing the period at then of such Section 7.10 and substituting ",
and" for such period, and adding the following subparagraph (i) at the end
thereof:
(i) so long as (A) there is no Default or Event of Default both before
and after giving effect to such Investment or acquisition, (B) for any
such acquisition or Investment by the Borrower for which payment is
made by issuance of Capital Stock of the Borrower for 95% or more of
the purchase price, such acquisition or Investment must be in a Person
that has four full fiscal quarters historical positive cash flow, (C)
if the Capital Stock or assets to be acquired are in a related business
in which the Borrower is not currently in, the Borrower provides the
Lenders with pro forma projections for such related business, (D) all
such Investments and acquisitions are in existing markets of the
Borrower and its Restricted Subsidiaries, and (E) all such assets and
-4-
<PAGE>
Properties, including Capital Stock, purchased by the Borrower or any
Restricted Subsidiary of the Borrower, shall be subject to first and
prior perfected Liens (except for Permitted Liens) in favor of the
Administrative Agent and the Lenders securing the Obligations in form
and substance substantially identical to the existing collateral
documentation, Investments of Capital Stock or acquisitions of assets
of Persons engaged in the Borrower's existing lines of business or
businesses related thereto not in excess of $5,000,000 in the aggregate
for the cash portion for all such Investments or acquisitions, provided
that, such $5,000,000 cash portion amount may be increased to
$20,000,000 in the aggregate, if the Total Leverage Ratio is less than
5.00 to 1.00 both before and after giving effect to any such Investment
or acquisition.
SECTION 8. Amendment to Section 8.01. Section 8.01 in Article VIII of
the Credit Agreement is amended by deleting the "or" before subparagraph (w),
deleting the period at the end of subparagraph (w) and substituting ", or"
instead, and adding the following subparagraph (x):
(x) The Borrower shall fail to be Year 2000 Compliant.
SECTION 9. Replacement of Schedule 1.01B. Schedule 1.01B to the Credit
Agreement shall be deleted in its entirety and Schedule 1.01B attached to this
Second Amendment shall be substituted in its stead.
SECTION 10. Conditions Precedent. This Second Amendment shall not be
effective until the Administrative Agent shall have determined in its sole
discretion that all proceedings of the Borrower taken in connection with this
Second Amendment and the transactions contemplated hereby shall be satisfactory
in form and substance to the Administrative Agent and the Borrower has satisfied
the following conditions:
(a) the Borrower shall have delivered to the Administrative
Agent a loan certificate of the Borrower certifying (i) as to the
accuracy of its representations and warranties set forth in Article V
of the Credit Agreement, as amended by this Second Amendment and the
other Loan Papers, (ii) that there exists no Default or Event of
Default, and the execution, delivery and performance of this Second
Amendment will not cause a Default or Event of Default, (iii) as to
resolutions authorizing the Borrower to execute, deliver and perform
this Second Amendment and all Loan Papers and other documents and
instruments delivered or executed in connection with this Second
Amendment, (iv) that it has complied with all agreements and conditions
to be complied with by it under the Credit Agreement, the other Loan
Papers and this Second Amendment by the date hereof and (v) that it has
received all consents, amendments and waivers from all Persons
necessary or required, if any, to (A) enter into this Amendment or (B)
effectuate the amendments set forth above, including, without
limitation, under the Indenture and related documentation and under the
AUSP Credit Agreement and related documentation;
-5-
<PAGE>
(b) the Borrower shall have delivered to the Administrative
Agent and Lenders legal opinions from counsel to the Borrower and its
Restricted Subsidiaries regarding this Second Amendment and such other
matters as reasonably requested by Special Counsel, including, without
limitation, opinions regarding the waivers, consents and amendments in
connection with the Indenture and AUSP Credit Agreement, and the
related agreements; and
(c) the Borrower shall have delivered such other documents,
instruments, and certificates, in form and substance satisfactory to
the Administrative Agent, as the Administrative Agent shall deem
necessary or appropriate in connection with this Second Amendment and
the transactions contemplated hereby.
SECTION 11. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this Second
Amendment constitutes its legal, valid, and binding obligation, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Default or Event of Default under the Credit Agreement, (c) its
representations and warranties set forth in the Credit Agreement and other Loan
Papers are true and correct on the date hereof, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit Agreement
and the other Loan Papers by the date hereof, and (e) the Credit Agreement, as
amended hereby, and the other Loan Papers remain in full force and effect.
SECTION 12. Covenants. The Borrower covenants that prior to or
simultaneous with any purchase of any Galaxy X Transponder (as defined in the
definition of Operating Cash Flow) by the Borrower or any Restricted Subsidiary
of the Borrower, the Borrower shall have delivered to the Administrative Agent
all agreements, documents, certificates and information requested by the
Administrative Agent to effectively grant the Administrative Agent on behalf of
Lenders a first and prior Lien and security interest in the Galaxy X
Transponders owned and to be owned by the Borrower and/or its Restricted
Subsidiaries.
SECTION 13. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND
THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN
PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH
SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 14. Counterparts. This Second Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
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<PAGE>
SECTION 15. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS.
SECTION 16. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS
STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN PAPERS AND THE BORROWER IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE
BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.
SECTION 17. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, this Second Amendment to Amended and Restated
Credit Agreement is executed as of the date first set forth above.
GCI HOLDINGS, INC.
/s/
By: John M. Lowber
Its: Secretary/Treasurer
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), Individually
as a Lender and as Administrative Agent
/s/
By: Whitney Busse
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent and Individually as a
Lender
/s/
By: Mark D. Thorsheim
Its: Vice President
TD SECURITIES (USA), INC., as Syndication
Agent
/s/
By:
Its:
TORONTO DOMINION (TEXAS), INC.,
Individually as a Lender
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<PAGE>
/s/
By: Debbie A. Greene
Its: Vice President
COBANK, ACB, Individually as a Lender
/s/
By: Teresa L. Fountain
Its: Assistant Corporate Secretary
By:
Its:
BANQUE PARIBAS, Individually as a Lender
/s/
By: Thomas Brandt
Its: Director
/s/
By: Parlynn Ernst
Its: Asst. Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually as a Lender
/s/
By: Edward Smith Christie
Its: Manager-Operations
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY, Individually as a
Lender
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<PAGE>
/s/
By: Noboru Akahane
Its: Deputy General Manager
UNION BANK OF CALIFORNIA, N.A.,
Individually as a Lender
/s/
By: Sonia L. Isaacs
Its: Vice President
BANK OF HAWAII, Individually as a Lender
/s/
By: Elizabeth O. MacLean
Its: Vice President
THE BANK OF NEW YORK, Individually as a
Lender
/s/
By: Gerry Granovsky
Its: Vice President
BANQUE NATIONALE DE PARIS, Individually
as a Lender
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<PAGE>
/s/
By: Serge Desrayaud
Its: Vice President
/s/
By: Marcus C. Jones
Its: Vice President
CITY NATIONAL BANK, Individually as a
Lender
/s/
By: Rod Bollins
Its: Vice President
FIRST NATIONAL BANK OF MARYLAND,
Individually as a Lender
/s/
By: Christopher L. Smith
Its: Vice President
FLEET NATIONAL BANK, Individually as a
Lender
/s/
By: Chris Swindell
Its: Vice President
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, Individually as a Lender
/s/
By: Masahito Fukuda
Its: Joint General Manager
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<PAGE>
THE SUMITOMO BANK, LIMITED, Individually
as a Lender
/s/
By: John C. Kissinger
Its: Joint General Manager
NATIONAL BANK OF ALASKA, Individually as
a Lender
/s/
By: Patricia Jelley Benz
Its: Vice President
-12-
<PAGE>
SCHEDULE 1.01B
AUSP FINANCING AGREEMENTS; PROJECT AGREEMENTS
Credit and Security Agreement dated as of January 27, 1998, among
Alaska United Fiber System Partnership as Borrower, and the Lenders referred to
therein, and Credit Lyonnais New York Branch as Administrative Agent,
NationsBank of Texas, N.A. as Syndication Agent and TD Securities (USA) Inc. as
Documentation Agent.
Completion Guaranty dated as of January 27, 1998, by GCI Holdings,
Inc., as Guarantor in favor of Credit Lyonnais New York Branch as Administrative
Agent for the Lenders referred to therein.
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, GCI Holdings, Inc., GCI Transport Co., Inc.,
and Credit Lyonnais New York Branch as Administrative Agent for the Lenders
referred to therein.
Operation and Maintenance Contract dated as of January 27, 1998,
between Alaska United Fiber System Partnership and GCI Communication Corp.
Depositary Agreement dated as of January 27, 1998, between Alaska
United Fiber System Partnership and Credit Lyonnais New York Branch as
Administrative Agent for the Lenders referred to therein.
Intercompany Notes by Alaska United Fiber System Partnership to the GCI
Holdings, Inc.
Lease Agreement dated as of January 27, 1998, between GCI Communication
Corp. as Lessee, and Alaska United Fiber System Partnership as Lessor.
Lease Guaranty Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership and Credit Lyonnais New
York Branch as Administrative Agent.
Operating Keep Well Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership, and Credit Lyonnais New
York Branch as Administrative Agent.
Subordination Agreement dated as of January 27, 1998, among GCI Cable,
Inc., Credit Lyonnais New York Branch, as Administrative Agent under the AUSP
Credit Agreement, and NationsBank of Texas, N.A., as Administrative Agent.
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, Credit Lyonnais New York Branch, as
Administrative Agent under the AUSP Credit Agreement, and NationsBank of Texas,
N.A., as Administrative Agent.
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SECOND AMENDMENT TO $50,000,000 AMENDED
AND RESTATED CREDIT AGREEMENT
SECOND AMENDMENT TO $50,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 3rd day of July, 1998 and entered into
among GCI HOLDINGS, INC., an Alaskan corporation (herein, together with its
successors and assigns, called the "Borrower"), the Lenders (as defined in the
Credit Agreement as defined below), NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), a national banking association, as Administrative
Agent for itself and the Lenders (the "Administrative Agent"), CREDIT LYONNAIS
NEW YORK BRANCH, as Documentation Agent and TD SECURITIES (USA), INC. as
Syndication Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a $200,000,000 Amended and Restated Credit Agreement, dated November 14,
1997, as amended by that certain Consent and First Amendment, dated January 27,
1998 (as amended and as further amended, restated or otherwise modified from
time to time, the "Credit Agreement") and a $50,000,000 Amended and Restated
Credit Agreement, dated as of November 14, 1997 (as amended by that certain
Consent and First Amendment, dated January 27, 1998 and that certain Second
Amendment to Amended and Restated Credit Agreement dated as of the date hereof
and as further amended, restated or otherwise modified from time to time, the
"Revolver/Term Credit Agreement");
WHEREAS, the Borrower has requested that, among other things, certain
financial covenants of the Credit Agreement be amended;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed to modify the Credit Agreement upon the terms and conditions set forth
below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
(a) In General. Unless specifically defined or redefined below,
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
(b) Definition of Operating Cash Flow. The definition of "Operating
Cash Flow" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
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<PAGE>
"Operating Cash Flow" means, for the Borrower and the
Restricted Subsidiaries, for any period, determined in accordance with
GAAP, the consolidated net income (loss) for such period taken as a
single accounting period, excluding extraordinary gains and losses,
plus the sum of the following amounts for such period to the extent
included in the determination of such consolidated net income: (a)
depreciation expense, (b) amortization expense and other non-cash
charges reducing income, (c) Net Total Interest Expense, (d) cash
income tax expense for the Borrower and Restricted Subsidiaries, (e)
deferred income Taxes for the Borrower and Restricted Subsidiaries,
plus (f) for the fiscal quarter in which the Borrower purchases the
transponders pursuant to that certain Transponder Purchase Agreement
for Galaxy X, dated August 24, 1995, among GCI Communication Corp. and
Hughes Communications Galaxy, Inc., now held by PanAmSat Corp., as
assignee, and that certain Transponder Service Agreement, dated August
24, 1995, among General Communication Corp. and Hughes Communications
Satellite Services, Inc. (the "Galaxy X Transponders"), now held by
PanAmSat Corp., as assignee, the annualized amount of economic savings
of the Borrower resulting from the Borrower's direct purchase of such
Galaxy X Transponders instead of leasing such Galaxy X Transponders
from GCI Satellite Co., Inc. and leasing transponders from other
providers; provided, the calculation is made after giving effect to
acquisitions and dispositions of assets of the Borrower or any
Restricted Subsidiary during such period as if such transactions had
occurred on the first day of such period.
(c) Addition of definition of "Year 2000 Compliant" . The following
definition of "Year 2000 Compliant" shall be added in alphabetical order to
Article I of the Credit Agreement:
"Year 2000 Compliant" means, with respect to a Person, that
all computer hardware and software that are material to the business
and operations of such Person will on a timely basis be able to perform
properly date-sensitive functions for all dates before and after
January 1, 2000, including functions with respect to any leap year.
SECTION 2. Addition of Section 5.19. The following Section 5.19 shall
be added to the end of Article V of the Credit Agreement:
5.19 Year 2000 Compliance.
(a) The Borrower has (i) undertaken a detailed review and
assessment of all areas within its business and operations that could
be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer hardware and software used by the Borrower may be unable
to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999 (including
recognizing and performing properly date-sensitive functions in leap
years)), (ii) developed a detailed plan, timeline and budget for
addressing
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<PAGE>
the Year 2000 Problem on a timely basis, and (iii) to date, implemented
that plan in accordance with that timetable and budget. The aggregate
costs to and charges by the Borrower related to the Year 2000 Problem
and being Year 2000 Compliant shall not exceed an amount which could
result in a Material Adverse Change.
(b) The Borrower is in the process of making inquiry of each
of its key suppliers, vendors and customers as to whether such Person
will on a timely basis be Year 2000 Compliant in all material respects.
"Key suppliers, vendors and customers" refers to those suppliers,
vendors and customers of the Borrower the business failure of which
could result in a Material Adverse Change.
SECTION 3. Addition of Section 6.17. The following Section 6.17 shall
be added to the end of Article VI of the Credit Agreement:
6.17 Year 2000 Compliance. The Borrower will promptly notify
the Administrative Agent in the event the Borrower discovers or
determines that any computer application (including those of its
suppliers and vendors) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 Compliant
on a timely basis, except to the extent that such failure could not be
reasonably expected to cause a Material Adverse Change.
SECTION 4. Amendment to Section 7.01(a). Section 7.01(a) in Article VII
of the Credit Agreement is amended and restated in its entirety to read as
follows:
(a) Total Leverage Ratio. At all times during the term hereof, the
Total Leverage Ratio shall not be greater during the following time periods than
the ratio set forth opposite such time periods:
Time Period Maximum Ratio
----------- -------------
From the Closing Date
through December 31, 1998 7.00 to 1.00
January 1, 1999 through
March 31,1999 6.50 to 1.00
April 1, 1999 through
December 31, 1999 6.00 to 1.00
January 1, 2000
and thereafter 5.50 to 1.00
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<PAGE>
SECTION 5. Amendment to Section 7.01(e). Section 7.01(e) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(e) Fixed Charges Coverage Ratio. Commencing January 1, 2001,
and at all times thereafter during the term hereof, the Fixed Charges
Coverage Ratio shall not be less during the following time periods than
the ratio set forth opposite such time periods:
Time Period Minimum Ratio
----------- -------------
From January 1, 2001 through
March 31, 2003 1.00 to 1.00
April 1, 2003 and thereafter 1.05 to 1.00
SECTION 6. Amendment to Section 7.01(f). Section 7.01(f) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(f) Capital Expenditures. Capital Expenditures (not including
any Galaxy X Transponder (as defined in the definition of Operating
Cash Flow) purchases) paid or incurred by the Borrower and the
Restricted Subsidiaries shall not exceed, in the aggregate, the
following amounts during the following years, provided that, any unused
portion for any such year may be used during the following fiscal year
only (but not thereafter):
Fiscal Year Maximum Amount
----------- --------------
1998 $90,000,000
1999 $80,000,000
2000 $90,000,000
2001 and thereafter Not Applicable
SECTION 7. Amendment to Section 7.10. Section 7.10 in Article VII of
the Credit Agreement is amended by deleting the "and" before subparagraph (h)
thereof, removing the period at then of such Section 7.10 and substituting
", and" for such period, and adding the following subparagraph (i) at the end
thereof:
(i) so long as (A) there is no Default or Event of Default both before
and after giving effect to such Investment or acquisition, (B) for any
such acquisition or Investment by the Borrower for which payment is
made by issuance of Capital Stock of the Borrower for 95% or more of
the purchase price, such acquisition or Investment must be in a Person
that has four full fiscal quarters historical positive cash flow, (C)
if the Capital Stock or assets to be acquired are in a related business
in which the Borrower is not currently in, the Borrower provides the
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<PAGE>
Lenders with pro forma projections for such related business, (D) all
such Investments and acquisitions are in existing markets of the
Borrower and its Restricted Subsidiaries, and (E) all such assets and
Properties, including Capital Stock, purchased by the Borrower or any
Restricted Subsidiary of the Borrower, shall be subject to first and
prior perfected Liens (except for Permitted Liens) in favor of the
Administrative Agent and the Lenders securing the Obligations in form
and substance substantially identical to the existing collateral
documentation, Investments of Capital Stock or acquisitions of assets
of Persons engaged in the Borrower's existing lines of business or
businesses related thereto not in excess of $5,000,000 in the aggregate
for the cash portion for all such Investments or acquisitions, provided
that, such $5,000,000 cash portion amount may be increased to
$20,000,000 in the aggregate, if the Total Leverage Ratio is less than
5.00 to 1.00 both before and after giving effect to any such Investment
or acquisition.
SECTION 8. Amendment to Section 8.01(w). Section 8.01(w) in Article
VIII of the Credit Agreement is amended and restated in its entirety as follows:
(w) There shall exist any Event of Default under the
Revolving Credit Agreement.
SECTION 9. Amendment to Section 8.01. Section 8.01 in Article VIII of
the Credit Agreement is amended by deleting the "or" before subparagraph (w),
deleting the period at the end of subparagraph (w) and substituting ", or"
instead, and adding the following subparagraph (x):
(x) The Borrower shall fail to be Year 2000 Compliant.
SECTION 10. Replacement of Schedule 1.01B. Schedule 1.01B to the Credit
Agreement shall be deleted in its entirety and Schedule 1.01B attached to this
Second Amendment shall be substituted in its stead.
SECTION 11. Conditions Precedent. This Second Amendment shall not be
effective until the Administrative Agent shall have determined in its sole
discretion that all proceedings of the Borrower taken in connection with this
Second Amendment and the transactions contemplated hereby shall be satisfactory
in form and substance to the Administrative Agent and the Borrower has satisfied
the following conditions:
(a) the Borrower shall have delivered to the Administrative
Agent a loan certificate of the Borrower certifying (i) as to the
accuracy of its representations and warranties set forth in Article V
of the Credit Agreement, as amended by this Second Amendment and the
other Loan Papers, (ii) that there exists no Default or Event of
Default, and the execution, delivery and performance of this Second
Amendment will not cause a Default or Event of
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<PAGE>
Default, (iii) as to resolutions authorizing the Borrower to execute,
deliver and perform this Second Amendment and all Loan Papers and other
documents and instruments delivered or executed in connection with this
Second Amendment, (iv) that it has complied with all agreements and
conditions to be complied with by it under the Credit Agreement, the
other Loan Papers and this Second Amendment by the date hereof and (v)
that it has received all consents, amendments and waivers from all
Persons necessary or required, if any, to (A) enter into this Amendment
or (B) effectuate the amendments set forth above, including, without
limitation, under the Indenture and related documentation and under the
AUSP Credit Agreement and related documentation;
(b) the Borrower shall have delivered to the Administrative
Agent and Lenders legal opinions from counsel to the Borrower and its
Restricted Subsidiaries regarding this Second Amendment and such other
matters as reasonably requested by Special Counsel, including, without
limitation, opinions regarding the waivers, consents and amendments in
connection with the Indenture and AUSP Credit Agreement, and the
related agreements; and
(c) the Borrower shall have delivered such other documents,
instruments, and certificates, in form and substance satisfactory to
the Administrative Agent, as the Administrative Agent shall deem
necessary or appropriate in connection with this Second Amendment and
the transactions contemplated hereby.
SECTION 12. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this Second
Amendment constitutes its legal, valid, and binding obligation, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Default or Event of Default under the Credit Agreement, (c) its
representations and warranties set forth in the Credit Agreement and other Loan
Papers are true and correct on the date hereof, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit Agreement
and the other Loan Papers by the date hereof, and (e) the Credit Agreement, as
amended hereby, and the other Loan Papers remain in full force and effect.
SECTION 13. Covenants. The Borrower covenants that prior to or
simultaneous with any purchase of any Galaxy X Transponder (as defined in the
definition of Operating Cash Flow) by the Borrower or any Restricted Subsidiary
of the Borrower, the Borrower shall have delivered to the Administrative Agent
all agreements, documents, certificates and information requested by the
Administrative Agent to effectively grant the Administrative Agent on behalf of
Lenders a first and prior Lien and security interest in the Galaxy X
Transponders owned and to be owned by the Borrower and/or its Restricted
Subsidiaries.
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<PAGE>
SECTION 14. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND
THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN
PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH
SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 15. Counterparts. This Second Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 16. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS.
SECTION 17. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS
STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN PAPERS AND THE BORROWER IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE
BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.
SECTION 18. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
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<PAGE>
CONNECTED WITH ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, this Second Amendment to Amended and Restated
Credit Agreement is executed as of the date first set forth above.
GCI HOLDINGS, INC.
/s/
By: John M. Lowber
Its: Secretary/Treasurer
NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), Individually
as a Lender and as Administrative Agent
/s/
By: Whitney Busse
Its: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent and Individually as a
Lender
/s/
By: Mark D. Thorsheim
Its: Vice President
TD SECURITIES (USA), INC., as Syndication
Agent
/s/
By:
Its:
TORONTO DOMINION (TEXAS), INC.,
Individually as a Lender
-8-
<PAGE>
/s/
By: Debbie A. Greene
Its: Vice President
COBANK, ACB, Individually as a Lender
/s/
By: Teresa L. Fountain
Its: Assistant Corporate Secretary
By:
Its:
BANQUE PARIBAS, Individually as a Lender
/s/
By: Thomas Brandt
Its: Director
/s/
By: Parlynn Ernst
Its: Asst. Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually as a Lender
/s/
By: Edward Smith Christie
Its: Manager-Operations
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY, Individually as a
Lender
-9-
<PAGE>
/s/
By: Noboru Akahane
Its: Deputy General Manager
UNION BANK OF CALIFORNIA, N.A.,
Individually as a Lender
/s/
By: Sonia L. Isaacs
Its: Vice President
BANK OF HAWAII, Individually as a Lender
/s/
By: Elizabeth O. MacLean
Its: Vice President
THE BANK OF NEW YORK, Individually as a
Lender
/s/
By: Gerry Granovsky
Its: Vice President
BANQUE NATIONALE DE PARIS, Individually
as a Lender
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<PAGE>
/s/
By: Serge Desrayaud
Its: Vice President
/s/
By: Marcus C. Jones
Its: Vice President
CITY NATIONAL BANK, Individually as a
Lender
/s/
By: Rod Bollins
Its: Vice President
FIRST NATIONAL BANK OF MARYLAND,
Individually as a Lender
/s/
By: Christopher L. Smith
Its: Vice President
FLEET NATIONAL BANK, Individually as a
Lender
/s/
By: Chris Swindell
Its: Vice President
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, Individually as a Lender
/s/
By: Masahito Fukuda
Its: Joint General Manager
-11-
<PAGE>
THE SUMITOMO BANK, LIMITED, Individually
as a Lender
/s/
By: John C. Kissinger
Its: Joint General Manager
NATIONAL BANK OF ALASKA, Individually as
a Lender
/s/
By: Patricia Jelley Benz
Its: Vice President
-13-
<PAGE>
SCHEDULE 1.01B
AUSP FINANCING AGREEMENTS; PROJECT AGREEMENTS
Credit and Security Agreement dated as of January 27, 1998, among
Alaska United Fiber System Partnership as Borrower, and the Lenders referred to
therein, and Credit Lyonnais New York Branch as Administrative Agent,
NationsBank of Texas, N.A. as Syndication Agent and TD Securities (USA) Inc. as
Documentation Agent.
Completion Guaranty dated as of January 27, 1998, by GCI Holdings,
Inc., as Guarantor in favor of Credit Lyonnais New York Branch as Administrative
Agent for the Lenders referred to therein.
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, GCI Holdings, Inc., GCI Transport Co., Inc.,
and Credit Lyonnais New York Branch as Administrative Agent for the Lenders
referred to therein.
Operation and Maintenance Contract dated as of January 27, 1998,
between Alaska United Fiber System Partnership and GCI Communication Corp.
Depositary Agreement dated as of January 27, 1998, between Alaska
United Fiber System Partnership and Credit Lyonnais New York Branch as
Administrative Agent for the Lenders referred to therein.
Intercompany Notes by Alaska United Fiber System Partnership to the GCI
Holdings, Inc.
Lease Agreement dated as of January 27, 1998, between GCI Communication
Corp. as Lessee, and Alaska United Fiber System Partnership as Lessor.
Lease Guaranty Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership and Credit Lyonnais New
York Branch as Administrative Agent.
Operating Keep Well Agreement dated as of January 27, 1998, among GCI
Holdings, Inc., Alaska United Fiber System Partnership, and Credit Lyonnais New
York Branch as Administrative Agent.
Subordination Agreement dated as of January 27, 1998, among GCI Cable,
Inc., Credit Lyonnais New York Branch, as Administrative Agent under the AUSP
Credit Agreement, and NationsBank of Texas, N.A., as Administrative Agent.
Subordination Agreement dated as of January 27, 1998, among Alaska
United Fiber System Partnership, Credit Lyonnais New York Branch, as
Administrative Agent under the AUSP Credit Agreement, and NationsBank of Texas,
N.A., as Administrative Agent.
-14-
THIRD AMENDMENT TO $200,000,000 AMENDED
AND RESTATED CREDIT AGREEMENT
THIRD AMENDMENT TO $200,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 13th day of April, 1999 and entered into
among GCI HOLDINGS, INC., an Alaskan corporation (herein, together with its
successors and assigns, called the "Borrower"), the Lenders (as defined in the
Credit Agreement as defined below), NATIONSBANK, N.A., dba Bank of America,
National Association, a national banking association, as Administrative Agent
for itself and the Lenders (the "Administrative Agent"), CREDIT LYONNAIS NEW
YORK BRANCH, as Documentation Agent and TD SECURITIES (USA), INC. as Syndication
Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a $200,000,000 Amended and Restated Credit Agreement, dated November 14,
1997, as amended by that certain Consent and First Amendment, dated January 27,
1998 and by that certain Second Amendment to Amended and Restated Credit
Agreement dated as of July 3, 1998 (as amended and as further amended, restated
or otherwise modified from time to time, the "Credit Agreement") and a
$50,000,000 Amended and Restated Credit Agreement, dated as of November 14, 1997
(as amended by that certain Consent and First Amendment, dated January 27, 1998
and that certain Second Amendment to Amended and Restated Credit Agreement dated
as of July 3, 1998 and as further amended, restated or otherwise modified from
time to time, the "Revolver/Term Credit Agreement");
WHEREAS, the Borrower has requested that, among other things, certain
financial covenants of the Credit Agreement be amended;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed to modify the Credit Agreement upon the terms and conditions set forth
below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
(a) In General. Unless specifically defined or redefined below,
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
(b) Definition of Applicable Margin . The definition of "Applicable
Margin" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
"Applicable Margin" means (i) with respect to the Base Rate Advances
under the Facility, 1.375% per annum and (ii) with respect to LIBOR Advances
under the Facility, 2.500% per annum. Notwithstanding the foregoing, effective
three Business Days after receipt by the Administrative Agent from the Borrower
of a Compliance Certificate delivered to the Lenders for any reason and
demonstrating a change in the Total Leverage Ratio to an amount so that another
Applicable Margin should be applied
-1-
<PAGE>
pursuant to the table set forth below, the Applicable Margin for each type of
Advance shall mean the respective amount set forth below opposite such relevant
Total Leverage Ratio in Columns A and B below, in each case until the first
succeeding Quarterly Date which is at least three Business Days after receipt by
the Administrative Agent from the Borrower of a Compliance Certificate,
demonstrating a change in the Total Leverage Ratio to an amount so that another
Applicable Margin shall be applied; provided that, if there exists a Default or
if the Total Leverage Ratio shall at any time be greater than or equal to 6.50
to 1.00, the Applicable Margin shall again be the respective amounts first set
forth in this definition; provided further, that the Applicable Margin in effect
on the Closing Date shall be determined pursuant to a Compliance Certificate
delivered on the Closing Date, provided, further, that if the Borrower fails to
deliver any financial statements to the Administrative Agent within the required
time periods set forth in Sections 6.05(a) and Section 6.05(b) hereof, the
Applicable Margin shall again be the respective amounts first set forth in this
definition until the date which is three Business Days after the Administrative
Agent receives financial statements from the Borrower which demonstrate that
another Applicable Margin should be applied pursuant to the table set forth
below; and provided further, that the Applicable Margin shall never be a
negative number.
<TABLE>
<CAPTION>
Column A Column B
Total Leverage Ratio Base Rate LIBOR
- -------------------- --------- -----
<S> <C> <C>
Greater than or equal to
6.50 to 1.00 1.375% 2.500%
Greater than or equal to
6.00 to 1.00 but less than
6.50 to 1.00 1.000% 2.125%
Greater than or equal to
5.50 to 1.00 but less than
6.00 to 1.00 0.750% 1.875%
Greater than or equal to
5.00 to 1.00 but less than
5.50 to 1.00 0.500% 1.625%
Greater than or equal to
4.50 to 1.00 but less than
5.00 to 1.00 0.250% 1.375%
Greater than or equal to
4.00 to 1.00 but less than
4.50 to 1.00 0.000% 1.250%
Less than 0.000% 1.000%
4.00 to 1.00
</TABLE>
(c) Definition of Operating Cash Flow. The definition of "Operating
Cash Flow" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
-2-
<PAGE>
"Operating Cash Flow" means, for the Borrower and the
Restricted Subsidiaries, for any period, determined in accordance with
GAAP, the consolidated net income (loss) for such period taken as a
single accounting period, excluding extraordinary gains and losses,
plus the sum of the following amounts for such period to the extent
included in the determination of such consolidated net income: (a)
depreciation expense, (b) amortization expense and other non-cash
charges reducing income, (c) Net Total Interest Expense, (d) cash
income tax expense for the Borrower and Restricted Subsidiaries, (e)
deferred income Taxes for the Borrower and Restricted Subsidiaries,
plus (f) for the fiscal quarter in which the Borrower purchases the
transponders pursuant to that certain Transponder Purchase Agreement
for Galaxy X, dated August 24, 1995, among GCI Communication Corp. and
Hughes Communications Galaxy, Inc., now held by PanAmSat Corp., as
assignee, and that certain Transponder Service Agreement, dated August
24, 1995, among General Communication Corp. and Hughes Communications
Satellite Services, Inc. (the "Galaxy X Transponders"), now held by
PanAmSat Corp., as assignee, the annualized amount of economic savings
of the Borrower resulting from the Borrower's direct purchase of such
Galaxy X Transponders instead of leasing such Galaxy X Transponders
from GCI Satellite Co., Inc. and leasing transponders from other
providers; provided, the calculation is made after giving effect to
acquisitions and dispositions of assets of the Borrower or any
Restricted Subsidiary during such period as if such transactions had
occurred on the first day of such period. In calculating AOperating
Cash Flow@ for determination of compliance with financial covenants
beginning with the fiscal quarter ending March 31, 1999, losses from
local telephone businesses shall be offset by amounts not exceeding
$20,000,000 contributed to the Borrower from the net proceeds of any
offering of preferred stock issued by GCI. The amount attributable to
such net proceeds which is available for such offset shall be reduced
by the amount of net proceeds actually used for such offset in
determining compliance with financial covenants as permitted in the
immediately preceding sentence.
SECTION 2. Amendment to Section 2.10(a). Section 2.10(a) in Article II
of the Credit Agreement is amended and restated in its entirety to read as
follows:
(a) Subject to Section 10.09 hereof, the Borrower agrees to pay to the
Administrative Agent, for the account of the Lenders in accordance with their
Specified Percentages, a commitment fee on the average daily amount of the
Revolving Unused Commitment, from the Closing Date through the Maturity Date, at
the rate of .500% per annum, payable quarterly in arrears on each Quarterly Date
occurring after the Closing Date, with the last such payment due and owing on
the Maturity Date.
SECTION 3. Amendment to Section 7.01(a). Section 7.01(a) in Article VII
of the Credit Agreement is amended and restated in its entirety to read as
follows:
-3-
<PAGE>
(a) Total Leverage Ratio. At all times during the term hereof, the
Total Leverage Ratio shall not be greater during the following time periods than
the ratio set forth opposite such time periods:
Time Period Maximum Ratio
----------- -------------
From the Closing Date
through June 30, 1999 7.00 to 1.00
July 1, 1999 through
March 31, 2000 6.25 to 1.00
April 1, 2000 and thereafter 5.50 to 1.00
SECTION 4. Amendment to Section 7.01(c). Section 7.01(c) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(c) Interest Coverage Ratio. At all times during the term hereof, the
Interest Coverage Ratio shall not be less during the following time periods than
the ratio set forth opposite such time periods:
Time Period Minimum Ratio
----------- -------------
From the Closing Date through September 30, 1999 1.50 to 1.00
October 1, 1999 through March 31, 2000 1.75 to 1.00
April 1, 2000 and thereafter 2.00 to 1.00
SECTION 5. Amendment to Section 7.01(f). Section 7.01(f) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(f) Capital Expenditures. Capital Expenditures (not including
any Galaxy X Transponder (as defined in the definition of Operating
Cash Flow) purchases) paid or incurred by the Borrower and the
Restricted Subsidiaries shall not exceed, in the aggregate, the
following amounts during the following years, provided that, any unused
portion for any such year may be used during the following fiscal year
only (but not thereafter):
Fiscal Year Maximum Amount
----------- --------------
1998 $90,000,000
1999 $35,000,000
2000 $35,000,000
2001 and thereafter Not Applicable
In addition, Capital Expenditures for the purpose of purchasing
satellite transponders may be made, provided no Default or Event of Default
exists or would result therefrom in the aggregate amount throughout the term of
this Agreement of $45,000,000 (excluding the Galaxy X Transponder down payment
of $9,100,000).
-4-
<PAGE>
SECTION 6. Amendment to Section 8.01. Section 8.01 in Article VIII of
the Credit Agreement is amended by deleting the "or" before subparagraph (x),
deleting the period at the end of subparagraph (x) and substituting ", or"
instead, and adding the following subparagraph (y):
(y) the Borrower shall not have received $20,000,000 in proceeds of
preferred stock offering of GCI (the terms of which shall provide for payment in
kind dividends for three years from the date of issuance and cash payments
thereafter, so long as the Total Leverage Ratio is less than 5.00 to 1.00 and no
Default or Event of Default exists or would result therefrom) by May 31, 1999.
SECTION 7. Conditions Precedent. This Third Amendment shall not be
effective until the Administrative Agent shall have determined in its sole
discretion that all proceedings of the Borrower taken in connection with this
Third Amendment and the transactions contemplated hereby shall be satisfactory
in form and substance to the Administrative Agent and the Borrower has satisfied
the following conditions:
(a) the Borrower shall have delivered to the Administrative
Agent a loan certificate of the Borrower certifying (i) as to the
accuracy of its representations and warranties set forth in Article V
of the Credit Agreement, as amended by this Third Amendment and the
other Loan Papers, (ii) that there exists no Default or Event of
Default, and the execution, delivery and performance of this Third
Amendment will not cause a Default or Event of Default, (iii) as to
resolutions authorizing the Borrower to execute, deliver and perform
this Third Amendment and all Loan Papers and other documents and
instruments delivered or executed in connection with this Third
Amendment, (iv) that it has complied with all agreements and conditions
to be complied with by it under the Credit Agreement, the other Loan
Papers and this Third Amendment by the date hereof and (v) that it has
received all consents, amendments and waivers from all Persons
necessary or required, if any, to (A) enter into this Amendment or (B)
effectuate the amendments set forth above, including, without
limitation, under the Indenture and related documentation and under the
AUSP Credit Agreement and related documentation;
(b) the Borrower shall have delivered to the Administrative
Agent and Lenders legal opinions from counsel to the Borrower and its
Restricted Subsidiaries regarding this Third Amendment and such other
matters as reasonably requested by Special Counsel, including, without
limitation, opinions regarding the waivers, consents and amendments in
connection with the Indenture and AUSP Credit Agreement, and the
related agreements;
(c) the Borrower shall have received a firm commitment for at
least $20,000,000 in proceeds from the preferred stock offering by GCI;
(d) the Borrower shall have delivered such other documents,
instruments, and certificates, in form and substance satisfactory to
the Administrative Agent, as the Administrative Agent shall deem
necessary or appropriate in connection with this Third Amendment and
the transactions contemplated hereby;
(e) the Revolving Commitment shall permanently reduce to
$150,000,000; and
-5-
<PAGE>
(f) the Borrower shall have paid all fees and expenses of the
Administrative Agent and the Lenders, including without limitation,
payment of an amendment fee, subject to 10.08 of the Credit Agreement,
to each Lender (to the extent it executes and delivers this Third
Amendment by April 16, 1999) of .25% of its Specified Percentage of the
aggregate amount of Revolving Commitment and Revolver\Term Commitment.
SECTION 8. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this Third
Amendment constitutes its legal, valid, and binding obligation, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Default or Event of Default under the Credit Agreement, (c) its
representations and warranties set forth in the Credit Agreement and other Loan
Papers are true and correct on the date hereof, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit Agreement
and the other Loan Papers by the date hereof, and (e) the Credit Agreement, as
amended hereby, and the other Loan Papers remain in full force and effect.
SECTION 9. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND THE
LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN
PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH
SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 10. Counterparts. This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 11. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS.
SECTION 12. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS
STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN PAPERS AND THE BORROWER IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
-6-
<PAGE>
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE
BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.
SECTION 13. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
-7-
<PAGE>
IN WITNESS WHEREOF, this Third Amendment to Amended and Restated Credit
Agreement is executed as of the date first set forth above.
GCI HOLDINGS, INC.
By:
Its:
NATIONSBANK, N.A., dba Bank of America,
National Association, Individually as a
Lender and as Administrative Agent
By:
Its:
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent and Individually as a
Lender
By:
Its:
TD SECURITIES (USA), INC., as Syndication
Agent
By:
Its:
-8-
<PAGE>
TORONTO DOMINION (TEXAS), INC.,
Individually as a Lender
By:
Its:
COBANK, ACB, Individually as a Lender
By:
Its:
By:
Its:
BANQUE PARIBAS, Individually as a Lender
By:
Its:
By:
Its:
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually as a Lender
By:
Its:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY, Individually as a
Lender
-9-
<PAGE>
By:
Its:
UNION BANK OF CALIFORNIA, N.A.,
Individually as a Lender
By:
Its:
BANK OF HAWAII, Individually as a Lender
By:
Its:
THE BANK OF NEW YORK, Individually as a
Lender
By:
Its:
BANQUE NATIONALE DE PARIS, Individually
as a Lender
By:
Its:
By:
Its:
-10-
<PAGE>
CITY NATIONAL BANK, Individually as a
Lender
By:
Its:
FIRST NATIONAL BANK OF MARYLAND,
Individually as a Lender
By:
Its:
FLEET NATIONAL BANK, Individually as a
Lender
By:
Its:
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, Individually as a Lender
By:
Its:
THE SUMITOMO BANK, LIMITED, Individually
as a Lender
By:
Its:
-11-
<PAGE>
NATIONAL BANK OF ALASKA, Individually as
a Lender
By:
Its:
-12-
THIRD AMENDMENT TO $50,000,000 AMENDED
AND RESTATED CREDIT AGREEMENT
THIRD AMENDMENT TO $50,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 13th day of April, 1999 and entered into
among GCI HOLDINGS, INC., an Alaskan corporation (herein, together with its
successors and assigns, called the "Borrower"), the Lenders (as defined in the
Credit Agreement as defined below), NATIONSBANK, N.A., dba Bank of America,
National Association, a national banking association, as Administrative Agent
for itself and the Lenders (the "Administrative Agent"), CREDIT LYONNAIS NEW
YORK BRANCH, as Documentation Agent and TD SECURITIES (USA), INC. as Syndication
Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a $50,000,000 Amended and Restated Credit Agreement, dated November 14,
1997, as amended by that certain Consent and First Amendment, dated January 27,
1998 and by that certain Second Amendment to Amended and Restated Credit
Agreement dated as of July 3, 1998 (as amended and as further amended, restated
or otherwise modified from time to time, the "Credit Agreement") and a
$200,000,000 Amended and Restated Credit Agreement, dated as of November 14,
1997 (as amended by that certain Consent and First Amendment, dated January 27,
1998 and that certain Second Amendment to Amended and Restated Credit Agreement
dated as of July 3, 1998 and as further amended, restated or otherwise modified
from time to time, the "Revolver/Term Credit Agreement");
WHEREAS, the Borrower has requested that, among other things, certain
financial covenants of the Credit Agreement be amended;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed to modify the Credit Agreement upon the terms and conditions set forth
below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
(a) In General. Unless specifically defined or redefined below,
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
(b) Definition of Applicable Margin . The definition of "Applicable
Margin" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
"Applicable Margin" means (i) with respect to the Base Rate Advances
under the Facility, 1.375% per annum and (ii) with respect to LIBOR Advances
under the Facility, 2.500% per annum. Notwithstanding the foregoing, effective
three Business Days after receipt by the Administrative Agent from the Borrower
of a Compliance Certificate delivered to the Lenders for any reason and
demonstrating a change in the Total Leverage Ratio to an amount so that another
Applicable Margin should be applied
-1-
<PAGE>
pursuant to the table set forth below, the Applicable Margin for each type of
Advance shall mean the respective amount set forth below opposite such relevant
Total Leverage Ratio in Columns A and B below, in each case until the first
succeeding Quarterly Date which is at least three Business Days after receipt by
the Administrative Agent from the Borrower of a Compliance Certificate,
demonstrating a change in the Total Leverage Ratio to an amount so that another
Applicable Margin shall be applied; provided that, if there exists a Default or
if the Total Leverage Ratio shall at any time be greater than or equal to 6.50
to 1.00, the Applicable Margin shall again be the respective amounts first set
forth in this definition; provided further, that the Applicable Margin in effect
on the Closing Date shall be determined pursuant to a Compliance Certificate
delivered on the Closing Date, provided, further, that if the Borrower fails to
deliver any financial statements to the Administrative Agent within the required
time periods set forth in Sections 6.05(a) and Section 6.05(b) hereof, the
Applicable Margin shall again be the respective amounts first set forth in this
definition until the date which is three Business Days after the Administrative
Agent receives financial statements from the Borrower which demonstrate that
another Applicable Margin should be applied pursuant to the table set forth
below; and provided further, that the Applicable Margin shall never be a
negative number.
<TABLE>
<CAPTION>
Column A Column B
Total Leverage Ratio Base Rate LIBOR
- -------------------- --------- -----
<S> <C> <C>
Greater than or equal to
6.50 to 1.00 1.375% 2.500%
Greater than or equal to
6.00 to 1.00 but less than
6.50 to 1.00 1.000% 2.125%
Greater than or equal to
5.50 to 1.00 but less than
6.00 to 1.00 0.750% 1.875%
Greater than or equal to
5.00 to 1.00 but less than
5.50 to 1.00 0.500% 1.625%
Greater than or equal to
4.50 to 1.00 but less than
5.00 to 1.00 0.250% 1.375%
Greater than or equal to
4.00 to 1.00 but less than
4.50 to 1.00 0.000% 1.250%
Less than 0.000% 1.000%
4.00 to 1.00
</TABLE>
(c) Definition of Operating Cash Flow. The definition of "Operating
Cash Flow" in Article I of the Credit Agreement is amended and restated in its
entirety as follows:
-2-
<PAGE>
"Operating Cash Flow" means, for the Borrower and the
Restricted Subsidiaries, for any period, determined in accordance with
GAAP, the consolidated net income (loss) for such period taken as a
single accounting period, excluding extraordinary gains and losses,
plus the sum of the following amounts for such period to the extent
included in the determination of such consolidated net income: (a)
depreciation expense, (b) amortization expense and other non-cash
charges reducing income, (c) Net Total Interest Expense, (d) cash
income tax expense for the Borrower and Restricted Subsidiaries, (e)
deferred income Taxes for the Borrower and Restricted Subsidiaries,
plus (f) for the fiscal quarter in which the Borrower purchases the
transponders pursuant to that certain Transponder Purchase Agreement
for Galaxy X, dated August 24, 1995, among GCI Communication Corp. and
Hughes Communications Galaxy, Inc., now held by PanAmSat Corp., as
assignee, and that certain Transponder Service Agreement, dated August
24, 1995, among General Communication Corp. and Hughes Communications
Satellite Services, Inc. (the "Galaxy X Transponders"), now held by
PanAmSat Corp., as assignee, the annualized amount of economic savings
of the Borrower resulting from the Borrower's direct purchase of such
Galaxy X Transponders instead of leasing such Galaxy X Transponders
from GCI Satellite Co., Inc. and leasing transponders from other
providers; provided, the calculation is made after giving effect to
acquisitions and dispositions of assets of the Borrower or any
Restricted Subsidiary during such period as if such transactions had
occurred on the first day of such period. In calculating Operating Cash
Flow for determination of compliance with financial covenants beginning
with the fiscal quarter ending March 31, 1999, losses from local
telephone businesses shall be offset by amounts not exceeding
$20,000,000 contributed to the Borrower from the net proceeds of any
offering of preferred stock issued by GCI. The amount attributable to
such net proceeds which is available for such offset shall be reduced
by the amount of net proceeds actually used for such offset in
determining compliance with financial covenants as permitted in the
immediately preceding sentence.
SECTION 2. Amendment to Section 7.01(a). Section 7.01(a) in Article VII
of the Credit Agreement is amended and restated in its entirety to read as
follows:
(a) Total Leverage Ratio. At all times during the term hereof, the
Total Leverage Ratio shall not be greater during the following time periods than
the ratio set forth opposite such time periods:
Time Period Maximum Ratio
----------- -------------
From the Closing Date
through June 30, 1999 7.00 to 1.00
July 1, 1999 through
March 31, 2000 6.25 to 1.00
April 1, 2000 and thereafter 5.50 to 1.00
SECTION 3. Amendment to Section 7.01(c). Section 7.01(c) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
-3-
<PAGE>
(c) Interest Coverage Ratio. At all times during the term hereof, the
Interest Coverage Ratio shall not be less during the following time periods than
the ratio set forth opposite such time periods:
Time Period Minimum Ratio
----------- -------------
From the Closing Date through September 30, 1999 1.50 to 1.00
October 1, 1999 through March 31, 2000 1.75 to 1.00
April 1, 2000 and thereafter 2.00 to 1.00
SECTION 4. Amendment to Section 7.01(f). Section 7.01(f) in Article VII
of the Credit Agreement is amended and restated in its entirety as follows:
(f) Capital Expenditures. Capital Expenditures (not including
any Galaxy X Transponder (as defined in the definition of Operating
Cash Flow) purchases) paid or incurred by the Borrower and the
Restricted Subsidiaries shall not exceed, in the aggregate, the
following amounts during the following years, provided that, any unused
portion for any such year may be used during the following fiscal year
only (but not thereafter):
Fiscal Year Maximum Amount
----------- --------------
1998 $90,000,000
1999 $35,000,000
2000 $35,000,000
2001 and thereafter Not Applicable
In addition, Capital Expenditures for the purpose of purchasing
satellite transponders may be made, provided no Default or Event of Default
exists or would result therefrom in the aggregate amount throughout the term of
this Agreement of $45,000,000 (excluding the Galaxy X Transponder down payment
of $9,100,000).
SECTION 5. Amendment to Section 8.01. Section 8.01 in Article VIII of
the Credit Agreement is amended by deleting the "or" before subparagraph (x),
deleting the period at the end of subparagraph (x) and substituting ", or"
instead, and adding the following subparagraph (y):
(y) the Borrower shall not have received $20,000,000 in proceeds of
preferred stock offering of GCI (the terms of which shall provide for payment in
kind dividends for three years from the date of issuance and cash payments
thereafter, so long as the Total Leverage Ratio is less than 5.00 to 1.00 and no
Default or Event of Default exists or would result therefrom) by May 31, 1999.
SECTION 6. Conditions Precedent. This Third Amendment shall not be
effective until the Administrative Agent shall have determined in its sole
discretion that all proceedings of the Borrower taken in connection with this
Third Amendment and the transactions contemplated hereby shall be satisfactory
in form and substance to the Administrative Agent and the Borrower has satisfied
the following conditions:
(a) the Borrower shall have delivered to the Administrative
Agent a loan certificate of the Borrower certifying (i) as to the
accuracy of its representations and warranties set forth in Article V
of the Credit Agreement, as amended by this Third
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<PAGE>
Amendment and the other Loan Papers, (ii) that there exists no Default
or Event of Default, and the execution, delivery and performance of
this Third Amendment will not cause a Default or Event of Default,
(iii) as to resolutions authorizing the Borrower to execute, deliver
and perform this Third Amendment and all Loan Papers and other
documents and instruments delivered or executed in connection with this
Third Amendment, (iv) that it has complied with all agreements and
conditions to be complied with by it under the Credit Agreement, the
other Loan Papers and this Third Amendment by the date hereof and (v)
that it has received all consents, amendments and waivers from all
Persons necessary or required, if any, to (A) enter into this Amendment
or (B) effectuate the amendments set forth above, including, without
limitation, under the Indenture and related documentation and under the
AUSP Credit Agreement and related documentation;
(b) the Borrower shall have delivered to the Administrative
Agent and Lenders legal opinions from counsel to the Borrower and its
Restricted Subsidiaries regarding this Third Amendment and such other
matters as reasonably requested by Special Counsel, including, without
limitation, opinions regarding the waivers, consents and amendments in
connection with the Indenture and AUSP Credit Agreement, and the
related agreements;
(c) the Borrower shall have received a firm commitment for at
least $20,000,000 in proceeds from the preferred stock offering by GCI;
(d) the Borrower shall have delivered such other documents,
instruments, and certificates, in form and substance satisfactory to
the Administrative Agent, as the Administrative Agent shall deem
necessary or appropriate in connection with this Third Amendment and
the transactions contemplated hereby;
(e) the Revolving Commitment shall permanently reduce to
$150,000,000; and
(f) the Borrower shall have paid all fees and expenses of the
Administrative Agent and the Lenders, including without limitation,
payment of an amendment fee, subject to 10.08 of the Credit Agreement,
to each Lender (to the extent it executes and delivers this Third
Amendment by April 16, 1999) of .25% of its Specified Percentage of the
aggregate amount of Revolving Commitment and Revolver\Term Commitment.
SECTION 7. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this Third
Amendment constitutes its legal, valid, and binding obligation, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Default or Event of Default under the Credit Agreement, (c) its
representations and warranties set forth in the Credit Agreement and other Loan
Papers are true and correct on the date hereof, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit Agreement
and the other Loan Papers by the date hereof, and (e) the Credit Agreement, as
amended hereby, and the other Loan Papers remain in full force and effect.
-5-
<PAGE>
SECTION 8. Entire Agreement; Ratification. THE CREDIT AGREEMENT AND THE
LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN
PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH
SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 9. Counterparts. This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 10. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS.
SECTION 11. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS
STATE COURT SITTING IN DALLAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN PAPERS AND THE BORROWER IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE
ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN PAPER SHALL BE
BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.
SECTION 12. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN PAPER OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
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<PAGE>
IN WITNESS WHEREOF, this Third Amendment to Amended and Restated Credit
Agreement is executed as of the date first set forth above.
GCI HOLDINGS, INC.
By:
Its:
NATIONSBANK, N.A., dba Bank of America,
National Association, Individually as a
Lender and as Administrative Agent
By:
Its:
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent and Individually as a
Lender
By:
Its:
TD SECURITIES (USA), INC., as Syndication
Agent
By:
Its:
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<PAGE>
TORONTO DOMINION (TEXAS), INC.,
Individually as a Lender
By:
Its:
COBANK, ACB, Individually as a Lender
By:
Its:
By:
Its:
BANQUE PARIBAS, Individually as a Lender
By:
Its:
By:
Its:
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually as a Lender
By:
Its:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY, Individually as a
Lender
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<PAGE>
By:
Its:
UNION BANK OF CALIFORNIA, N.A.,
Individually as a Lender
By:
Its:
BANK OF HAWAII, Individually as a Lender
By:
Its:
THE BANK OF NEW YORK, Individually as a
Lender
By:
Its:
BANQUE NATIONALE DE PARIS, Individually
as a Lender
By:
Its:
By:
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<PAGE>
Its:
CITY NATIONAL BANK, Individually as a
Lender
By:
Its:
FIRST NATIONAL BANK OF MARYLAND,
Individually as a Lender
By:
Its:
FLEET NATIONAL BANK, Individually as a
Lender
By:
Its:
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, Individually as a Lender
By:
Its:
THE SUMITOMO BANK, LIMITED, Individually
as a Lender
By:
Its:
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<PAGE>
NATIONAL BANK OF ALASKA, Individually as
a Lender
By:
Its:
-11-
=================================================================
GENERAL COMMUNICATION, INC.
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
-----------------------------------
20,000 SHARES OF SERIES B CONVERTIBLE REDEEMABLE
ACCRETING PREFERRED STOCK
Dated as of April 30, 1999
=================================================================
<PAGE>
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
April 30, 1999
To: Each of the Persons Named
on Annex A to this Agreement
Ladies and Gentlemen:
The undersigned, General Communication, Inc. (the "Company"), an Alaska
corporation, hereby agrees with you (sometimes referred to herein individually
as an "Investor" and sometimes collectively as the "Investors") as follows:
1.0 Authorization of Securities. The Company has authorized the
issuance of an aggregate of 35,000 and the sale of an aggregate of 20,000,
shares of its Series B Convertible Redeemable Accreting Preferred Stock (the
"Preferred Stock"), having the rights, preferences and privileges set forth in
the Statement of Stock Designation (hereinafter referred to as the
"Designation"), a copy of which is attached hereto as Annex B. The shares of
Preferred Stock are convertible into shares of Class A Common Stock of the
Company (the "Class A Common Stock") upon the terms and conditions set forth in
the Designation. The Preferred Stock and the Class A Common Stock are sometimes
referred to collectively herein as the "Securities."
2.0 Sale and Purchase of Preferred Stock. Upon the terms and subject to
the conditions herein contained, the Company agrees to sell to the Investors,
and the Investors agree to purchase from the Company, at the Closing (as
hereinafter defined) on the Closing Date (as hereinafter defined), 20,000 shares
of Preferred Stock, such commitment allocated among the Investors in the numbers
set forth opposite such Investor's name on Annex A attached hereto, and the
Investors shall pay to the Company an aggregate amount of Twenty Million Dollars
($20,000,000) (the "Required Payment"), allocated among the Investors as set
forth on Annex A attached hereto.
3.0 Closing.
3.1 Closing. The closing of the sale to and purchase by each
Investor of the Preferred Stock (the "Closing") shall occur at the offices of
Paul, Hastings, Janofsky & Walker LLP in Atlanta, Georgia, at the hour of 10:00
A.M., eastern standard time, on April 30, 1999 or at such different time or day
as the Investors and the Company shall agree (the "Closing Date"). At the
Closing, the Company will deliver to each Investor a certificate evidencing the
number of shares of Preferred Stock set forth
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<PAGE>
opposite such Investor's name on Annex A hereto, which shall be registered in
such Investor's name as stated on the signature page hereto, against delivery to
the Company of payment by wire transfer in an amount equal to the Required
Payment by such Investor.
4.0 Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities.
4.1 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the shares of Preferred Stock, the
Class A Common Stock and the Class B Common Stock (the "Class B Common Stock,"
together with the Class A Common Stock, the "Common Stock"), for the
registration of the issuance and sale of all such shares. All transfers of
Preferred Stock, or Class A Common Stock issued upon conversion of Preferred
Stock, shall be recorded on the register maintained by the Company or its agent,
and the Company shall be entitled to regard the registered Holder of such
Securities as the actual Holder of the Securities so registered until the
Company or its agent is required to record a transfer of such Securities on its
register. Subject to Section 4.2(c) hereof, the Company or its agent shall be
required to record any such transfer when it receives the Security to be
transferred, duly and properly endorsed by the registered Holder thereof or by
its attorney-in-fact duly authorized in writing.
4.2 Restrictions on Transfer.
(a) Each Investor understands and agrees that the
Preferred Stock it will be acquiring has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that accordingly
such stock will not be transferable except as permitted under various exemptions
contained in the Securities Act and any applicable state securities laws, or
upon satisfaction of the registration and prospectus delivery requirements of
the Securities Act and applicable state securities laws. Each Investor
acknowledges that it must bear the economic risk of its investment in the
Preferred Stock for an indefinite period of time (subject, however, to the
Company's obligation to redeem the Preferred Stock in accordance with Sections 4
and 5 of the Designation and to the Company's obligation to effect the
registration under the Securities Act of the Class A Common Stock issuable upon
conversion of the Preferred Stock in accordance with Section 10 hereof) because
such stock has not been registered under the Securities Act and therefore cannot
be sold, unless such stock is subsequently registered or an exemption from
registration is available.
(b) Each Investor hereby represents and warrants to
the Company and with respect to clause (iv) to each other Investor that (i) it
is acquiring the Preferred Stock it has agreed to purchase for investment
purposes, for its own account, and not with the view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act, (ii) it is an "accredited investor" as that term is defined in Rule 501
under the Securities Act, (iii) it is organized under the laws of and has its
principal executive office in the state set forth on Annex {4.2(b)}A attached
hereto, (iv) it is making an independent investment decision and is not relying
on representations of or information provided by any other Investor and (v) a
copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission for the year ended December 31, 1998, has
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<PAGE>
been made available to such Investor and such Investor has been given a
reasonable opportunity to ask questions of and receive answers from the Company,
and all persons acting on its behalf, concerning the Company, its business, the
Preferred Stock and other related matters and such Investor has availed itself
of such opportunity to the full extent desired.
(c) Each Investor hereby agrees with the Company as
follows:
(i) Subject to Section 4.3 hereof, the
certificates evidencing the Preferred Stock it has agreed to purchase, each
certificate issued in transfer thereof, and each certificate evidencing the
Class A Common Stock issued upon conversion of shares of the Preferred Stock
will bear the following legend:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
any applicable state securities laws. These securities may not be
sold or transferred in the absence of such registration or an
exemption therefrom under such Act and under any applicable state
securities laws."
(ii) The certificates representing such
Preferred Stock, each certificate issued in transfer thereof, and each
certificate evidencing the Class A Common Stock issued upon conversion of shares
of the Preferred Stock will also bear any legend required under any applicable
state securities laws.
(iii) Absent an effective registration
statement under the Securities Act covering the disposition of the Preferred
Stock or the Class A Common Stock issued in connection with the conversion of
such Preferred Stock, such Investor will not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of any of such securities except in compliance
with the Securities Act and the registration or qualification requirements of
any applicable state securities laws or any exemption therefrom.
(iv) No Holder of Preferred Stock shall
transfer any shares of Preferred Stock to a Direct Competitor of the Company (as
defined below) unless the prior consent of the Company is received, which
consent shall not be unreasonably withheld. For purposes of this Section 4.2
(c)(iv), "Direct Competitor of the Company" shall mean a Person which offers or
proposes to offer anywhere in the State of Alaska any of the following: (1)
facilities-based long distance communications service (including via undersea
cable), (2) facilities-based competitive local exchange or wireless
communications services, or (3) cable television or other terrestrial video or
data services; including, in each case, Internet and interactive services.
Communications services shall include, in all cases, voice, video and data
communications.
(v) The Company shall make a notation on its
records and may give instructions to any transfer agent of the Class A Common
Stock or Preferred Stock in order to implement the restrictions on transfer set
forth in this subsection (c).
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<PAGE>
4.3 Removal of Securities Act Transfer Restrictions. Any
legend endorsed on a certificate evidencing a Security pursuant to Section
4.2(c)(i) hereof and the stop transfer instructions and record notations with
respect to such Security shall be removed and the Company shall issue a
certificate without such legend to the Holder of such Security (a) if such
Security is registered under the Securities Act, or (b) if such Security may be
sold under Rule 144(k) of the Commission under the Securities Act or (c) if the
Holder provides the Company with an opinion of counsel (which may be counsel for
the Company) reasonably acceptable to the Company to the effect that a sale or
transfer of such Security may be made without registration under the Securities
Act.
5.0 Representations and Warranties by the Company. In order to induce
the Investors to enter into this Agreement and to purchase the Preferred Stock,
the Company hereby covenants with, and represents and warrants to, each Investor
as follows:
5.1 Organization; Power; Qualification; Capital Stock.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Alaska. The
Company has the corporate power and authority to own or lease and operate its
properties and to carry on its business as it is now being and hereafter
proposed to be conducted. The Company is duly qualified, in good standing and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its businesses requires such qualification or
authorization. Annex 5.1 correctly sets forth and identifies the number of
authorized shares of each class and series of capital stock of the Company, the
par value per share, and the number of issued and outstanding shares of each
such class and series on the date hereof, after giving effect to the
transactions contemplated hereby. Except as described on Annex 5.1 attached
hereto, the Company does not have outstanding any stock or securities
convertible into or exchangeable for any shares of its Common Stock, nor are
there any preemptive or similar rights to subscribe for or to purchase, or any
other rights to subscribe for or to purchase, or any options for the purchase
of, or any agreements providing for the issuance (contingent or otherwise) of,
or any calls, commitments, or claims of any character relating to, any Common
Stock or any stock or securities convertible into or exchangeable for any Common
Stock. Except as set forth on Annex 5.1, the Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its Common Stock or to register any shares of its Common
Stock, and there are no agreements restricting the transfer of any shares of the
Company's Common Stock.
(b) Other than the Preferred Stock to be issued
to the Investors pursuant to this Agreement, there are no shares of preferred
stock outstanding. The Preferred Stock has been duly authorized and, when issued
and paid for pursuant to the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, will have the rights, preferences
and privileges specified in the Designation and will be free and clear of all
Liens and restrictions, other than Liens that might have been created by the
Investors and restrictions on transfer imposed by Section 4.2 hereof; and the
Class A Common Stock issuable upon conversion of the Preferred Stock has been
duly authorized and reserved for issuance upon conversion of the
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<PAGE>
Preferred Stock and, when issued will be duly authorized, validly issued, fully
paid and nonassessable Class A Common Stock, in connection with such conversion
and clear of all Liens and restrictions, other than Liens that might have been
created by the Investors and restrictions imposed by Section 4.2 hereof.
5.2 Authorization. The Company has the corporate power and has
taken all necessary corporate action to authorize it to issue the Preferred
Stock and to execute, deliver and perform this Agreement and the Designation in
accordance with their respective terms, and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by the Company and is, along with the Designation, a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject, as to enforcement of remedies, to the following qualifications: (i)
certain equitable remedies are discretionary and, in particular, may not be
available where damages are considered an adequate remedy at law and (ii)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Company).
5.3 Subsidiaries. The Subsidiaries of the Company are listed
in Annex 5.3 attached hereto. The Company owns all of the outstanding capital
stock of each Subsidiary, except as set forth in Annex 5.3.
5.4 Compliance with Other Documents and Contemplated
Transactions. The execution, delivery and performance by the Company of this
Agreement and the Designation, each in accordance with their respective terms,
and the consummation of the transactions contemplated hereby and thereby, do not
and will not (i) require any consent, approval, authorization, permit or license
which has not already been obtained from, or effect any filing or registration
which has not already been effected with, any federal, state or local regulatory
authority, (ii) violate any Applicable Law with respect to the Company, (iii)
conflict with, result in a breach of, or constitute a default under the Restated
Articles of Incorporation or the Bylaws of the Company, under the Credit
Facilities, or under any indenture, agreement, or other instrument, including
without limitation the Licenses, to which the Company or any Subsidiary of the
Company is a party or by which any such company or its properties may be bound,
or (iv) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by the Company or any of
its Subsidiaries.
5.5 Business. The Company and its Subsidiaries are engaged in
the business of providing telecommunications and video services to residential,
commercial and government users, including without limitation, local, long
distance and wireless telephone services, cable television services and Internet
services.
5.6 Licenses, etc. All material Licenses necessary to the
operation of the Company's business have been authorized by the grantors thereof
and are in full force and effect, and the Company is in compliance in all
material respects with all of the
5
<PAGE>
provisions thereof. The Company has secured all Necessary Authorizations
required for the operation of its business and all such Necessary Authorizations
are in full force and effect.
5.7 Compliance with Law. The Company is in substantial
compliance with all Applicable Laws.
5.8 Litigation. There is no action, suit or proceeding pending
or, to the best of the Company's knowledge, threatened against or in any other
manner relating directly and adversely to, the Company or any of its properties
in any court or before any arbitrator of any kind or before or by any
governmental body, except as described on Annex 5.8 attached hereto, and no such
action, suit, proceeding or investigation (i) calls into question the validity
of this Agreement or the Designation, or (ii) if determined adversely to the
Company, would be likely to have a Materially Adverse Effect.
5.9 Financial Statements. The Company has furnished or
caused to be furnished to each Investor the audited balance sheet and statement
of income for the fiscal year ended December 31, 1998 (collectively, the
"Financials"), which as of the date hereof are complete and correct in all
material respects and present fairly in accordance with generally accepted
accounting principles the Company's financial position on and as at such dates
and the results of operations for the periods then ended. There are no material
liabilities, contingent or otherwise, of the Company which are not disclosed in
such Financials.
5.10 No Adverse Change. Since December 31, 1998, there has
occurred no event which is likely to have a Materially Adverse Effect.
5.11 Absence of Default, etc. The Company is in compliance
with all the provisions of its Restated Articles of Incorporation and Bylaws,
and no event has occurred or failed to occur, which has not been remedied or
waived, the occurrence or non-occurrence of which constitutes, or which with the
passage of time or giving of notice or both would constitute a material default
by the Company under any material indenture, agreement or other instrument
(individually, a "Material Agreement" and collectively, the "Material
Agreements"), including without limiting the foregoing, any License or any
judgment, decree or order to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their properties may
be bound or affected. All Material Agreements are in full force and effect, and
the Company has no knowledge that any party to any Material Agreement is seeking
or presently intends to seek to terminate, amend or modify such Material
Agreement.
5.12 Environmental Matters. Except as is described on Annex
5.12 attached hereto:
(i) The Property does not contain, in, on or under,
including, without limitation, the soil and groundwater thereunder,
any Hazardous Materials in violation of Environmental Laws or in
amounts that could give rise to material liability under
Environmental Laws.
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<PAGE>
(ii) The Company is in substantial compliance with all
applicable Environmental Laws, and there is no condition which could
interfere with the continued operation of any of the Properties in
substantial compliance with Environmental Laws, or impair the
financial condition of Company.
(iii) The Company has not received from any governmental
authority or any other Person any complaint, notice of violation,
alleged violation, investigation or advisory action or notice of
potential liability regarding matters of environmental protection or
permit compliance under applicable Environmental Laws with regard to
the Properties, nor is the Company aware that any governmental
authority is contemplating delivering to the Company any such
notice. There has been no pending or, to the Company's knowledge,
threatened complaint, notice of violation, alleged violation,
investigation or notice of potential liability under Environmental
Laws with regard to any of the Properties.
(iv) Hazardous Materials have not been generated, treated,
stored, disposed of, at, on or under any of the Property, except in
substantial compliance with all Environmental Laws, or in a manner
that could give rise to material liability under Environmental Laws
nor have any Hazardous Materials been transported or disposed of
from any of the Properties to any other location, except in
substantial compliance with all Environmental Laws, nor in a manner
that could reasonably be anticipated to give rise to material
liability under Environmental Laws.
(v) The Company is not a party to any governmental
administrative actions or judicial proceedings pending under any
Environmental Law with respect to any of the Properties, nor are
there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with
respect to any of the Properties.
(vi) There has been no release or threat of release of
Hazardous Materials into the environment at or from any of the
Properties, or arising from or relating to the operations of the
Company, in violation of Environmental Laws or in amounts that could
give rise to material liability under Environmental Laws.
5.13 Investment Company Act; Public Utility Holding Company
Act. The Company (i) is not an "investment company" or a company "controlled by
an investment company" and (ii) is not required to register, in each case, under
the provisions of the Investment Company Act of 1940, as amended, and neither
the entering into or performance by the Company of this Agreement violates any
provision of such Act or requires any consent, approval or authorization of, or
registration with, the Securities and Exchange Commission (the "Commission") or
any other governmental or public body or authority pursuant to any provisions of
such Act. The Company is not a "public utility holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended. None of
the transactions contemplated by this Agreement (including, without limitation,
the use of proceeds from the sale of the
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<PAGE>
Securities) will violate or result in a violation of Section 7 of the Exchange
Act or any regulation issued pursuant thereto including, without limitation,
Regulations U and X of the Board of Governors of the Federal Reserve System.
5.14 Securities Laws. The Company and any underwriters, sales
agents, representatives or brokers representing or acting on behalf of the
Company have complied with all material federal and state securities laws in
connection with the offer and sale of share interests in the Company, including
the Preferred Stock to be issued and sold pursuant to this Agreement. The offer,
sale and issuance of the Preferred Stock, including the issuance of the shares
of Class A Common Stock in connection with the conversion of the Preferred Stock
(assuming no action is taken after the date hereof by the Holders of Preferred
Stock to make an exemption from registration unavailable), are, in each case,
exempt from the registration requirements of the Securities Act and from the
registration or qualification requirements of the laws of any applicable state
or other jurisdiction, so long as the Investors do not take any action which
would cause the loss of such exemption. Neither the Company nor anyone on its
behalf will take any action hereafter that would or would be likely to cause the
loss of such exemption.
5.15 Disclosure; SEC Filings. There is no fact known to the
Company which the Company has not disclosed to the Investors in writing which
has or will have a Materially Adverse Effect. The information contained in this
Agreement, the Financials and in any writing furnished pursuant hereto or in
connection herewith, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or herein or
necessary to make the statements therein or herein not misleading. Additionally,
the Company has delivered or has made available to the Investors true and
complete copies of each registration statement, report and proxy or information
statement, including, without limitation, any Annual Reports to Shareholders
incorporated by reference in any of such reports, in form (including exhibits
and any amendments thereto) required to be filed with the Commission since
December 31, 1996 (collectively, the "Company SEC Reports"). As of the
respective dates the Company SEC Reports were filed, or, if any such Company SEC
Report was amended, as of the date such amendment was filed, each of the Company
SEC Reports (i) complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations promulgated
thereunder, and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, misleading. Each of the audited financial statements and
unaudited interim financial statements of the Company (including any related
notes and schedules) included (or incorporated by reference) in its Annual
Reports on Form 10-K for each of the three fiscal years ended December 31, 1996,
1997 and 1998 and its Quarterly Reports on Form 10-Q for all interim periods
subsequent thereto fairly present, in conformity with generally accepted
accounting principles, the financial position of the Company as of its date and
the results of operations and cash flows for the period then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements).
5.16 Year 2000 Compliance. The Company has (i) begun analyzing
the operations of the Company and its Subsidiaries that could be adversely
affected by
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failure to become Year 2000 compliant (that is, that computer applications,
imbedded microchips and other systems will be able to perform date-sensitive
functions prior to and after December 31, 1999) and (ii) developed a plan for
becoming Year 2000 compliant in a timely manner, the implementation of which is
on schedule in all material respects. The Company reasonably believes that it
will become Year 2000 compliant for its operations and those of its Subsidiaries
on a timely basis except to the extent that a failure to do so could not
reasonably be expected to have a Materially Adverse Effect. To the best
knowledge of the Company, any suppliers and vendors that are material to the
operations of the Company or its Subsidiaries will be Year 2000 compliant for
their own computer applications except to the extent that a failure to do so
could reasonably be expected not to have a Materially Adverse Effect.
6.0 Conditions Precedent to Investor's Obligations at the Closing. The
obligation of each Investor to execute this Agreement and purchase the Preferred
Stock is subject to the prior fulfilment of the following conditions:
6.1 Representations and Warranties. Representations and
warranties of the Company under this Agreement shall be true and correct in all
material respects as of the date hereof and any exceptions thereto shall be
acceptable to the Investors.
6.2 Simultaneous Purchase by Investors. The Company shall be
contemporaneously consummating the sale of the Preferred Stock to each of the
Investors listed on Annex A attached hereto.
6.3 No Material Adverse Change. There shall not have occurred
(i) a change in the financial condition, business, assets or prospects of the
Company or any of its Subsidiaries that constitutes a Materially Adverse Effect
with respect to the Company and its Subsidiaries taken as a whole, (ii) any
substantive change in local, state or federal governmental regulations affecting
the business of the Company or any of its Subsidiaries or the business proposed
to be conducted by the Company or any of its Subsidiaries that has a Materially
Adverse Effect, or (iii) any threatened, instituted or pending action,
proceeding, application or counterclaim by or before any governmental,
regulatory or administrative agency or authority, domestic or foreign, which
seeks to restrain or prohibit the transactions contemplated by this Agreement or
seeks damages in connection therewith or resulting therefrom, seeks to impose
any limitations on the ability of the Investors effectively to acquire or to
hold or to exercise full rights of ownership of the Securities, including,
without limitation, the right to vote the Securities in accordance with their
terms or would otherwise be reasonably likely to have a Materially Adverse
Effect on the Company.
6.4 Designation. The Designation shall have been approved by
the Board as required by the Alaska Corporations Code, shall have been filed and
recorded with the Department of Commerce and Economic Development of Alaska and
shall have become effective, and a copy of the Amended and Restated Articles of
Incorporation, as amended, certified by the Commissioner of the Department of
Commerce and Economic Development of Alaska shall have been delivered to the
Investors.
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6.5 Board Resolutions. The Board shall have resolved to submit
for shareholder approval at the next annual meeting of the shareholders, but in
no event later than {July} August 31, 1999, certain additional amendments to the
Amended and Restated Articles of Incorporation (the "Proposed Amendments"). The
Proposed Amendments shall provide that so long as any shares of Preferred Stock
remain outstanding, the Company shall not, directly or indirectly, without the
written consent of the Holders of a majority with respect to clause (i) and 80%
with respect to clause (ii) of the then-outstanding shares of Preferred Stock
(i) liquidate or dissolve the Company or (ii) permit the Company to be merged
with or into, or consolidated with, any other entity or sell all or
substantially all of the assets of the Company, in any case where the terms of
such merger, consolidation or sale would significantly and adversely affect the
rights and preferences of the Preferred Stock. In addition, the Board shall have
resolved, pursuant to Article IV, Section 2 of the By-laws of the Company, to
increase the number of directors serving on the Board by one with the nominee
for such additional position to be designated by Prime VIII, L.P., {or} and such
other Holders of Preferred Stock as are not prohibited by law or regulation from
participating in such designation.
6.6 Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement and the performance of the
Designation, including without limitation all such registrations,
qualifications, permits and approvals necessary for the offer, sale, issue and
delivery of the Securities.
6.7 Delivery of Documents. Each Investor shall have received
the following:
(a) copies of resolutions of the Board, certified
by an Authorized Signatory of the Company, authorizing and approving the
Designation and the matters set forth in Section 6.5 hereof, the execution,
delivery and performance of this Agreement, and all other documents and
instruments to be delivered pursuant hereto and thereto;
(b) a copy of the Bylaws of the Company certified
by an Authorized Signatory of the Company;
(c) a true and complete copy of each and any
agreements or arrangements of any kind among the shareholders of the Company, or
otherwise with respect to the ownership of the Company;
(d) evidence satisfactory to each Investor that
all Necessary Authorizations have been obtained or made, are in full force and
effect and are not subject to any pending or threatened reversal or
cancellation, and a certificate of an Authorized Signatory of the Company so
stating;
(e) good standing certificates for the Company
issued by the Secretary of State, or similar official, of each state in which
the Company is incorporated or qualified to do business as a foreign
corporation;
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(f) this duly executed Agreement;
(g) {a} favorable {opinion} opinions of Sherman &
Howard LLC, special counsel for the Company, and {dated the Closing Date
substantially in the form of Annex 6.7(g) attached hereto;
(h) a favorable opinion} of Wohlforth, Vassar,
Johnson & Brecht, counsel for the Company, dated the Closing Date collectively
substantially in the form of Annex {6.7(h)} 6.7(g) attached hereto;
(i) copies of the documentation relating to the
amendments to the $200,000,000 Amended and Restated Credit Agreement, dated as
of November 14, 1997, between GCI Holdings, as borrower, NationsBank of Texas,
N.A., as administrative agent, Credit Lyonnais New York Branch, as documentation
agent, and TD Securities (USA), Inc., as syndication agent and the $50,000,000
Amended and Restated Credit Agreement, dated as of November 14, 1997, between
GCI Holdings, Inc., a wholly-owned indirect subsidiary of the Company ("GCI
Holdings"), as borrower, NationsBank of Texas, N.A., as administrative agent,
Credit Lyonnais New York Branch, as documentation agent, and TD Securities
(USA), Inc., as syndication agent, in final form, the form, terms and conditions
of which shall be satisfactory to Investors and their counsel;
(j) a certificate representing the shares of
Preferred Stock to be purchased by such Investor;
(k) a certificate of incumbency with respect to
each Authorized Signatory; and
(l) such additional supporting documentation and
other information with respect to the transactions contemplated hereby as the
Investors or their special counsel, Paul, Hastings, Janofsky & Walker LLP, may
reasonably request.
6.8 Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be satisfactory in
form and substance to the Investors and to their special counsel, Paul,
Hastings, Janofsky & Walker LLP.
7.0 Affirmative Covenants. The Company agrees, that, unless the Holders
of a Majority of the then-outstanding shares of Preferred Stock or with respect
to Sections 7.7, 7.8, 7.9, 7.10 or 7.16 hereof the Holders of 80% of the
then-outstanding shares of Preferred Stock, otherwise agree in writing, so long
as any shares of Preferred Stock are outstanding, the Company will (and will
cause its Subsidiaries to) do the following:
7.1 Preservation of Existence and Similar Matters. Preserve
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, material
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rights, franchises and Licenses and its material privileges used in connection
with or relating to the operation of the Company's business of providing
telecommunications and video services to customers, including without
limitation, local, long distance and wireless telephone services, cable
television services and Internet services, and qualify and remain qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualifications or
authorizations. These material rights, franchises and Licenses shall include,
without limitation, Licenses and all other Necessary Authorizations.
7.2 Compliance with Applicable Law. Comply in all respects
with the requirements of all Applicable Laws except where compliance is being
contested in good faith by appropriate proceedings and adequate reserves have
been set aside therefor.
7.3 Maintenance of Properties. Maintain or cause to be
maintained in the ordinary course of business in good repair, working order and
condition (reasonable wear and tear excepted) all properties used or useful in
its business (whether owned or held under lease), and from time to time make or
cause to be made all needed and appropriate repairs, renewals, replacements,
additions, betterments and improvements thereto; provided, however, that the
provisions of this Section 7.3 shall not prevent the Company from selling,
transferring or otherwise disposing of property.
7.4 Accounting Methods and Financial Records. Maintain a
system of accounting established and administered in accordance with generally
accepted accounting principles consistently applied, keep adequate records and
books of account in which complete entries will be made in accordance with such
accounting principles consistently applied and reflecting all transactions
required to be reflected by such accounting principles. The Company shall also
maintain a fiscal year ending on December 31.
7.5 Maintain Insurance. Maintain in full force and effect a
policy or policies of insurance issued by insurers of recognized responsibility,
insuring it and its properties and business against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or a similar business and similarly situated.
7.6 Pay Taxes and Other Liabilities. Pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or any of
its Subsidiaries or their income or profits or upon any properties belonging to
them prior to the date on which penalties attach thereto, and all lawful claims
for labor, materials and supplies which, if unpaid, might become a Lien or
charge upon any of their properties; except that no such tax, assessment,
charge, levy or claim need be paid which is being contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as such tax, assessment,
charge, levy or claim does not become a Lien or charge other than a Permitted
Lien and no foreclosure, distraint, sale or similar proceedings shall have been
commenced. The
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Company shall timely file all information returns required by federal, state or
local tax authorities.
7.7 Financial Reports. The Company shall furnish to each
Holder of Preferred Stock:
(a) As soon as practicable and in any event
within sixty (60) days after the last day of each quarter of each fiscal year of
the Company, the consolidated balance sheet of the Company as at the end of such
quarter and the related consolidated statement of income and retained earnings
and related consolidated statement of cash flows of the Company for such quarter
and for the elapsed portion of the year ended with the last day of such quarter,
all of which shall be certified by the chief financial officer or chief
accounting officer of the Company, to be, in his opinion, complete and correct
in all material respects and to present fairly, in accordance with generally
accepted accounting principles, the financial position of the Company as at the
end of such period and the results of operation for such periods, and the
elapsed portion of the year ended with the last day of such period, subject only
to normal year-end adjustments;
(b) As soon as practicable and in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Company, the audited consolidated balance sheet of the Company as at the end of
such fiscal year and the related audited consolidated statements of income and
retained earnings or deficit and related consolidated statement of cash flows
for the Company for such fiscal year, setting forth in comparative form the
figures as at the end of and for the previous fiscal year and certified by
independent certified public accountants of national recognized standing, whose
opinion shall be in scope and substance reasonably satisfactory to the Holders
of Preferred Stock and include a statement certifying that no Default was
detected insofar as the terms, provisions or conditions of the Agreement relate
to accounting matters during the examination of the Company's consolidated
financial statements, and who shall have authorized the Company to deliver such
financial statements and opinions thereon to the Holders of Preferred Stock
pursuant to this Agreement;
(c) Promptly upon the receipt thereof by the
Company or the Board, copies of all reports, all management letters and other
detailed information submitted to the Company or the Board by independent
certified public accountants in connection with each annual or interim audit or
review of the accounts or affairs of the Company made by such accountants;
(d) Promptly after the same are available, copies
of all such proxy statements, financial statements and reports as the Company
shall send to its shareholders, and promptly upon the transmission thereof
copies of all registration statements, proxy statements and reports on Form 8-K,
Form 10-Q and Form 10-K, which the Company may file with or furnish to the
Commission or any governmental authority at any time substituted therefor; and
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(e) Promptly such other information relating to
the finances, properties, business and affairs of the Company and each
Subsidiary as any Holder reasonably may request from time to time.
7.8 Other Reports. The Company shall also provide to the
Holders of Preferred Stock the following:
(a) Promptly after its preparation and in no
event later than January 31 of each year, a copy of the annual budget of the
Company and its Subsidiaries for the fiscal year, including the budget for
capital expenditures for the operations of their businesses;
(b) Promptly upon learning of the occurrence of a
Default or a condition or event which with the giving of notice or the lapse of
time, or both, would constitute a Default, a certificate signed by the chief
executive officer or chief financial officer of the Company describing such
Default, or condition or event and stating what steps are being taken to remedy
or cure the same; and
(c) All such other notices and reports as are
provided under the Credit Facilities from time to time.
7.9 Notice of Litigation and Other Matters. Provide prompt
notice (and in any event, notice within three (3) Business Days) to the Holders
of Preferred Stock of the following events after the Company has received notice
thereof or otherwise becomes aware of:
(a) The commencement of any material proceeding
or investigation by or before any governmental body and any material actions or
proceedings in any court or before any arbitrator (i) against, or (ii) in any
other way relating materially adversely and directly to, the Company or any
Subsidiary or any of their properties, assets or businesses or any License;
(b) Any material amendment or material
modification to the budget submitted under Section 7.8(a) hereof; and
(c) Any breach, waiver, amendment, or termination
of any provision of the Credit Facilities.
7.10 Board of Directors. As soon as practicable following
issuance of the first share of Preferred Stock, and so long as any shares of
Preferred Stock are outstanding, the Company shall cause its Board of Directors
to include one seat the nominee for which to be designated by Prime VIII, L.P.
(as long as it is a Holder) and such other Holders of Preferred Stock as are not
prohibited from participating in the designation of such board member by law or
regulation, including pursuant to the Bank Holding Company Act as defined in
Section 8.2 hereof. Upon designation by Prime VIII, L.P. (as long as it is a
Holder) and such other Holders of Preferred Stock pursuant to this Section 7.10,
the Board of Directors of the Company shall cause such designated
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person to be nominated for approval by the Holders of the Common Stock at each
meeting of shareholders of the Company at which members of the Board of
Directors are to be elected. The Company shall, upon such nomination, recommend
the approval of such designee as a member of the Board. If the Holders of the
Class A Common Stock fail to elect the person designated by Prime VIII, L.P. and
such other Holders of Preferred Stock, if any, the Holders of Preferred Stock
will have the right to appoint an observer to attend all meetings of the
Company's Board of Directors. Further, and independent of such observer right,
at any time that the designee to the Board of Directors is not an employee of an
Investor or any of such Investor's affiliates, such Investor shall have an
additional right to appoint an observer to attend all meetings of the Company's
Board. The Company shall pay all reasonable out-of-pocket expenses for any such
observers' attendance at Board meetings. The Company may require all observers
to sign a reasonable confidentiality agreement.
7.11 Proxy Statement. The Company will (i) as promptly as
practicable following the date of this Agreement, prepare and file with the
Commission, and use its commercially reasonable efforts to have cleared by the
Commission and thereafter mail to its stockholders as promptly as practicable, a
proxy statement and a form of proxy, in connection with the vote at a meeting of
the Company's stockholders (such proxy statement, together with any amendments
thereof or supplements thereto, in each case in the form or forms mailed to the
Company's stockholders, is called the "Proxy Statement"), (ii) use its best
efforts to obtain the necessary approvals by its stockholders of the Proposed
Amendments and the transactions contemplated by this Agreement and (iii)
otherwise comply with all legal requirements applicable to such meeting. The
Company will include in the Proxy Statement the recommendation of its Board of
Directors that stockholders of the Company vote in favor of the approval of the
Proposed Amendments. The Company will use its best efforts to conduct the
stockholders' meeting on or before {July} August 31, 1999.
7.12 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any certificate representing any of the Securities, issue a new
certificate representing such Securities in lieu of such lost, stolen,
destroyed, or mutilated certificate.
7.13 Compliance With Designation and Bylaws. Perform and
observe all requirements of the Company's Bylaws and the Designation, including
without limitation its obligations to the Holders of Securities set forth in the
Designation and the Company's Bylaws.
7.14 Notice of Failure to Comply with Total Leverage Test.
Provide prompt written notice to the Holders of shares of Preferred Stock of the
Company's failure to meet the Total Leverage Ratio, as defined in the
Designation.
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7.15 Notice of Occurrence of Triggering Event. Provide prompt
written notice to the Holders of shares of Preferred Stock of the occurrence of
a Triggering Event, as defined in the Designation.
7.16 Amendments to or Repeal of Bylaws. Amend or repeal any
bylaw in any manner that would significantly and adversely affect the right and
preferences of the Preferred Stock.
8.0 Investor Regulatory Compliance.
8.1 Violation of BHCA. If any Investor or an Affiliate of any
Investor determines that it has a BHCA Issue (as defined below), the Company
agrees to use commercially reasonable efforts to take all such actions as are
reasonably requested by such Investor or such Affiliate in order to, at the
option of such Investor or such Affiliate, (a) effectuate and facilitate an
assignment or transfer by such Investor or such Affiliate of all or a part of
its interest in the Company represented by Preferred Stock or Class A Common
Stock issued upon conversion of Preferred Stock to a person or entity designated
by such Investor or such Affiliate, provided that such assignment or transfer is
in compliance with applicable federal and state securities laws and the assignee
or transferee agrees to be bound by this Agreement, or (b) amend this Agreement
or the Designation to enable such Investor to retain its interest in the
Company.
8.2 BHCA Issue. For purposes of this Agreement, a "BHCA Issue"
means any facts or circumstances under which any Investor or an Affiliate of any
Investor is or may be in violation or potential violation of the Bank Holding
Company Act of 1956, as amended from time to time (and any successor law
thereto), or the rules and regulations promulgated thereunder (collectively, the
"Bank Holding Company Act"), or any assertion by any governmental regulatory
agency that any Investor or an Affiliate of any Investor is or may be in
violation or potential violation of the Bank Holding Company Act by virtue of
such Investor or an Affiliate of such Investor holding, or exercising any
significant right with respect to, any capital stock of the Company.
9.0 Right to Demand Exchange of Preferred Stock; Reincorporation of the
Company or Change in Alaskan Law.
(a The Company shall have the right at any time
to exchange all, but not less than all, of the then-outstanding shares of
Preferred Stock for a subordinated debt instrument with terms identical to those
of the Preferred Stock (a "Debt Instrument"). Prior to exchanging the Preferred
Stock for a Debt Instrument, the Company must give the Holders of Preferred
Stock at least thirty (30) days written notice of its intent to exchange the
Preferred Stock for a Debt Instrument and must provide such Holders with the
proposed terms of the Debt Instrument in order that such Holders may confirm
that the terms of the Debt Instrument are identical to the terms of the
Preferred Stock. The Company shall draft all documents necessary to effect such
exchange, including an appropriate indenture, which documents shall be
satisfactory to the Holders of Preferred Stock and their counsel in their sole
discretion. The Company shall pay all expenses (including reasonable fees and
expenses of counsel) of the Holders incurred in
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connection with any such exchange. Upon the surrender by each Holder of its
shares of Preferred Stock, the Company shall issue to each surrendering Holder a
Debt Instrument with an aggregate face amount equal to the sum of (i) the number
of shares of Preferred Stock of such Holder multiplied by $1,000 per share, plus
(ii) all accrued and unpaid dividends payable with respect to such shares
pursuant to the terms of Section 2 of the Designation, whether or not earned or
declared, to and including the date of exchange. The Company shall take all
necessary steps and actions to promptly issue Debt Instruments to all Holders of
Preferred Stock pursuant to this Section 9, including without limitation, using
its best efforts to (i) obtain all necessary consents, waivers and approvals
from third parties, (including, without limitation, any financial institutions
which have issued indebtedness to the Company) required in order to permit the
Company to issue the Debt Instruments to such holders of Preferred Stock and
(ii) enter into any subordination agreements or arrangements which may be
required by any such third parties. Following receipt of notice pursuant to this
Section 9 from the Company and until the exchange shall be effected, each Holder
shall continue to have the right to convert their shares of Preferred Stock into
shares of Class A Common Stock pursuant to the Designation.
(b In the event the Company is reincorporated in
Delaware or any other state or Alaskan law is changed such that the Company is
permitted to issue equity redeemable at the option of the Holder, the parties
hereto agree to enter into appropriate amendments to this Agreement and the
Designation to (i) permit the Holders of Preferred Stock to demand redemption at
any time after the fourth anniversary of the date hereof or upon a Triggering
Event, as defined in the Designation, and (ii) to remove the increase in the
dividend rate to 17% per annum as set forth in Section 2 of the Designation. Any
amendments entered into pursuant to this Section 9(b) shall be satisfactory to
the Holders of the Preferred Stock and their counsel and the Company and its
counsel{, each in their sole discretion}.
10.0 Registration Rights. The Holders of shares of Preferred Stock
issued pursuant to this Agreement shall have the following rights with respect
to (i) all of the shares of Class A Common Stock issued or issuable upon
conversion of the Preferred Stock, whether owned by the Investors or not, and
(ii) any securities issued or issuable with respect to the Class A Common Stock
referred to in clause (i) above by way of a stock dividend or a stock split or
in connection with a combination of shares, reclassification, recapitalization,
merger or consolidation or reorganization; provided however, that such shares of
Class A Common Stock shall only be treated as Registrable Securities if and so
long as (i) they cannot be sold pursuant to Rule 144(k) promulgated under the
Securities Act or any successor provision, (ii) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (iii) they have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect to such Class A Common Stock are removed upon the
consummation of the sale (collectively, the "Registrable Securities"):
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10.1 Demand Registration. At any time after the date hereof,
any Holder or Holders of at least fifteen percent (15%) of the Registrable
Securities and any of its permitted successors hereunder (the "Initiating
Holder" or "Initiating Holders") acting alone, or together with other Holders
qualifying as Initiating Holders, shall have the right to request, on two
separate occasions, that the Company prepare and promptly file a registration
statement on Form S-3 (or, if such form is not then available, Form S-2 or such
other form then available for registration by the Company) under the Securities
Act covering Registrable Securities. Upon the receipt of such request, the
Company shall give prompt written notice to all other Holders of Registrable
Securities that such registration is to be effected. The Company shall include
in such registration statement such Registrable Securities for which it has
received a written request to register such Registrable Securities by the
Holders thereof within fifteen (15) days after the receipt of written notice
from the Company. The Company must file the registration statement within sixty
(60) days of the expiration of the above-referenced fifteen (15) day period and
the Company shall use its best efforts to have such registration statement
declared effective by the Commission within sixty (60) days after the filing
thereof.
If the Initiating Holder so demands, the registration pursuant
to this Section 10.1 shall be an underwritten public offering and only shares of
Registrable Securities which are to be included in the underwriting may be
included in such registration. The Holders of a majority of the Registrable
Securities held by the Initiating Holders and included in any registration
pursuant to this Section 10.1 shall have the right to select the managing
underwriter(s) for such registration. If the underwriter(s) so designated
advises the Company and the Holders participating in such registration in
writing that in their opinion, the number of Registrable Securities requested to
be included in such offering exceeds the number of Registrable Securities which
can be sold in such offering, the Company will include in such registration such
number of Registrable Securities which in the opinion of such underwriter(s) may
be sold, allocated among the Holders of Registrable Securities electing to
participate in such registration on a pro rata basis, based upon each such
Holder's respective proportionate ownership of the aggregate amount of
Registrable Securities requested to be included in such registration by all of
the Holders of Registrable Securities. The Company will not include in such
registration pursuant to this Section 10.1 any securities which are not
Registrable Securities unless all Registrable Securities as to which an election
to participate has been delivered to the Company are included and the
underwriter(s) do not object to the inclusion of such additional securities.
10.2 Prompt Registration of Class A Common Stock. Promptly
upon (and in any event not more than thirty (30) days after), (i) a Mandatory
Conversion by the Company of the shares of Preferred Stock into shares of Class
A Common Stock pursuant to Section 8(l) of the Designation or (ii) receipt of a
notice to convert from a Holder or Holders of shares of Preferred Stock pursuant
to Section 8(m) of the Designation in connection with the Company's failure to
redeem shares of Preferred Stock subject to Mandatory Redemption or Optional
Redemption, the Company shall prepare and file, and use its commercially
reasonable efforts to have declared effective, a registration statement on Form
S-3 (or such other then applicable form) covering all shares of Class A Common
Stock to be issued upon such conversion. Registration
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pursuant to this Section 10.2 shall not count as a demand registration pursuant
to Section 10.1 hereof.
10.3 Piggyback Rights. In addition, each time the Company
shall determine to file a registration statement under the Securities Act (other
than pursuant to Section 10.1 or 10.2 hereof and other than on a Form S-4, Form
S-8 or any similar form covering solely an employee benefit plan) in connection
with the proposed offer and sale for money of any of its securities either for
its own account or on behalf of any other security Holder, the Company shall
give prompt written notice of such determination to all Holders of Registrable
Securities. Each Holder shall provide a written request to the Company if it
desires to participate in such registration (the "Holder Notice") stating the
number of shares of Registrable Securities to be registered, which Holder Notice
must be given within thirty (30) days after receipt by the Holder of the
Company's notice. Upon receipt of a Holder Notice, the Company shall cause all
shares of Registrable Securities with respect to which such Holder has requested
registration to be included in such registration statement and registered under
the Securities Act, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable Securities
to be so registered. If the registration of which the Company gives written
notice pursuant to this Section 10.3 is for a public offering involving an
underwriting, the Company shall so advise the Holders as a part of its written
notice.
If the registration of which the Company gives notice pursuant
to this Section 10.3 is for an underwritten public offering, only a Holder's
share of Registrable Securities which such Holder agrees may be included in the
underwriting may be included in such registration, and the Company shall have
the right to designate the managing underwriter(s) in any such underwritten
public offering; provided that the Company shall use its best efforts to cause
the managing underwriter(s) to include such Holder's Registrable Securities
requested to be included in the registration in the underwriting. If the
managing underwriter(s) advises the Holders of Registrable Securities
participating in such registration in writing that the total amount of
securities which such Holders, the Company, and any other stockholders of the
Company intend to include in such offering is sufficiently large to materially
and adversely affect the success of such offering, the Company will limit the
registration (i) first, to the securities the Company intends to sell in such
registration, and (ii) second, to Registrable Securities as to which a request
for inclusion has been made and securities held by other stockholders having
contractual registration rights, pro rata among the holders thereof based upon
each holder's percentage ownership of the aggregate amount of securities as to
which a request for inclusion has been made. In such case, no securities shall
be included in the offering on behalf of stockholders of the Company who do not
have piggyback registration rights as of the date of this Agreement. If any
Holder of Registrable Securities disapproves of the terms of such underwriting,
it may elect to withdraw therefrom by written notice to the Company at least
twenty (20) days prior to the effective date of the Company's registration
statement.
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If a registration under Section 10.1, 10.2 or 10.3 shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities shall be deemed to have agreed by acquisition of such Registrable
Securities not to effect any sale or distribution, including any sale pursuant
to Rule 144 or Rule 144A, of any Registrable Security, and to use such Holder's
reasonable best efforts not to effect any such sale or distribution of any other
Equity Security of the Company or of any security convertible into or
exchangeable or exercisable for any Equity Security of the Company (other than
as part of such underwritten public offering) within seven (7) days before or
ninety (90) days after the effective date of such registration statement (and
the Company hereby also so agrees, and agrees to use its best efforts to cause,
each Holder of any Equity Security , or of any security convertible into or
exchangeable or exercisable for any Equity Security, of the Company purchased
from the Company at any time other than in a public offering, so to agree.)
As a condition to the inclusion of the Holder's Registrable
Securities in any registration statement, Holder will furnish to the Company
such information with respect to Holder as is required to be disclosed in the
registration statement (and the prospectus included therein) by the applicable
rules, regulations and guidelines of the Commission. Failure of a Holder to
furnish such information or agreement shall not affect the obligation of the
Company under this Section 10 to the remaining Holders of Registrable
Securities. So long as any Registrable Securities are outstanding, the Company
will not grant any additional registration rights to any other Person which
would give such other Person the right to have securities registered in priority
to or pro rata with the Holders of Registrable Securities.
If, at any time after giving notice of the intention to
register any securities under this Section 10.3 and prior to the effective date
of the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give notice of such determination to the Holders
of Registrable Securities and thereupon will be relieved of its obligation to
register any such securities in connection with such registration.
10.4 Procedure. If and whenever the Company is required by the
provisions of this Section 10 to effect the registration of Registrable
Securities under the Securities Act, the Company, at its expense and as
expeditiously as possible shall, in accordance with the Securities Act and all
applicable rules and regulations, prepare and file with the Commission a
registration statement with respect to such securities and shall use its
commercially reasonable efforts to cause such registration statement to become
and remain effective until the securities covered by such registration statement
have been sold, and prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus contained therein
as may be necessary to keep such registration statement effective and such
registration statement and prospectus accurate and complete until the securities
covered by such registration statement have been sold; provided that the Company
shall not be required to maintain the effectiveness of any registration (other
than a registration pursuant to Section 10.2 hereof which shall be maintained
effective until all registered securities are sold or the Holders of
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Registrable Securities otherwise agree in writing to its withdrawal) for a
period longer than one-hundred eighty (180) days after the effective date of
such registration statement. The Company shall furnish to each of the Holders
participating in such registration and to such Holders' counsel and the
underwriters of securities being registered such number of copies of the
registration statement and each amendment and supplement thereto, preliminary
prospectus, final prospectus and such other documents as such underwriters and
Holders may reasonably request in order to facilitate the public offering of
such securities. In addition, the Company shall otherwise take such other
actions as are necessary and appropriate to effect any such registration in
compliance with all provisions of the Securities Act and all applicable state
securities laws, including, without limitation, using its commercially
reasonable efforts to register or qualify the securities covered by such
registration statement under such state securities or Blue Sky laws of such
jurisdictions as are reasonably necessary to effect the sale thereof (other than
in any jurisdiction where the Company would be required to execute a general
consent to service of process where it has not already filed such consent) and
such other actions as each of the Holders participating in such registration
shall reasonably request. The Company shall also promptly notify each of the
Holders participating in such registration at any time when a prospectus
relating to Registrable Securities is required to be delivered under the
Securities Act of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits to state any facts necessary to make the statements
contained therein not misleading and at the request of any such Holder the
Company will promptly prepare a supplement or amendment to such prospectus so
that as thereafter delivered to the purchasers of such securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading. The
Company shall promptly inform each of the Holders participating in such
registration of any and all correspondence between the Company and the
Commission with respect to such registration.
10.5 Expenses. As to all registrations under Sections 10.1,
10.2 and 10.3, the Company shall pay all costs, fees and expenses incident to
the performance and compliance by the Company with Section 10, including,
without limitation, (A) all registration and filing fees; (B) all printing
expenses; (C) all fees and disbursements of counsel and independent public
accountants for the Company; (D) all blue sky fees and expenses (including fees
and expenses of counsel in connection with blue sky surveys); (E) all transfer
taxes; (F) the entire expense of any audits incident to such registration
required by the rules and regulations of the Commission; (G) the cost of
distributing prospectuses in preliminary and final form as well as any
supplements thereto; and (H) the fees and expenses of one counsel for the
Holders of the Registrable Securities being registered. Each Holder of
Registrable Securities shall bear its proportionate cost of all underwriting
fees and commissions relating to Registrable Securities, such proportionate
amount to be equal to a fraction, the numerator of which is the amount of
Registrable Securities being registered by such Holder and the denominator of
which is the aggregate number of Registrable Securities being registered by all
of the Holders of Registrable Securities participating in such registration.
10.6 Indemnification.
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(a) The Company hereby agrees to indemnify and
hold harmless each Holder of Registrable Securities included in a registration
statement pursuant to this Section 10 and each of such Holder's partners,
employees, affiliates, officers and directors and each person who controls such
Holder within the meaning of the Securities Act and any underwriter (as defined
in the Securities Act) for such Holder, and any person who controls such
underwriter within the meaning of the Securities Act, from and against, and
agrees to reimburse promptly such Holder, its partners, employees, affiliates,
officers, directors and controlling persons and each such underwriter and
controlling person of such underwriter with respect to, any and all claims,
actions (actual or threatened), demands, losses, damages, liabilities, costs and
expenses to which such Holder, its partners, employees, affiliates, officers,
directors or controlling persons, or any such underwriter or controlling person
of such underwriter may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein, or any amendment 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, in light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, action, demand, loss, damage, liability, cost or
expense is caused by an untrue statement or alleged untrue statement or omission
or alleged omission so made in strict conformity with written information
furnished by such Holder, such underwriter or such controlling person (as the
case may be) specifically for use in the preparation thereof.
(b) Each Holder of Registrable Securities which
are included in a registration statement pursuant to this Section 10 hereby
agrees, severally only and not jointly, to indemnify and hold harmless the
Company, its employees, Affiliates, officers and directors and each person who
controls the Company within the meaning of the Securities Act, from and against,
and agrees to reimburse the Company, its employees, Affiliates, officers,
directors and controlling persons with respect to, any and all claims, actions
(actual or threatened), demands, losses, damages, liabilities, costs and
expenses to which the Company, its officers, directors, or such controlling
persons may become subject under the Securities Act or otherwise, insofar as
such claims, actions, demands, losses, damages, liabilities, costs or expenses
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance upon
and in strict conformity with written information furnished by such Holder
specifically for use in the preparation thereof. Notwithstanding any provision
to the contrary contained herein, the aggregate liability of each Holder of
Registrable Securities pursuant to this Section 10.6 shall be limited to an
amount equal to the gross proceeds received by such Holder from the offering of
Registrable Securities registered by such Holder pursuant to this Section 10.
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(c) Promptly after receipt by a party indemnified
pursuant to the provisions of subsection (a) or (b) of this Section 10.6 of
notice of the commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim therefor
is to be made against the indemnifying party in writing pursuant to the
provisions of subsection (a) or (b), notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 10.6 and shall not relieve the indemnifying
party from liability under this Section 10.6. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
parties similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in 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, the indemnified party or parties shall have the right to
select separate counsel (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnifying party of the defense
of such action, and approval by the indemnified party of counsel, which approval
will not be unreasonably withheld, the indemnifying party shall not be liable to
such indemnified party under subsection (a) or (b) for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof (other than reasonable costs of investigation) unless (i) the
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the immediately
preceding sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time, (iii) the indemnifying party and its counsel do not actively
and vigorously pursue the defense of such action, or (iv) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. No indemnifying party shall be liable to an
indemnified party for any settlement of any action or claim without the consent
of the indemnifying party and no indemnifying party may unreasonably withhold
its consent to any such settlement. No indemnifying party will consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim or
litigation.
(d) If the indemnification provided for in
subsection (a) or (b) of this Section 10.6 is held by a court of competent
jurisdiction to be unavailable to a party to be indemnified with respect to any
claims, actions, demands, losses, damages, liabilities, costs or expenses
referred to therein, then each indemnifying party under any such subsection, in
lieu of indemnifying such indemnified party thereunder, hereby agrees to
contribute to the amount paid or payable by such indemnified party as a result
of such claims, actions, demands, losses, damages, liabilities, costs or
expenses in such proportion as is appropriate to reflect the relative benefits
received by such indemnifying
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party on the one hand and the indemnified party on the other from the related
offering. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount payable by such indemnified person in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions which resulted
in such claims, actions, demands, losses, damages, liabilities, costs or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by an indemnifying party on the one hand and an indemnified
party on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by each party
bear to the total net proceeds from the offering received by each other party
and, with respect to an underwriter, the total underwriting discounts and
commissions received by such underwriter, and in each case as set forth in the
table on the cover page of the related prospectus. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
(e) In addition to its other obligation under
this Section 10.6, the Company further agrees to reimburse promptly each Holder
of Registrable Securities included in a registration statement pursuant to this
Agreement (and each of such Holder's controlling persons, officers, directors,
and underwriters (and controlling persons of such underwriters)) on a monthly
basis for all reasonable legal fees, expenses and other fees and expenses
incurred by such Holder in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or admission, described in
subsection (a) of this Section 10.6, notwithstanding the possibility that such
payments might later be held to be improper. To the extent that any payment is
ultimately held to be improper, each person receiving such payment shall
promptly refund such payment.
10.7 Delay in Registration. Notwithstanding anything to the
contrary herein, the Company may postpone any registration which is requested
pursuant to this Agreement for a reasonable period of time (not exceeding 30
days) if its Board determines in good faith and a responsible officer so advises
the Holders participating in such registration in writing that it is advisable
to defer public disclosure of material corporate developments or other
information, and that such registration and the disclosures required to be made
pursuant thereto could have a material adverse effect on the Company or on the
public market for its securities; provided that the right to delay registration
pursuant to this Section 10.7 shall not be exercised more than one time during
any consecutive 12-month period.
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11. Right of First Refusal.
11.1 Subsequent Offerings. Each Holder of shares of Preferred
Stock issued pursuant hereto or shares of Class A Common Stock into which such
shares of Preferred Stock were converted shall have the right of first refusal
to purchase such Holder's pro rata share (based on the portion of all shares of
Preferred Stock held or formerly held by such Holder) of the greater of (i) the
sum of each Holder's Class A Common Percentage of, or (ii) $5,000,000 {(divided
among such Holders based on their pro rata share)} in the aggregate of, any
Equity Securities that the Company may, from time to time, propose to sell and
issue after the Closing Date, other than Equity Securities excluded by Section
11.2 hereof. Each Holder's Class A Common Percentage is the ratio of the total
number of shares of Class A Common Stock which such Holder is entitled to
receive upon conversion of its shares of Preferred Stock immediately prior to
the issuance of such Equity Securities to the total number of shares of Class A
Common Stock outstanding immediately prior to the issuance of such Equity
Securities. The right to participate in subsequent offerings pursuant to this
Section 11.1 shall terminate as to a Holder as of the earlier of (i) the date
such Holder no longer owns any shares of Preferred Stock or Class A Common Stock
issued upon the conversion of Preferred Stock or (ii) the date that is one year
after such Holder has converted all shares of Preferred Stock held by it into
shares of Class A Common Stock.
11.2 Excluded Securities. The rights of first refusal
established by this Section 11 shall have no application to any of the following
Equity Securities: (a) shares of Common Stock issued to employees or directors
of or consultants or advisors to the Company under employee or management stock
option agreements or plans; (b) the shares of Preferred Stock issued pursuant
hereto; (c) stock issued pursuant to any rights or agreements including, without
limitation, convertible securities, options and warrants, provided that the
rights of first refusal established by this Section 11 applied with respect to
the initial sale or grant by the Company of all such rights or agreements; (d)
any Equity Security issued for a consideration other than cash pursuant to a
merger, consolidation, acquisition or similar business combination; (e) any
Equity Security that is issued by the Company as part of an underwritten public
offering; (f) shares of Common Stock issued in connection with any stock split,
stock dividend or reverse stock split; and (g) any Equity Security which the
Holders of at least 80% of the then-outstanding shares of Preferred Stock issued
pursuant hereto or shares of Class A Common Stock into which such shares of
Preferred Stock were converted, agree in writing shall not be subject to this
Section 11.
11.3 Exercise of Rights. If and each time the Company proposes
to issue Equity Securities, it shall give each such Holder of shares of
Preferred Stock or shares of Class A Common Stock into which such shares of
Preferred Stock were converted written notice (the "Equity Notice") of its
intention, describing the Equity Securities (including, without limitation, the
voting powers, preferences or other special rights and the qualifications,
limitations or restrictions thereof), the issuance price, the general terms and
conditions upon which the Company proposes to issue the same and each Holder's
applicable pro rata share. Each Holder shall have thirty (30) days from the
giving of the Equity Notice to agree to purchase its pro rata share of Equity
Securities for the price and upon the terms and conditions specified in the
Equity Notice by giving written notice to the Company and stating therein the
quantity of Equity Securities such Holder intends to purchase, it being
understood that each Holder may in its sole discretion purchase any or all of
its pro rata share of Equity Securities. Each Holder shall
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have a right of over-allotment such that if any Holder of shares of Common Stock
fails to exercise its rights hereunder to purchase its entire pro rata portion
of the Equity Securities, the other such Holders may purchase any or all of the
nonpurchasing Holder's portion on a pro rata basis, within ten (10) days from
the end of such thirty (30) day period.
11.4 Issuance of Equity Securities to other Persons. If the
Holders of shares of Preferred Stock issued pursuant hereto or shares of Class A
Common Stock into which such shares of Preferred Stock were converted fail to
exercise in full the rights of first refusal within forty (40) days from the
date of the giving of the Equity Notice to the Holders, the Company shall have
ninety (90) days thereafter to complete the sale of any of the Equity Securities
in respect of which the Holders' rights were not exercised, at a price and upon
general terms and conditions no more favorable to the purchasers thereof than
those specified in the Company's notice to the Holders pursuant to Section 11.3
hereof. If the Company has not sold all of these Equity Securities within such
ninety (90) days, the Company shall not thereafter issue or sell any of such
Equity Securities, without first offering such securities to the Holders of
shares of Preferred Stock issued pursuant hereto or shares of Class A Common
Stock into which such shares of Preferred Stock were converted in the manner
provided above.
12. Enforcement.
12.1 Remedies at Law or in Equity. If any Default shall occur
or if any representation or warranty made by or on behalf of the Company in this
Agreement or in any certificate, report or other instrument delivered under or
pursuant to any term hereof shall be untrue or misleading in any respect as of
the date of this Agreement or as of the date it was made, furnished or
delivered, the Holder of any Security may proceed to protect and enforce its
rights by suit in equity or action at law, whether for the specific performance
of any term contained in this Agreement or the Designation or for an injunction
against the breach of any such term or in aid of the exercise of any power
granted in this Agreement or the Designation, or to enforce any other legal or
equitable right of such Holder of any such Securities, or to take any one or
more of such actions. In the event a Holder brings such an action against the
Company, the prevailing party in such dispute shall be entitled to recover from
the losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement or the Designation,
including, without limitation, such fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
12.2 Cumulative Remedies. None of the rights, powers or
remedies conferred upon any Holder of shares of Preferred Stock or Class A
Common Stock shall be mutually exclusive, and each such right, power or remedy
shall be cumulative and in addition to every other right, power or remedy,
whether conferred hereby or by the Designation or now or hereafter available at
law, in equity, by statute or otherwise.
12.3 No Implied Waiver. Except as expressly provided in this
Agreement, no course of dealing between the Company and the Investors or the
Holder of any Security and no delay in exercising any such right, power or
remedy conferred hereby
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or by the Designation now or hereafter existing at law, in equity, by statute or
otherwise, shall operate as a waiver of, or otherwise prejudice, any such right,
power or remedy.
13. Definitions. Unless the context otherwise requires, the terms
defined in this Section 13 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section 13
and those accounting terms used in this Agreement not defined in this Section 13
shall, except as otherwise provided for herein, be construed in accordance with
those generally accepted accounting principles that the Company is required to
employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 13 and those accounting
terms appearing in this Agreement but not defined in this Section 13 shall be
determined on a consolidated basis for the Company and each of its Subsidiaries,
and the financial statements and other financial information to be furnished by
the Company pursuant to this Agreement shall be consolidated.
"Affiliate" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with, the indicated
Person. For purposes of this definition "control" when used with respect to any
Person includes, without limitation, the direct or indirect beneficial ownership
of more than ten percent (10%) of the voting securities or voting equity or
partnership interests of such Person, or the power to direct or cause the
direction of the management or policies of such Person, whether by contract or
otherwise.
"Agreement" shall mean this Agreement.
"Applicable Law" shall mean all provisions of constitutions,
statutes, rules, regulations, and orders of governmental bodies or regulatory
agencies applicable to the Company, including, without limitation, the Licenses,
the Communications Act of 1934, as amended, Environmental Laws, and Title 17 of
the United States Code and all orders and decrees of all courts and arbitrators
in proceedings or actions to which the Company is a party or by which it is
bound.
"Articles" shall have the meaning assigned to it in Section 1
hereof.
"Authorized Signatory" shall mean such senior personnel of the
Company as may be duly authorized and designated in writing by the Company to
execute documents, agreements and instruments on behalf of the Company.
"BHCA Issue" shall have the meaning assigned to it in Section
8.2 hereof.
"Bank Holding Company Act" shall have the meaning assigned to
is in Section 8.2 hereof.
"Board" shall mean the Board of Directors of the Company.
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"Business Day" shall mean a day on which banks and foreign
exchange markets are open for the transaction of business required for this
Agreement in London and New York, as relevant to the determination to be made or
action to be taken.
"Class A Common Stock" shall have the meaning assigned to it
in Section 1 hereof.
"Class B Common Stock" shall have the meaning assigned to it
in Section 4.1 hereof.
"Common Stock" shall have the meaning assigned to it in
Section 4.1 hereof.
"Commission" shall mean the Securities and Exchange
Commission.
"Company SEC Reports" shall have the meaning assigned to it in
Section 5.21 hereof.
"Credit Facilities" shall mean (i) that certain $50,000,000
Amended and Restated Credit Agreement, dated as of November 14, 1997, between
GCI Holdings, Inc., a wholly-owned indirect subsidiary of the Company ("GCI
Holdings"), as borrower, NationsBank of Texas, N.A., as administrative agent,
Credit Lyonnais New York Branch, as documentation agent, and TD Securities
(USA), Inc., as syndication agent, as amended, (ii) that certain $200,000,000
Amended and Restated Credit Agreement, dated as of November 14, 1997, between
GCI Holdings, as borrower, NationsBank of Texas, N.A., as administrative agent,
Credit Lyonnais New York Branch, as documentation agent, and TD Securities
(USA), Inc., as syndication agent, as amended, (iii) that certain Credit and
Security Agreement dated as of January 27, 1998 among Alaska United Fiber System
Partnership, Credit Lyonnais New York Branch, NationsBank of Texas, N.A., TD
Securities (USA), Inc. and the other lenders referred to therein, as amended,
and (iv) the Company's 9 3/4% Senior Notes in the principal amount of
$180,000,000.
"Debt Instrument" shall have the meaning assigned to it in
Section 9 hereof.
"Default" shall mean a default or failure in the due
observance or performance of any covenant, condition or agreement on the part of
the Company or any of its Subsidiaries to be observed or performed under the
terms of this Agreement or the Designation, if such default or failure in
performance shall remain unremedied for ten (10) days.
"Designation" shall have the meaning assigned to it in Section
1 hereof.
"Environmental Laws" shall mean any and all federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, permit conditions, decrees or requirements of any governmental authority
regulating, relating to or imposing liability or standards of conduct concerning
environmental protection matters, including, without limitation, those relating
to releases, discharges, emissions or disposals to air,
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water, land or ground water, to the withdrawal or use of ground water, to the
use, handling or disposal of polychlorinated biphenyals, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances,
including, without limitation, any provisions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. ss. 9601 et seq.) or the Resource Conservation and Recovery Act of 1976,
as amended (42 U.S.C. ss. 6901, et seq.).
"Equity Notice" shall have the meaning assigned to it in
Section 11.3 hereof.
"Equity Security" shall mean any stock or similar security of
the Company or any security (whether stock or indebtedness) convertible or
exchangeable, with or without consideration, into or for any stock or similar
security or any security (whether stock or indebtedness) carrying any warrant or
right to subscribe to or purchase any stock or similar security or any such
warrant or right.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as in effect on the date hereof and as such Act may be amended
thereafter from time to time.
"ERISA Affiliate" shall mean any Person which is an
"Affiliate" of the Company within the meaning of Section 414 of the Internal
Revenue Code and which, together with the Company, is treated as a single
employer for purposes of such Section 414.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"FCC" shall mean the Federal Communications Commission or any
successor agency.
"FCC License" shall mean any community antennae relay service,
broadcast auxiliary license, earth station registration, business radio,
microwave or special safety radio service license issued by the FCC pursuant to
the Communications Act of 1934, as amended, and any other FCC license from time
to time necessary or advisable for the operation of the Company's business.
"Financials" shall have the meaning assigned to it in Section
5.11 hereof.
"Hazardous Materials" shall mean all toxic and hazardous
substances and wastes and petroleum products.
"Holder" of any Security shall mean the record or beneficial
owner of such Security.
29
<PAGE>
"Holder Notice" shall have the meaning assigned to such term
in Section 10.3 hereof. "Initiating Holder" shall have the meaning assigned to
such term in Section 10.1 hereof.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
"Investor" and "Investors" shall have the meaning assigned to
it in the introductory paragraph of this Agreement.
"Licenses" shall mean any license, permit, certificate of
need, authorization, certification, accreditation, franchise, approval or grant
of rights, whether based upon any agreement, statute, order, ordinance or
otherwise granted by any governmental authority to the Company or any Subsidiary
necessary or appropriate for the Company or any Subsidiary to engage in its
business as currently conducted, including, without limitation, in order to
provide telecommunication, local, long distance and wireless telephone services,
cable television services or internet services to residential, commercial or
governmental users, including, without limitation, FCC Licenses, together with
any amendment, modification or replacement with respect thereto.
"Lien" shall mean with respect to any property, any mortgage,
lien, pledge, charge, security interest or other encumbrance of any kind,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement and any lease
deemed to constitute a security interest and any option or other agreement to
give any security interest).
"Mandatory Redemption" shall mean the redemption by the
Company of the shares of Preferred Stock on the terms and under the conditions
set forth in Section 4 of the Designation.
"Mandatory Redemption Event" shall mean any event described in
Section 4 of the terms of the Preferred Stock set forth in the Designation, the
occurrence of which shall result in the mandatory redemption of the Preferred
Stock.
"Material Agreement" shall have the meaning assigned to it in
Section 5.14 hereto.
"Materially Adverse Effect" shall mean any materially adverse
effect upon the business operation, assets, liabilities, financial condition,
results of operations or business prospects of the Company or any of its
Subsidiaries, or the ability of the Company to perform this Agreement or observe
the terms of the Designation, resulting from any act, omission, situation,
status, event or undertaking, either singly or taken together.
30
<PAGE>
"Multiemployer Plan" shall have the meaning set forth in
Section 4001(a)(3) of ERISA.
"Necessary Authorizations" shall mean all authorizations,
consents, permits, exemptions, approvals and licenses from, and all filings and
legislations with, and all required reports to, any governmental or regulatory
authority, including without limiting the foregoing the Licenses and approvals,
licenses, filings and registrations under the Communications Act of 1934, as
amended, necessary in order to enable the Company to consummate the transactions
contemplated by this Agreement.
"Optional Redemption" shall mean the redemption, at the option
of the Investors or the Company, of the shares of Preferred Stock on the terms
and on the conditions as set forth in Sections 4 and 5 of the Designation.
"Person" shall include any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Plan" shall mean an employee benefit plan within the meaning
of Section 3(3) of ERISA or any other plan maintained for employees of any
Person or any ERISA Affiliate of such Person.
"Preferred Stock" shall have the meaning assigned to it in
Section 1 hereof.
"Property" shall mean any real property or personal property,
plant, building, facility, structure, underground storage tank or unit,
equipment, inventory or other asset, owned, leased or operated by the Company or
any Subsidiary of the Company (including, without limitation, any surface water
thereon or adjacent thereto, and soil and groundwater thereunder).
"Proposed Amendments" shall have the meaning assigned to it in
Section 6.5 hereof.
"Registrable Securities" shall have the meaning assigned to it
in Section 10 hereof.
"Reportable Event" shall have the meaning set forth in Title
IV of ERISA.
"Required Payment" shall have the meaning assigned to it in
Section 2 hereof.
"Securities" shall have the meaning assigned to it in Section
1 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
31
<PAGE>
"Subsidiary" shall mean (i) any corporation of which fifty-one
percent (51%) or more of the voting stock, or any partnership or limited
liability company of which fifty-one percent (51%) or more of outstanding
interests, is at any time owned by the Company, or by one or more Subsidiaries
of the Company, or by the Company and one or more Subsidiaries of the Company,
and (ii) any other entity which is controlled or capable of being controlled by
the Company or by one or more Subsidiaries of the Company r by the Company and
one or more Subsidiaries of the Company.
14. Miscellaneous.
14.1 Waivers and Amendments. With the written consent of the
Holders of a majority of the outstanding shares of Preferred Stock or such
higher percentage as is expressly stated {herein} in this Section 14.1 or in the
Designation, the obligations of the Company and the rights of the Holders of the
Securities under this Agreement and the rights of the Holder of the Securities
under the Designation may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely), and with the same consent the Company, when
authorized by resolution of its Board, may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of any supplemental
agreement or modifying in any manner the rights and obligations hereunder of the
Holders of the Securities and the Company; provided, however, that no such
waiver or supplemental agreement shall (a) affect any of the rights of any
Holder of a Security created by the Designation (other than rights created by
Section 7 of the Designation) or by the Alaska Corporations Code without
compliance with all applicable provisions of the Designation and the Alaska
Corporations Code, (b) reduce the aforesaid proportion of Preferred Stock, the
Holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the Holders of all of the shares of Preferred
Stock or (c) adversely affect the rights of Holders of Preferred Stock pursuant
to Section 10 {or}, 11 or 12 hereof without the written consent of Holders of at
least 80% of the then outstanding shares of Preferred Stock. Upon the
effectuation of each such waiver, consent or agreement of amendment or
modification, the Company shall promptly give written notice thereof to all the
Holders of the shares of Preferred Stock in writing. Neither this Agreement nor
the Designation nor any provision hereof or thereof, may be amended, waived,
discharged or terminated orally or by course of dealing, but only by a statement
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, except to the extent provided in this
Section 14.1. Specifically, but without limiting the generality of the
foregoing, the failure of any Holder at any time or times to require performance
of any provision hereof or of the Designation by the Company shall in no manner
affect the right of any Holder at a later time to enforce the same. No waiver by
any party of the breach of any term or provision contained in this Agreement or
the Designation in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in the Agreement, the
Designation.
14.2 Rights of Holders Inter Se. Each Holder of Securities
shall have the absolute right to exercise or refrain from exercising any right
or rights which
32
<PAGE>
such Holder may have by reason of this Agreement or any Security, including,
without limitation, the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into an agreement with the Company for
the purpose of modifying this Agreement or any agreement effecting any such
modification, and such Holder shall not incur any liability to any other Holder
or Holders of Securities with respect to exercising or refraining from
exercising any such right or rights.
14.3 Notices.3 All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first class postage prepaid, registered or certified mail,
(a) If to the Investors to each of them at their
respective addresses listed on Annex A attached
hereto.
or
(b) If to the Company, at the address first above
written or at such other address as the Company
may specify by written notice to Investor,
and each such notice, request, consent and other communication shall for all
purposes of the Agreement be treated as being effective or having been given
when delivered, if delivered personally, or, if sent by mail, at the earlier of
its actual receipt or three (3) days after the same has been deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and postage prepaid as aforesaid.
14.4 Survival of Representations and Warranties, etc. All
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of the Investors, and the sale
and purchase of the Securities and payment therefor. All statements contained in
any certificate, instrument or other writing delivered by or on behalf of the
Company pursuant hereto or in connection with or contemplation of the
transactions herein contemplated shall constitute representations and warranties
by the Company hereunder. Any claim against the Company based upon any
inaccuracy in any of the representations or breach of any of the warranties
hereunder must be asserted against the Company, either by written notice given
to the Company specifying with reasonable particularity the claimed inaccuracy
or breach or by institution of an action at law or suit in equity against the
Company and the serving of the process and complaint with respect thereto upon
the Company, within five (5) years from the Closing Date.
14.5 Severability. Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
33
<PAGE>
14.6 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the Holder or Holders at the time of any of the Securities.
Subject to the immediately preceding sentence, this Agreement shall not run to
the benefit of or be enforceable by any Person other than a party to this
Agreement and its successors and assigns.
14.7 Headings. The headings of the Sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
14.8 Choice of Law. It is the intention of the parties that
the internal substantive laws, and not the laws of conflicts, of the State of
New York shall govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties; provided that the Designation shall be governed by the laws of the
State of Alaska.
14.9 Expenses. The Company will promptly pay all out-of-pocket
expenses of the Investors in connection with the preparation, negotiation,
execution and delivery of this Agreement and the Designation and the
transactions contemplated hereunder and thereunder, whether or not the
transactions contemplated by this Agreement are consummated, including, but not
limited to, the fees and disbursements of Paul, Hastings, Janofsky & Walker LLP,
special counsel for Toronto Dominion Investors, Inc. and Edens Snodgrass Nichols
& Breeland, P.C., special counsel to Prime VIII, L.P. and all costs and
out-of-pocket expenses of obtaining performance under this Agreement and the
Designation or of preparing, negotiating, executing and delivering any amendment
of or consent or waiver under this Agreement or the Designation at the Company's
request, including but not limited to, reasonable fees and expenses of counsel
for the Investors. The Company shall also reimburse each Investor for any
reasonable out-of-pocket expenses incurred by it in connection with its
attendance at any meetings of the Board and/or any shareholders' meetings,
including without limitation, any expenses for traveling and lodging.
14.10 Counterparts; Telefacsimile. This Agreement and any
certificate contemplated hereby may be executed in any number of counterparts
and by different parties hereto in separate counterparts, with the same effect
as if all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and the
same instrument. Delivery of an executed counterpart of this Agreement any
certificate or other document contemplated hereby by facsimile transmission
shall be as effective as delivery of a manually executed counterpart hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
[Preferred Stock Purchase Agreement Signature Page]
If you are in agreement with the foregoing, please sign the
form of acceptance on the enclosed counterpart of this letter and return the
same to the undersigned, whereupon this letter shall become a binding contract
between you and the undersigned.
Very truly yours,
GENERAL COMMUNICATION, INC.
By:
President
and
Secretary
The foregoing Agreement is hereby accepted as of the date first above written.
INVESTORS:
TORONTO DOMINION INVESTMENTS, INC.
By:
Name:
Title:
PRIME VIII, L.P.
By:
Name:
Title:
<PAGE>
ANNEX A
<TABLE>
List of Investors
<CAPTION>
Investors: Applicable %: # of Shares:
---------- ------------- ------------
<S> <C> <C>
Toronto Dominion Investments, Inc. 75% 15,000
Address for Notices:
--------------------
31 West 52nd Street
New York, New York 10019-6101
Attention: Chris Shipman
with a copy to:
Toronto Dominion Investments, Inc.
(principal executive office)
909 Fannin Street
Houston, Texas 77010
Attention: Martha Gariepy
Prime VIII, L.P. 25% 5,000
Address for Notices:
--------------------
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Attention: [Dean Greenwood]
</TABLE>
<PAGE>
<TABLE>
TABLE OF CONTENTS
(Not Part of Agreement)
<CAPTION>
Page
----
<S> <C> <C>
1. Authorization of Securities..............................................................................1
2. Sale and Purchase of Preferred Stock.....................................................................1
3. Closing..................................................................................................1
3.1 Closing.....................................................................................1
4. Register of Securities; Restrictions on Transfer of Securities; Removal of Restrictions on
Transfer of Securities...................................................................................2
4.1 Register of Securities......................................................................2
4.2 Restrictions on Transfer....................................................................2
4.3 Removal of Securities Act Transfer Restrictions.............................................4
5. Representations and Warranties by the Company............................................................4
5.1 Organization; Power; Qualification; Capital Stock...........................................4
5.2 Authorization...............................................................................5
5.3 Subsidiaries................................................................................5
5.4 Compliance with Other Documents and Contemplated Transactions...............................5
5.5 Business....................................................................................5
5.6 Licenses, etc...............................................................................5
5.7 Compliance with Law.........................................................................6
5.8 Litigation..................................................................................6
5.9 Financial Statements........................................................................6
5.10 No Adverse Change...........................................................................6
5.11 Absence of Default, etc.....................................................................6
5.12 Environmental Matters.......................................................................6
5.13 Investment Company Act; Public Utility Holding Company Act..................................7
5.14 Securities Laws.............................................................................7
5.15 Disclosure; SEC Filings.....................................................................8
5.16 Year 2000 Compliance........................................................................8
6. Conditions Precedent to Investor's Obligations at the Closing............................................9
6.1 Representations and Warranties..............................................................9
6.2 Simultaneous Purchase by Investors..........................................................9
6.3 No Material Adverse Change..................................................................9
6.4 Designation.................................................................................9
6.5 Board Resolutions...........................................................................9
6.6 Qualification Under State Securities Laws..................................................10
6.7 Delivery of Documents......................................................................10
6.8 Proceedings and Documents..................................................................11
7. Affirmative Covenants...................................................................................11
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.1 Preservation of Existence and Similar Matters..............................................11
7.2 Compliance with Applicable Law.............................................................12
7.3 Maintenance of Properties..................................................................12
7.4 Accounting Methods and Financial Records...................................................12
7.5 Maintain Insurance.........................................................................12
7.6 Pay Taxes and Other Liabilities............................................................12
7.7 Financial Reports..........................................................................12
7.8 Other Reports..............................................................................13
7.9 Notice of Litigation and Other Matters.....................................................14
7.10 Board of Directors.........................................................................14
7.11 Proxy Statement............................................................................14
7.12 Replacement of Certificates................................................................15
7.13 Compliance With Designation and Bylaws....................................................15
7.14 Notice of Failure to Comply with Total Leverage Test.......................................15
7.15 Notice of Occurrence of Triggering Event...................................................15
7.16 Amendments to or Repeal of Bylaws..........................................................15
8. Investor Regulatory Compliance..........................................................................15
8.1 Violation of BHCA..........................................................................15
8.2 BHCA Issue.................................................................................15
9. Right to Demand Exchange of Preferred Stock; Reincorporation of the Company or Change in Alaskan Law....16
10. Registration Rights.....................................................................................17
10.1 Demand Registration........................................................................17
10.2 Prompt Registration of Class A Common Stock................................................18
10.3 Piggyback Rights...........................................................................18
10.4 Procedure..................................................................................19
10.5 Expenses...................................................................................20
10.6 Indemnification............................................................................21
10.7 Delay in Registration......................................................................23
11. Right of First Refusal..................................................................................24
11.1 Subsequent Offerings.......................................................................24
11.2 Excluded Securities........................................................................24
11.3 Exercise of Rights.........................................................................24
11.4 Issuance of Equity Securities to other Persons.............................................25
12. Enforcement.............................................................................................25
12.1 Remedies at Law or in Equity...............................................................25
12.2 Cumulative Remedies........................................................................25
12.3 No Implied Waiver..........................................................................25
13. Definitions.............................................................................................26
14. Miscellaneous...........................................................................................30
ii
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
14.1 Waivers and Amendments.....................................................................30
14.2 Rights of Holders Inter Se.................................................................31
14.3 Notices....................................................................................31
14.4 Survival of Representations and Warranties, etc............................................32
14.5 Severability...............................................................................32
14.6 Parties in Interest........................................................................32
14.7 Headings...................................................................................32
14.8 Choice of Law..............................................................................32
14.9 Expenses...................................................................................33
14.10 Counterparts; Telefacsimile................................................................33
iii
</TABLE>
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
OF
GENERAL COMMUNICATION, INC.
-----------------------------------------------------------
"This Document entitled Revised Qualified Employee Stock
Purchase Plan of General Communication, Inc. constitutes
part of a Prospectus covering securities that have been
registered under the Securities Act of 1933."
-----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I NAME AND PURPOSE OF PLAN AND TRUST 3
ARTICLE II DEFINITIONS 4
ARTICLE III PARTICIPATION 12
ARTICLE IV CONTRIBUTIONS 13
ARTICLE V DETERMINATION AND VESTING OF
PARTICIPANT ACCOUNTS 24
ARTICLE VI RETIREMENT DATE--DESIGNATION
OF BENEFICIARY 28
ARTICLE VII DISTRIBUTION FROM TRUST FUND 29
ARTICLE VIII FIDUCIARY OBLIGATIONS 39
ARTICLE IX PLAN ADMINISTRATOR AND
PLAN COMMITTEE 42
ARTICLE X POWERS AND DUTIES OF THE TRUSTEE 47
ARTICLE XI CONTINUANCE, TERMINATION, AND
AMENDMENT OF PLAN AND TRUST 52
ARTICLE XII MISCELLANEOUS 54
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 2
January 01, 1999
<PAGE>
ARTICLE I
NAME AND PURPOSE OF PLAN AND TRUST
Section 1.1 Name and Purpose. The Company, by execution of this
agreement, amends and restates its qualified stock purchase plan, to be known as
the General Communication, Inc. Employee Stock Purchase Plan, to afford its
employees a convenient means for regular and systematic purchases of common
stock of the Company and to instill a proprietary interest in the Company. The
Plan and Trust Fund are created for the exclusive benefit of
Employee-Participants and their beneficiaries. The Plan is intended to qualify
under Sections 401(a) and 401(k) of the Code, and the trust created under the
Plan is intended to be exempt under Section 501(a) of the Code.
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 3
January 01, 1999
<PAGE>
ARTICLE II
DEFINITIONS
Section 2.1 Definitions. When used in this agreement, the following words
shall have the following meanings, unless the context clearly indicates
otherwise:
(i) "Account", unless otherwise indicated, means a Participant's entire
interest in Company stock and any other assets in the Trust Fund
created by his Employer's contributions and his own contributions,
and the income, expenses, gains, and losses attributable to such
stock and assets.
(ii) "Anniversary Date" means the first day of each Plan Year.
(iii) "Associated Company" means any corporation which is deemed to be a
member of the group of corporations under common control of the
Company and which adopts this Plan and Trust with the consent of the
Company. Any such Company which subsequently is no longer a member
of the controlled group shall be deemed to have terminated this Plan
and Trust immediately upon such failure to be a member of the
controlled group.
(iv) "Beneficiary" means the person who, under this Plan, becomes
entitled to receive a Participant's Account upon his death.
(v) "Board of Directors" means the board of directors of the Company.
(vi) "Break in Service" for purposes of eligibility to participate means
any 12-month period, measured from the Employee's employment or
Reemployment Commencement Date in which the Employee has completed
no more than 500 hours of service. "One-Year Break in Service" for
vesting and all other purposes means any Plan Year in which the
Employee has completed no more than 500 hours of service. For
purposes of this definition, hours of service shall include service
as an Employee in any capacity including Union Employee and
commissioned salesman.
(vii) "Code" means the Internal Revenue Code of 1986, as it presently is
constituted, as it may be amended, or any successor statute of
similar purposes.
(viii) "Company" means General Communication, Inc., a corporation with its
principal place of business at Anchorage, Alaska, or any successor
in interest to it resulting from merger, consolidation, or transfer
of substantially all of its assets, which expressly may agree in
writing to continue this Plan.
(ix) "Compensation" means the total amount actually or constructively
paid by an Employer to a Participant for services rendered to the
Employer during the Plan Year including overtime pay, commissions,
and bonuses, but excluding relinquished vacation pay, unused sick
pay, insurance premiums, pension and retirement benefits, living
expenses, other allowances, and all contributions by the Employer to
this Plan, to any other tax qualified Plan or to any health accident
or welfare fund or Plan. Compensation shall be calculated to include
amounts that are not currently paid to a Participant and not
includible in a Participant's gross income by reason of the
application of Code Section 125 and 402(g).
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 4
January 01, 1999
<PAGE>
Pursuant to Code Section 401(a)(17), Compensation taken into account
for all purposes under this Plan shall not exceed [A] $200,000 (as
adjusted by the Secretary of the Treasury for cost of living
increases each year) for any Plan Year for Plan Years ending prior
to January 1, 1994, and [B] $150,000 (as adjusted by the Secretary
of the Treasury for cost of living increases each year) for any Plan
Year for Plan Years beginning on or after January 1, 1994. In
determining the Compensation of a Participant for purposes of the
Code Section 401(a)(17) limitation, the rules of Code Section
414(q)(6) will apply, except that the term "family" will include
only the spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close of the
year. If as a result of the application of the rules of Code Section
414(q)(6), the Code Section 401(a)(17) limitation is exceeded, then
the limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation, as determined
above prior to the application of the Code Section 401(a)(17)
limitation.
(x) "Determination Date" means, with respect to any Plan Year, the last
day of the preceding Plan Year (or in the case of the first Plan
Year, the last day of such Plan Year). This Section 2.1(x) shall be
interpreted to conform with Code Section 416.
(xi) "Effective Date" of this restated Plan means January 1, 1989, unless
otherwise provided in this Plan. For any Associated Company which is
not participating in this Plan on the restated effective date,
effective date means that date designated by the Associated Company.
(xii) "Employee" means any person, whether male or female, now or
hereafter in the employ of an Employer, including officers of the
Employer, but excluding directors who are not in the Employer's
employ in any other capacity, excluding independent contractors, and
excluding Union Employees.
(xiii) "Employer" means the Company and any Associated Company which has
adopted the Plan and Trust.
(xiv) "Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
(xv) "Fiduciary" means a person who (A) exercises any discretionary
authority or discretionary control respecting management of the Plan
or exercises any authority or control respecting management or
disposition of its assets; (B) renders investment advice for a fee
or other Compensation, direct or indirect, with respect to any
moneys or other property of the Plan, or has any authority or
responsibility to do so; or (C) has any discretionary authority or
discretionary responsibility in the administration of the Plan. If
any money or other property of the Plan is invested in securities
issued by an investment company registered under the Investment
Company Act of 1940, such investment by itself shall not cause such
investment company or such investment company's investment adviser
or principal underwriter to be deemed to be a fiduciary or a party
in interest.
(xvi) "Highly Compensated Employee" means any Employee or former Employee
who, during the Plan Year or the preceding Plan Year:
REVISED QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN OF GENERAL COMMUNICATION, INC. PAGE 5
January 01, 1999
<PAGE>
(A) was at any time a five percent owner;
(B) received annual Compensation from the Company in excess of
$75,000, as adjusted for increases in the cost of living;
(C) received annual Compensation from the Company in excess of
$50,000, as adjusted for increases in the cost of living, and was in
the top-paid group of Employees for the Plan Year. An Employee is in
the top-paid group of Employees for any Plan Year if such Employee
is in the group consisting of the top twenty percent (20%) of the
Employees when ranked on the basis of Compensation paid during the
Plan Year; or
(D) was at any time an officer of the Company and received
Compensation greater than 50% of the dollar limitation in effect
under Code Section 415(b)(1)(A), as adjusted for increases in the
cost of living.
In determining which Employees are Highly Compensated Employees, an
Employee not described in paragraphs (B), (C), or (D) above for the
preceding year will not be treated as falling under the categories
described in paragraphs (B), (C), or (D) for the current year unless
such Employee is in the group consisting of the 100 Employees with
the highest Compensation from the Company in the current year. The
Company may adopt any reasonable, nondiscriminatory tie-breaking or
rounding rules necessary to determine which Employees are Highly
Compensated Employees, provided that such rules are uniformly and
consistently applied. If no officer has satisfied the Compensation
requirement of paragraph (D) above during the Plan Year, the highest
paid officer for such year will be treated as a Highly Compensated
Employee, unless otherwise provided by regulations. In determining
an individual's Compensation under this section, Compensation from
each Company required to be aggregated under Code Sections 414(b),
(c), (m), and (o) will be taken into account. For purposes of this
section, the determination of Compensation will be made without
regard to Code Sections 125, 402(a)(8), 402(h)(1)(B) and, in the
case of Company contributions made pursuant to a salary reduction
agreement, without regard to Code Section 403(b).
A former Employee will be treated as a Highly Compensated Employee
if such Employee separated from service (or was deemed to have
separated) prior to the Plan Year, performs no service for the
Company during the Plan Year, and was a Highly Compensated Employee
for either the separation year or any Plan Year ending on or after
the Employee's 55th birthday.
If, during the Plan Year or the preceding Plan Year, an Employee is
a family member of either (1) a five percent owner who is an
Employee or former Employee; or (2) a Highly Compensated Employee
who is one of the ten most Highly Compensated Employees ranked on
the basis of Compensation paid by the Company during such year, then
the family member and the five percent owner or top-ten Highly
Compensated Employee will be treated as one Employee receiving
Compensation and Plan contributions equal to the sum of such
Compensation and contributions of both individuals. For purposes of
this section, a family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee, and the spouses
of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of
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the number and identity of Employees in the top-paid group, the top
100 Employees, the number of Employees treated as officers, and the
Compensation that is considered, will be made in accordance with
Code Section 414(q).
(xvii) (A) "Hour of Service" means (1) each hour for which an Employee is
paid or is entitled to payment, for the performance of duties for
his Employer during the applicable computation period; (2) each hour
for which an Employee is paid or is entitled to payment by his
Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship is
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence;
and (3) each hour for which back pay, irrespective of mitigation of
damages, either was awarded or agreed to by the Employer.
(B) For purposes of Section 2.1(xvii)(A)(2) the following rules
shall apply: (1) no more than 501 hours will be credited to any
Employee on account of a single continuous period during which the
Employee performs no duties; (2) an hour shall not be credited on
account of a period during which no duties are performed if the
payment for such hour is made or due under a Plan maintained solely
for the purpose of complying with applicable workmen's Compensation,
or unemployment Compensation or disability insurance laws; (3) hours
shall not be credited for payments which reimburse an Employee
solely for medical or medically related expenses incurred by the
Employee; and (4) a payment shall be deemed to be made by or due
from the Employer regardless of whether such payment is made by or
due from the Employer directly, or indirectly through, among others,
a Trust Fund, or insurer, to which the Employer contributes or pays
premiums. These rules also shall apply to the extent that any back
pay is agreed to or awarded for a period of time during which an
Employee did not or would not have performed duties.
(C) For purposes of this Section 2.1(xvii), the same hours of
service shall not be credited under both Sections 2.1(xvii)(A)(1) or
(2) of this Plan and also under Section 2.1(xvii)(A)(3) of this
Plan. Each Hour of Service shall be credited under this Section
2.1(xvii) in accordance with 29 C.F.R. Section 2530.200b-2(b) and
(c). Employment with any affiliated companies (whether or not
incorporated) that are members of a controlled group as defined in
Code Section 414(b), that are under common control as defined in
Code Section 414(c), or that are members of an affiliated service
group within the meaning of Code Section 414(m) or any other entity
required to be aggregated with the Company pursuant to Code Section
414(o) and the final regulations thereunder, will be treated as
employment with the Company for purposes of participation and
vesting under this Plan; provided, however, that an employee must be
employed by the Employer to participate in this Plan. In addition,
for all purposes of the Plan, Hours of Service will be credited for
any individual considered a Leased Employee under Code Section
414(n) and for any individual considered an Employee under Code
Section 414(o) and the final regulations thereunder.
(D) For purposes of determining whether an Employee has experienced
a Break in Service, hours of service shall include each hour for
which an Employee is absent from work for any period (1) by reason
of the pregnancy of the Employee; (2) by reason of the birth of a
child of the Employee; (3) by reason of the placement of a child
with the Employee in connection with the adoption of such child by
such Employee; or (4) for purposes of caring for such child for a
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period beginning immediately following such birth or replacement.
(E) The hours described in the preceding sentence shall be treated
as hours of service in the year in which the absence from work
begins if the Participant would be prevented from incurring a
one-year Break in Service as a result of such treatment or, in any
other case, the hours shall be treated as hours of service in the
immediately following year. The hours described in the two preceding
sentences shall be the hours of service which otherwise would
normally have been credited to such Participant but for such
absence, or in any case in which the Plan is unable to determine
such hours, eight hours of service per work day of such absence. No
credit will be given pursuant to this paragraph unless the
Participant furnishes to the Plan Committee such timely information
as the Plan may require to establish that the absence from work is
for reasons described above and to establish the number of days for
which there was such an absence.
(F) An Employee will be credited with service for participation and
vesting purposes for leaves of absence qualifying under the Family
and Medical Leave Act of 1993, but only to the extent required by
the Family and Medical Leave Act and the regulations thereunder.
(xviii) (A) "Key Employee" means any Employee of an Employer who, at any
time during the Plan Year or any of the four preceding Plan Years,
is (1) an officer of an Employer having annual Compensation greater
than 50 percent of the dollar limitation under Code Section
415(b)(1)(A), as adjusted for increases in the cost of living for
any Plan Year; (2) one of the ten Employees having annual
Compensation from an Employer of more than the $30,000 annual
addition limitation as adjusted for increases in the cost of living
and owning (or considered to own under Code Section 318) the largest
interests of the Employer; (3) a five percent owner of the Employer;
or (4) a one percent owner of the Employer having annual
Compensation from the Employer of more than $150,000.
(B) For purposes of Section 2.1(xviii)(A)(1) of this Plan, no more
than 50 Employees (or, if lesser, the greater of 3 Employees or 10
percent of the Employees) shall be treated as officers. For purposes
of Section 2.1(xviii)(A)(2) of this Plan, if two Employees have the
same interest in an Employer, the Employee having greater annual
Compensation from the Employer shall be treated as having a larger
interest. This Section 2.1(xviii)(B) shall be interpreted to conform
with Code Section 416. For purposes of this definition, "Employee"
shall have the same meaning as it does under Code Section 416(i)(1).
Any Beneficiary of a Key Employee shall be treated as a Key
Employee.
(xix) "Named Fiduciary" means any Fiduciary who is named in this Plan, or
who, pursuant to a procedure specified in the Plan, is identified as
a Fiduciary to the Plan by the Company. Such Named Fiduciaries
include, but are not limited to, the Trustee, the Plan Committee,
and the Plan Administrator.
(xx) "Normal Retirement Age" means the date a Participant attains age 65.
(xxi) "Participant" means any Employee who has become a Participant under
Article III of this Plan. Participation shall cease upon the later
of (A) distribution of a Participant's entire vested Account and
forfeiture of a Participant's entire nonvested Account or (B)
Termination of
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Employment.
(xxii) "Plan" and "Plan and Trust" means the Qualified Employee Stock
Purchase Plan of General Communication, Inc., and the Trust set
forth in and by this Agreement and all subsequent amendments to it.
(xxiii) "Plan Administrator" means the person appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
(xxiv) "Plan Committee" means the committee appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
(xxv) "Plan Year" means the Company's fiscal (taxable) year, as presently
established, which ends on December 31 of each year, and this shall
be the fiscal (taxable) year of the Trust. If there is a change in
the Company's fiscal year, then "Plan Year" shall mean the Company's
new fiscal year, and any short fiscal year resulting from such
change shall be considered a full year for all purposes of this
Plan. The "Plan Year" shall not change without approval of the
Internal Revenue Service.
(xxvi) "Qualifying Employer Security" means the Class A and Class B common
stock of the Company.
(xxvii) "Quarterly Anniversary Date" means January 1, April 1, July 1, or
October 1 of each Plan Year.
(xxviii) "Reemployment Commencement Date" means the first date after a Break
in Service on which an Employee performs an Hour of Service for the
Employer.
(xxix) "Super Top Heavy Plan" means a plan in which the aggregate of the
Accounts of Key Employees under the plan as of the Determination
Date exceeds 90% of the aggregate of the Accounts of all
Participants under the plan (as of the Determination Date for the
Plan Year), excluding former Key Employees.
(xxx) "Termination of Employment" means the termination of a person's
status as an Employee as defined in Section 2.1(xii), as a Union
Employee as defined in Section 2.1(xxxvi), or as a commissioned
salesman.
(xxxi) "Top Heavy Plan" means a plan in which the aggregate of the Accounts
of Key Employees under the plan as of the Valuation Date exceeds 60
percent of the aggregate of the Accounts of all Participants under
the Plan (as of the Determination Date for the Plan Year), excluding
former Key Employees. The Accounts of Participants shall be
increased by the aggregate distributions made with respect to such
Participants during the five-year period ending on the Determination
Date. Section 2.1(xxxi) shall be interpreted to conform with Code
Section 416. For purposes of determining whether this and any
aggregated plans are top heavy or super top heavy, all defined
benefit and defined contribution plans (including any simplified
Employee pension plan) maintained or ever maintained by the Employer
in which a Key Employee participates or on which any plan in which a
Key Employee participates depends for qualification under Code
Sections 401(a)(4) or 410 must be aggregated. Other plans
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maintained or ever maintained by the Employer may be aggregated if,
when considered as a group with the plans that must be aggregated,
they would continue to satisfy the requirements of Code Sections
401(a)(4) and 410.
(xxxii) "Total Disability" means a disability that permanently renders a
Participant unable to perform satisfactorily the usual duties of his
employment with his Employer, as determined by a physician selected
by the Plan Committee, and which results in his Termination of
Employment with the Employer.
(xxxiii) "Trust Fund" means the assets of the trust established by this Plan
and Trust from which the benefits under this Plan shall be paid and
shall include all income of any nature earned by the fund and all
changes in fair market value.
(xxxiv) "Trustee" means the person or persons appointed as trustee of the
Trust Fund and any duly appointed and qualified successor trustee.
(xxxv) "Trustee Responsibility" means any responsibility provided in the
Plan to manage or control the assets of this Plan.
(xxxvi) "Union Employee" means any Employee who is included in a unit of
Employees covered by a collective bargaining agreement between
Employee representatives and the Company or any Associated Company,
if retirement benefits were the subject of good faith bargaining
between such Employee representatives and the Company or Associated
Company.
(xxxvii) "Valuation Date" means the last day of each Plan Year.
(xxxviii) "Year of Service" for purposes of eligibility to participate means
any 12-month period, measured from the Employee's Employment
Commencement Date or Reemployment Commencement Date, in which the
Employee completes 1,000 or more Hours of Service. For purposes of
this definition, Hours of Service shall include service as an
Employee in any capacity including Union Employee and commissioned
salesman and shall include service as an Employee of an Employer
under common control with the Company as defined in Code Sections
414(b), (c), (m), and (o) and the final regulations thereunder, or
any other Company designated by the Plan Committee from time to
time. Year of Service also shall include service with any company
that is acquired directly or indirectly by any Employer
participating in this Plan whether by acquisition of stock or assets
if such company becomes part of the controlled group of corporations
as defined in Code Section 414(b) or (c) of which the Company is a
part. "Year of Service" for purposes of vesting means any Plan Year
in which the Participant completes 1,000 or more Hours of Service.
Effective for acquisitions occurring on or after January 1, 1996,
Year of Service also shall include Years of Service with any company
that is acquired directly or indirectly by any Employer
participating in this Plan whether by acquisition of stock or assets
if such company becomes part of the controlled group of corporations
as defined in Code Section 1563(a) of which the Company is a part
and provided that such individual for whom such service is credited
becomes an Employee of General Communication, Inc. as a result of
the acquisition. Effective for Employees first employed by the
Company on or after January 1, 1996, an
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Employee will be credited with Years of Service under this Plan for
Years of Service with any company which has received services
provided by the Company under a management or outsourcing contract
between such company and General Communication, Inc. as a service
provider (as determined by the Company) provided that such
individual for whom such service is to be credited becomes an
Employee of the Company directly from the company for which the
Company serves as service provider (as determined by the Company).
Section 2.2 Gender. The masculine gender shall include the feminine and
neuter, and the singular shall include the plural.
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ARTICLE III
PARTICIPATION
Section 3.1 Who May Become a Participant. Any Employee of an Employer on the
Effective Date who has completed one Year of Service may become a Participant on
the Effective Date of the Plan. Any other or new Employee of an Employer may
become a Participant on any Quarterly Anniversary Date of the Plan following his
having completed one Year of Service, provided such Employee must be an Employee
of the Employer when he becomes a Participant.
Section 3.2 Participation Form. (a) Completion Requested. The participation
form shall be available from the Plan Administrator. To become a Participant,
each Employee must complete and return the form to the Plan Administrator on
which he shall evidence the following: (i) his acceptance of participation in
the Plan; and (ii) his consent to be bound by the terms and conditions of the
Plan and all its amendments.
(b) Failure To Complete, Revocation. The failure to complete and return the
form will be deemed to be an election not to become a Participant. An Employee
may revoke this election and become a Participant by requesting, completing, and
returning an application form before a subsequent Quarterly Anniversary Date of
the Plan, if he otherwise is eligible.
Section 3.3 Effect of Break in Service on Becoming a Participant. (a) Year
in Which the Employee Completes More Than 500 but Fewer Than 1,000 Hours of
Service. An Employee who completes more than 500 but fewer than 1,000 hours of
service during any 12-month period, measured from the Employee's employment or
Reemployment Commencement Date, shall not be deemed to have completed a Year of
Service nor to have suffered a Break in Service. For the purposes of Section
3.3(c) of this Plan, any breaks in service which are interrupted by a year in
which the Employee has more than 500 but fewer than 1,000 hours of service shall
be treated as inconsecutive breaks in service.
(b) Inclusion of Pre-Break Years of Service in General. All years of service
prior to any period of up to five consecutive one year breaks in service, not
excluded by reason of this section, shall be counted in determining who may
become a Participant.
(c) Exclusion of Years of Service for Employees Without Vested Rights. Years
of service completed prior to any Break in Service by an Employee who has no
vested interest in any Employer contributions at the time of his reemployment
shall not be counted in determining whether the Employee may become a
Participant if the number of consecutive one-year breaks in service equals or
exceeds the greater of five years or the aggregate number of years of service
before such break. The aggregate number of years of service before such break
shall not include any years of service which have been excluded by reason of a
prior application of this Section 3.3(c).
Section 3.4 Participation Upon Reemployment. An Employee who has satisfied
the service requirement under Section 3.1 of this Plan by reason of years of
service prior to a Break in Service of one year or longer (which service has not
been excluded under Section 3.3 of this Plan) may become a Participant
immediately upon his reemployment. However, an Employee who becomes a
Participant under this section may not commence contributions until the first
Quarterly Anniversary Date occurring after reemployment pursuant to Section 4.1
of this Plan.
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ARTICLE IV
CONTRIBUTIONS
Section 4.1 Contributions and Salary Reductions by Participants. (a) General
Rules. Each Participant shall make contributions to the Trust Fund only by means
of regular payroll deductions, by salary reductions, or in such other manner as
the Plan Committee shall determine, which contributions shall be paid to the
Trustee at least quarterly. Participant after-tax contributions by payroll
deduction or by any other manner as the Plan Committee shall determine shall be
referred to as voluntary contributions, and Participant pre-tax contributions
shall be known as salary reductions. Each Participant shall designate up to 10%
of his Compensation in each payroll period, until changed by the Participant, as
a salary reduction, plus any contributions under Section 4.1(c) of this Plan. A
Participant may change his designation prospectively but not retroactively
effective for any payroll period by filing a new election with the Plan
Administrator prior to the last two weeks of the calendar quarter immediately
preceding the quarter for which it is to be effective. A Participant may suspend
his contributions to the Plan for any quarter by filing a written notice of
suspension with the Plan Administrator at any time prior to the last two weeks
of the calendar quarter immediately preceding the calendar quarter in which it
is to be effective. Such notice shall remain effective until the Participant
elects to make further Participant contributions, and no Employer contributions
shall be made on behalf of the Participant during such suspension period. A
Participant may authorize resumption of Participant contributions by filing a
new contribution designation with the Plan Administrator at any time prior to
the last two weeks of the calendar quarter immediately preceding the calendar
quarter in which it is to be effective.
(b) Salary Reductions. To become or remain a Participant in this Plan, an
eligible Employee must elect to reduce his Compensation in such manner as the
Plan Committee shall determine not to exceed 10% of his Compensation per payroll
period. Such election shall be made and may be changed at any time in accordance
with Section 4.1(a) of this Plan. Contributions under this section shall be made
in accordance with an agreement with the Company under which the Participant
elects to reduce his Compensation by the amount determined at his discretion,
and for purposes of Code Section 401(k) shall be deemed to be Company
contributions. Agreements to reduce Compensation shall be subject to Sections
4.11 and 4.12 of this Plan.
(c) Nonqualified Voluntary Contributions. Each Plan Participant may
contribute to the Plan for each Plan Year during which he is a Participant such
amount of nonqualified voluntary contributions as he shall elect in his sole
discretion, provided that such amount shall not exceed 10% of his Compensation
for each payroll period. Nonqualified voluntary contributions shall be so
designated in writing when made or when the Participant agrees to payroll
deductions. All non-qualified voluntary contributions for the Plan Year shall be
made during the Plan Year or within 30 days after the end of the Plan Year.
Section 4.2 Determination of Contribution by the Employer. (a) For Plan
Years Beginning Prior to January 1, 1995: The Plan Committee on behalf of each
Employer shall pay into the Trust Fund at least annually an amount up to 100% of
each Participant's salary reduction and voluntary contributions to the Plan, as
the Board of Directors shall determine by resolution. In such case, the
Employer's contribution on behalf of each Participant shall be equal to a stated
and nondiscriminatory percentage of each Participant's contributions (both
voluntary contributions and salary reductions) under Section 4.1 of this Plan
during any payroll period. No Participant's salary reduction or voluntary
contributions shall be matched in an amount
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exceeding 10% of such Participant's Compensation during any payroll period the
Participant participates in the Plan. Except as provided in Section 7.3 of this
Plan, the amount of the Employer's contribution shall not exceed either 10% of
the aggregate Compensation of all Participants under this Plan in the year for
which the contribution is being determined or the annual addition limitations of
the Code as provided in Sections 4.8 or 4.9 of this Plan.
(b) For Plan Years Beginning On or After January 1, 1995: The Plan Committee
on behalf of each Employer shall pay into the Trust Fund at least annually an
amount up to 100% of each Participant's salary reduction and voluntary
contributions to the Plan which are invested in Qualifying Employer Securities
pursuant to Section 10.1(d), as the Board of Directors shall determine by
resolution; provided, however, that the Employer contribution on behalf of
Participants who have elected to direct the investment of any portion of their
salary reductions and voluntary contributions into investments other than
Qualifying Employer Securities will receive an Employer matching contribution of
up to 50% of the Participant's salary reduction and voluntary contributions to
the Plan. The Employer's contribution on behalf of any Participant who elects to
direct the investment of any portion of his salary reductions and voluntary
contributions into investments other than Qualifying Employer Securities under
Section 10.1(d) shall be equal to a stated percentage of each such Participant's
contributions (both voluntary contributions and salary reductions) under Section
4.1 of this Plan during any payroll period, and the Employer's contribution on
behalf of any Participant who elects to direct the investment of all of his
salary reductions and voluntary contributions into Qualifying Employer
Securities under Section 10.1(d) shall be equal to a stated percentage of each
such Participant's contributions (both voluntary contributions and salary
reductions) under Section 4.1 of this Plan during any payroll period. No
Participant's salary reduction or voluntary contributions shall be matched in an
amount exceeding 10% of such Participant's Compensation during any payroll
period the Participant participates in the Plan. Except as provided in Section
7.3 of this Plan, the amount of the Employer's contribution shall not exceed
either 10% of the aggregate Compensation of all Participants under this Plan in
the year for which the contribution is being determined or the annual addition
limitations of the Code as provided in Sections 4.8 or 4.9 of this Plan.
Section 4.3 Time and Method of Payment of Contribution by the Employer. The
Plan Committee on behalf of the Employer may make payment of its contribution
for any Plan Year in installments on any date or dates it elects, provided that
the amount of its contribution for any year shall be paid in full within the
time prescribed in order to qualify such payment as an income tax deduction for
such year under the Code or any other provisions of law and provided further
that the final allocation of such Employer contribution shall not be made to an
Account until the last day of the Plan Year. Such contribution may be made in
cash, in Qualifying Employer Securities (as determined by the Company), or in
property of the character in which the Trustee is authorized to invest the Trust
Fund. Contributions of property other than cash or Qualifying Employer
Securities shall be subject to the approval of the Trustee and the Plan
Committee.
Section 4.4 To Whom Contributions Are To Be Paid. The Employer's
contributions for any Plan Year shall be paid to the Trustee and shall become a
part of the Trust Fund.
Section 4.5 Return of Employer Contributions. (a) Circumstances Under Which
Return Will Be Made. A contribution by the Employer to the Plan shall be
returned to the Company, at the Employer's discretion, under any of the
following circumstances: (i) if a contribution is made by the Employer by a
mistake of fact, including a mistaken excess contribution, within one year of
its payment to the Plan; (ii) if initial qualification of the Plan is denied,
within one year after the date of denial of initial qualification of the Plan;
or (iii) if all or any part of the deduction of the contribution is disallowed,
to the extent of the
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disallowance, within one year after the disallowance of the deduction.
(b) Amount of Return. The Employer shall state by written request to the
Trustee the amount of the contribution to be returned and the reason for such
return. Such amount shall not include any earnings attributable to the
contribution and shall be reduced by any losses attributable to the
contribution. Upon sending such request to the Trustee, the Employer
simultaneously shall send to the Plan Committee a copy of the request. The
Trustee shall return such contributions to the Employer immediately upon receipt
of the written request by the Employer. All contributions by the Employer to the
Plan are declared to be conditioned upon both the qualification of the Plan
under Section 401 of the Code and the deductibility of such contributions Under
Section 404 of the Code.
Section 4.6 Employer's Obligations. The adoption and continuance of the Plan
shall not be deemed to constitute a contract between the Employer and any
Employee or Participant, nor to be a consideration for, or an inducement or
condition of, the employment of any person. Nothing in this Plan shall be deemed
to give any Employee or Participant the right to be retained in the employ of
the Employer, or to interfere with the right of the Employer to discharge any
Employee or Participant at any time, nor shall it be deemed to give the Employer
the right to require the Employee or Participant to remain in its employ, nor
shall it interfere with the right of any Employee or Participant to terminate
his employment at any time.
Section 4.7 Rollover Contributions and Transfers. Notwithstanding the limits
imposed upon Participant contributions, a Participant may contribute any amount
of funds or property to the Plan in any year if such contribution satisfies the
requirements under law for rollover contributions and if the Plan Committee
agrees in writing to accept such contribution on behalf of the Plan and the
Employer. Subject to the direction of the Plan Committee, the Trustee is
authorized to receive and add to the Trust Fund those assets attributable to
employees who were participants in the Western Tele-Communications, Inc.
Employee Stock Purchase Plan. A direct transfer from a qualified Plan subject to
Code Section 417 shall not be permitted. The Employer shall not be required
under Section 4.2 of this Plan to make any matching contributions for such
rollover contributions or transfers. Rollover contributions and transfers shall
be added to a separate Account for such Participant, shall be nonforfeitable,
and shall be distributable under Article VII of this Plan. Transfers from the
Western Tele-Communications, Inc. Employee Stock Purchase Plan shall be subject
to Section 10.1(d) of this Plan.
Section 4.8 Annual Addition. (a) Limitations. For the purpose of this
Section 4.8, the term "Annual Addition" includes Employer contributions and
forfeitures and any Participant's voluntary contributions. Annual Addition shall
not include any direct transfer or any contribution made by a Participant which
qualified under law as a rollover contribution. The annual limitation year shall
be the Plan Year. If the Annual Addition to the Account of any Participant,
attributable to all defined contribution plans (including money purchase pension
plans or profit-sharing plans of the Employer), would exceed either $30,000 or
25% of such Participant's Compensation, the excess amount shall be disposed of
as follows:
(i) any Participant contributions, to the extent that the return would
reduce the excess amount, shall be returned to the Participant;
(ii) The amount of such excess attributable to Employer contributions and
any forfeitures shall be allocated and reallocated to other
Participants' Accounts in accordance with Article V of this Plan to
the extent that such allocations do not cause the additions to any
such Participant's Account to exceed the lesser of the maximum
permissible amount or any other limitation
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provided in the Plan;
(iii) To the extent that the excess amounts described in Section
4.8(a)(ii) of this Plan cannot be allocated to other Participant
Accounts, such excess amounts shall be allocated to the suspense
Account in accordance with Article V of this Plan and allocated to
Participants under the provisions of that article.
(b) Compensation Defined. For purposes of limiting Annual Additions under
this section and combined benefits and contributions under Section 4.9 of this
Plan, compensation means a Participant's wages, salaries, fees for professional
services, and other amounts received for personal services actually rendered for
the Employer (including but not limited to, commissions paid salesmen,
compensations for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, and bonuses). Compensation for Annual Additions
purposes shall not include the following: (i) Employer contributions to a
deferred compensation plan that are not includable in the Employee's gross
income for the year in which contributed, Employer contributions to a simplified
Employee pension plan described under Code Section 408(k) to the extent such
contributions are deductible by the Employee, or any distributions from a
deferred compensation plan other than amounts received from an unfunded
nonqualified plan; (ii) amounts realized from the exercise of a nonqualified
stock option or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to substantial risk of
forfeiture; (iii) amounts realized from the sale, exchange, or other disposition
of stock acquired under a qualified stock option; or (iv) other amounts which
received special tax benefits, or Employer contributions to purchase an annuity
contract described in Code Section 403(b), whether or not under a salary
reduction agreement or whether or not the amounts actually are excludable from
the gross income of the Employee.
Section 4.9 Limitation on Combined Benefits and Contributions of All Defined
Benefit and Defined Contribution Plans of the Employer. (a) Employer
Contributions. In any year if the Employer makes contributions to a defined
benefit plan on behalf of an Employee who also is a Participant in this Plan,
then the sum of the defined benefit plan fraction and the defined contribution
plan fraction (both as prescribed by law and as defined below) for such Employee
for such year shall not exceed 1.0. In any year if the sum of the defined
benefit plan fraction and the defined contribution plan fraction on behalf of an
Employee does exceed 1.0, then the Employer's contribution on behalf of such
Participant to this defined contribution plan of the Employer shall be reduced
to the extent necessary to prevent the sum of the defined contribution plan
fraction and the defined benefit plan fraction from exceeding 1.0. The
Employer's contribution on behalf of such Participant to this Plan may be
reallocated to other Participants under Article V of this Plan to the extent
necessary to prevent the sum of the defined contribution plan fraction and the
defined benefit Plan fraction from exceeding 1.0. If any amount cannot be
allocated or reallocated without exceeding the limits provided in this Article,
such amount may be allocated to the suspense Account established under Article V
of this Plan and allocated to the Participants in accordance with the provisions
of Article V of this Plan. For purposes of this section the limitation year
shall be the Plan Year.
(b) Defined Benefit Plan Fraction. The defined benefit plan fraction is a
fraction the numerator of which is the projected annual benefit of the
Participant under the Plan (determined as of the close of the year) and the
denominator of which is the lesser of the following amounts determined for such
year and for each prior Year of Service with the Employer: (i) the product of
1.25 times the maximum benefit dollar limitation in effect for the limitation
year; or (ii) the product of 1.4 times 100% of the Participant's average
Compensation for his high three consecutive calendar years.
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(c) Defined Contribution Plan Fraction. The defined contribution plan
fraction is a fraction the numerator of which is the sum of the annual additions
to the Participant's Account under all defined contribution Plans of the
Employer as of the close of the limitation year and the denominator of which is
the sum of the lesser of the following amounts determined for such year and for
each prior Year of Service with the Employer: (i) the product is 1.25 times the
dollar limitations in effect under Code Section 415(c)(1)(A) for the limitation
year (without regard to Code Section 415(c)(6)); or (ii) the product of 1.4
times an amount equal to 25% of the Participant's Compensation for the
limitation year.
(d) Transition Rules. The Plan Committee, in its discretion, may elect to
use the transition rules for calculating the defined contribution plan fraction
as provided in Code Sections 415(e)(4) and 415(e)(6).
Section 4.10 Top Heavy Plan Provisions. (a) Plan Years after December 31,
1983. The provisions of this section shall have effect for any Plan Years
beginning after December 31, 1983 in which the Plan is top heavy.
(b) Minimum Contribution. If no other qualified plan maintained by the
Employer provides the minimum benefit or contribution for Participants as
required under Code Section 416(c) for a year that the plan is top heavy, this
Plan shall provide a minimum allocation (which may include forfeitures otherwise
allocable) for such Plan Year for each Participant who is a non-Key Employee in
an amount equal to at least three percent of such Participant's Compensation for
such Plan Year. Notwithstanding the preceding sentence, the minimum allocation
required under this Section 4.10 shall in no event exceed the percentage of
contributions made under the Plan for such year for the Key Employee for whom
such percentage is the highest for such year. If Employees who are Participants
in this Plan also participate in a defined benefit plan maintained by the
Employer and both plans are top heavy in any year, the Employer may elect to
satisfy the minimum contribution requirements of Code Section 416(c) and the
regulations thereunder by providing a minimum allocation (which may include
forfeitures otherwise allocable) for such Plan Year for each Participant (for
purposes of Code Section 416(c) and the regulations thereunder) who is a non-Key
Employee in an amount equal to at least 5% of such Participant's Compensation
for such Plan Year. For purposes of this Section 4.10, Participants who must be
considered Participants to satisfy the coverage requirements of Code Section
410(b) in accordance with Code Section 401(a)(5) and who have not separated from
service at the end of the Plan Year shall be eligible to share this minimum
contribution including Participants who have failed to complete 1,000 or more
hours of service, who have declined to make mandatory contributions to the Plan
or who have been excluded because such Participant's Compensation is less than a
stated amount. Compensation for purposes of this Section 4.10 shall mean
Compensation as defined in Section 4.8 of this Plan. Salary reduction
contributions may not be used to satisfy the minimum contribution required under
this section 4.10. If, in any top-heavy year, the highest percentage of Employer
contributions and forfeitures allocated to any Key Employee is less than three
percent, amounts allocated as a result of any Key Employee's elective deferrals
must be included in determining the Employer contribution made on behalf of such
Key Employees.
(c) Modification of Plan Fractions. The 1.25 factor in the defined benefit
plan fraction and defined contribution Plan fraction (as such fractions are
defined in the preceding section) shall be reduced to 1.0 for any year that the
Plan is top heavy. If the Plan is super top heavy, the 1.25 factor also shall be
reduced to 1.0 for the Plan Year.
(d) Maximum Compensation Limitation. The annual Compensation considered for
each Participant for purposes of the Plan for any year that the Plan is top
heavy shall not exceed such Participant's
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Compensation (as limited by Code Section 401(a)(17)).
Section 4.11 Salary Reduction Rules. (a) Election to Reduce Salary. As a
condition of participation, an Employee eligible to participate in this Plan
must elect to reduce his or her Compensation by an amount determined at his or
her discretion (annually not to exceed the lesser of the amount specified for a
given calendar year by the Internal Revenue Service or 10% of Compensation). A
Participant must make this election according to the procedure prescribed by and
on the form provided by the Plan Committee.
(b) Nondiscriminatory Benefits. All Participants are eligible to defer
identical percentages of their Compensation, regardless of the amount of such
Compensation; provided such percentage does not result in a deferral of more
than the limitation imposed under Code Section 402(g) in any calendar year. A
Participant may assign to this Plan any excess elective deferrals made during a
taxable year of the Participant by notifying the Plan Administrator on or before
the following March 15 of the amount of the excess elective deferrals to be
assigned to the Plan. A Participant is deemed to have notified the Plan
Administrator of any excess elective deferrals that arise taking into account
only those elective deferrals made to this Plan and any other plans of the
Employer. An excess elective deferral is any elective deferral during a calendar
year in excess of the dollar limitation in effect under Code Section 402(g) for
such year. On or before the April 15th following the end of each calendar year,
the Company will distribute excess elective deferrals (plus any allocable income
and minus any allocable loss) to any Participant to whose Account excess
elective deferrals were made or assigned for the preceding year and who claims
excess elective deferrals for such taxable year or who is deemed to have
notified the Plan Administrator of such excess. The income or loss attributable
to excess elective deferrals is the income or loss for the year allocable to the
Participant's elective deferrals multiplied by a fraction, the numerator of
which is the Participant's excess elective deferrals for such year and the
denominator of which is the total Account balance of the Participant
attributable to elective deferrals, without regard to any income or losses
allocable to such elective deferrals for the calendar year. Alternatively, in
the discretion of the Committee, income allocable to the Participant's excess
elective deferrals may be determined under any reasonable method used by the
Plan for allocating income on Plan assets.
(c) Limit on Actual Deferral Percentage. The actual deferral percentage for
highly compensated Participants for each Plan Year must be no greater than
either (i) 1.25 times the actual deferral percentage for all other Participants
for such Plan Year, or (ii) 2 times the actual deferral percentage for all other
Participants for such Plan Year if the actual deferral percentage for highly
compensated Participants is not more than two percentage points higher than the
actual deferral percentage for all other Participants for such Plan Year. The
following rules regarding the actual deferral percentage will apply:
(i) The actual deferral percentage for the Plan Year for any Highly
Compensated Employee who is eligible to have elective deferrals (and
qualified non-elective contributions or qualified matching
contributions, or both, if such contributions are treated as
elective deferrals for purposes of the actual deferral percentage
test) allocated to his or her Account under two or more arrangements
described in Code Section 401(k) that are maintained by the Company
will be determined as if such elective deferrals (and, if
applicable, such qualified non-elective contributions or qualified
matching contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee participates in two or
more cash or deferred arrangements that have different Plan Years,
all cash or deferred arrangements ending with or within the same
calendar year will be treated as a single arrangement;
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<PAGE>
(ii) In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this
Plan, then this section will be applied by determining the actual
deferral percentage of Participants as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Code Section 401(k) only if
they have the same Plan Year;
(iii) For purposes of determining the actual deferral percentage of a
Participant who is a five percent owner or one of the ten most
Highly Compensated Employees, the elective deferrals (and qualified
non-elective contributions or qualified matching contributions, or
both, if treated as elective deferrals for purposes of the actual
deferral percentage test) and Compensation of such Participant will
include the elective deferrals (and, if applicable, qualified
non-elective contributions and qualified matching contributions, or
both) and Compensation for the Plan Year of any family members, as
defined in Code Section 414(q)(6). Family members of such Highly
Compensated Employees will be disregarded as separate Employees in
determining the actual deferral percentage of any Employee;
(iv) For purposes of determining the actual deferral percentage test,
elective deferrals, qualified non-elective contributions, and
qualified matching contributions must be made before the last day of
the twelve-month period immediately following the Plan Year to which
such contributions relate; and
(v) The Company will maintain records sufficient to demonstrate
satisfaction of the actual deferral percentage test and the amount
of qualified non-elective contributions or qualified matching
contributions, or both, used in such test.
(d) Nonforfeitability of Elective Contributions. All salary reduction
contributions made on behalf of Participants to this Plan are vested
immediately. Such salary reductions are nonforfeitable at all times.
(e) Distributions Restriction. Salary reductions shall be subject to the
restrictions on withdrawals under Section 7.6 of this Plan.
(f) Definitions.
(i) The "actual deferral percentage" for a specified group of
Participants for a Plan Year shall be the average of the ratios
(calculated separately for each Participant in such group) of the
amount of Compensation deferred under the Plan on behalf of each
such Participant for the Plan Year to the Participant's Compensation
for such Plan Year. Compensation deferred on behalf of any
Participant includes (A) any salary reductions made pursuant to the
Participant's deferral election, including excess salary reductions,
but excluding salary reductions that are taken into account in the
average contribution percentage test (provided the actual deferral
percentage test is satisfied both with and without exclusion of
these salary reductions); and (B) in the discretion of the Company,
all qualified non-elective contributions or such qualified
non-elective contributions as are necessary to meet the actual
deferral percentage test and all qualified matching contributions or
such qualified matching contributions as are necessary to meet the
actual deferral percentage test. For purposes of computing actual
deferral percentages, an Employee who would be a Participant but for
the failure to make salary reductions will be
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January 01, 1999
<PAGE>
treated as a Participant on whose behalf no salary reductions are
made.
(ii) "Salary reductions" are those reductions in salary that each
Participant elects to defer. A Participant's salary reductions in
any calendar year are the sum of all salary reductions made by a
Participant pursuant to an election to defer under any arrangement
described in Code Section 401(k), any simplified employee pension
cash or deferred arrangement described in Code Section 402(h)(1)(B),
any eligible deferred compensation plan under Code Section 457, any
plan as described in Code Section 501(c)(18), and any contributions
made on behalf of a Participant pursuant to a salary reduction
agreement for the purchase of an annuity contract under Code Section
403(b).
(iii) "Participant" for purposes of this Section 4.11 only includes all
Employees eligible to participate in this Plan even if not electing
to do so.
(iv) "Compensation" for purposes of this Section 4.11 means only
Compensation as defined in Section 2.1(ix) of this Plan prior to any
salary reductions under Section 4.1 of this Plan.
(g) Treatment of Excess Contributions. An excess contribution is the excess,
in any Plan Year, of the aggregate amount of contributions actually taken into
account in determining the actual deferral percentage for Highly Compensated
Employees over the maximum amount of such contributions permitted by the actual
deferral test, determined by reducing contributions made on behalf of Highly
Compensated Employees beginning with the Highly Compensated Employee with the
highest actual deferral percentage. In the event that excess contributions are
made for any Plan Year, the Committee will distribute the excess contributions
in accordance with this paragraph. On or before the 15th day of the third month
following the end of each Plan Year, but in no event later than the close of the
following Plan Year, each Highly Compensated Employee will have his or her
portion of the excess contribution, adjusted for any income or loss allocable to
such portion, distributed to him. Excess contributions of Participants who are
subject to the family member aggregation rules shall be allocated among the
family members in proportion to the salary reductions (and amounts treated as
salary reductions) of each family member that are combined to determine the
combined actual deferral percentage. The income or loss attributable to excess
contributions is the income or loss for the Plan Year allocable to the
Participant's salary reduction account (and, if applicable, the qualified
non-elective contribution account or the qualified matching contribution
account, or both) multiplied by a fraction, the numerator of which is the
Participant's excess contributions for the Plan Year and the denominator of
which is the Participant's Account balance attributable to salary reductions
(and qualified non-elective contributions or qualified matching contributions,
or both, if any such contributions are taken into account in determining the
actual deferral percentage), without regard to any income or losses allocable to
such contributions for the Plan Year. Alternatively, in the discretion of the
Committee, income allocable to the Participant's excess elective deferrals may
be determined under any reasonable method used by the Plan for allocating income
on Plan assets. Excess contributions will be distributed from the Participant's
salary reduction Account and qualified matching contributions Account, if
applicable, in proportion to the Participant's salary reductions and qualified
matching contributions (to the extent used in the actual deferral percentage
test) for the Plan Year. Excess contributions will be distributed from the
Participant's qualified non-elective contribution Account only to the extent
that such excess contributions exceed the balance in the Participant's salary
reduction Account and qualified matching contributions account. If excess
contributions are not distributed by the 15th day of the third month following
the end of the Plan Year in which such excess contributions arose, a ten percent
excise tax will be imposed on the Company with respect to such excess
contributions. Matching contributions
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January 01, 1999
<PAGE>
attributable to excess contributions that are distributed to a Participant shall
be forfeited as of the distribution date of the excess contribution.
Section 4.12 Nondiscrimination Rules for Voluntary Contributions and
Employer Contributions. (a) Limit on Contribution Percentage. The contribution
percentage for Highly Compensated Employees for each Plan Year must not exceed
the greater of (i) 1.25 times the contribution percentage for all other
Participants for such Plan Year, or (ii) the lesser of two times the
contribution percentage for all other Participants or the contribution
percentage for all other Participants plus two percentage points. The following
rules regarding the average contribution percentage will apply:
(i) The average contribution percentage for the Plan Year for any Highly
Compensated Employee who is eligible to have contribution percentage
amounts allocated to his or her Account under two or more
arrangements described in Code Section 401(k) that are maintained by
the Company will be determined as if such contribution percentage
amounts were made under a single arrangement. If a Highly
Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year will be
treated as a single arrangement.
(ii) In the event that this Plan satisfies the requirements of Code
Sections 401(m), 401(a)(4), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this
Plan, then this section will be applied by determining the
contribution percentage of Participants as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Code Section 401(m) only if
they have the same Plan Year.
(iii) For purposes of determining the contribution percentage of a
Participant who is a five percent owner or one of the ten most
Highly Compensated Employees, the contribution percentage amounts
and Compensation of such Participant will include the contribution
percentage amounts and Compensation for the Plan Year of any family
members, as defined in Code Section 414(q)(6). Family members of
such Highly Compensated Employees will be disregarded as separate
Employees in determining the actual deferral percentage of any
Employee.
(iv) For purposes of determining the contribution percentage test,
Participant contributions are considered to have been made in the
Plan Year in which contributed to the Trust. Company matching
contributions and qualified non-elective contributions will be
considered made for a Plan Year if made no later than the end of the
twelve-month period beginning on the day after the close of the Plan
Year. A matching contribution (including a qualified matching
contribution) that is forfeited to correct excess aggregate
contributions, or because it is attributable to an excess
contribution or excess deferral will not be taken into account for
purposes of determining the contribution percentage test.
(v) The Company will maintain records sufficient to demonstrate
satisfaction of the average contribution percentage test and the
amount of qualified non-elective contributions or qualified matching
contributions, or both, used in such test.
(vi) An excess aggregate contribution is the excess, in any Plan Year, of
the aggregate contribution percentage amounts taken into account in
determining the numerator of the average
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January 01, 1999
<PAGE>
contribution percentage actually made on behalf of Highly
Compensated Employees over the maximum contribution percentage
amounts permitted by the average contribution percentage test,
determined by reducing contributions made on behalf of Highly
Compensated Employees beginning with the Highly Compensated Employee
with the highest contribution percentage. In the event that excess
aggregate contributions are made for any Plan Year, the Committee
will distribute the excess aggregate contributions in the same
manner as excess contributions are distributed, as provided above.
Income and losses attributable to excess aggregate contributions
will be determined and distributed along with the excess aggregate
contributions in the manner provided above.
(vii) In lieu of distributing excess contributions as provided above or
excess aggregate contributions as provided above, the Company, in
its discretion, may make qualified non-elective contributions on
behalf of all Participants or all Participants who are non-Highly
Compensated Employees, in the Company's discretion, that are
sufficient to satisfy either the actual deferral percentage test or
the average contribution percentage test, or both, pursuant to
regulations under the Code. "Qualified non-elective contributions"
means contributions (other than matching contributions or qualified
matching contributions) made by the Company and allocated to
Participants' Accounts that the Participants may not elect to
receive in cash until distributed from the Plan, that are
nonforfeitable when made, and that are distributable only in
accordance with the distribution provisions that are applicable to
elective deferrals and qualified matching contributions.
(b) Multiple Use Test. If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement and a plan subject to the
average contribution percentage test maintained by the Company and the sum of
the actual deferral percentage and average contribution percentage of those
Highly Compensated Employees subject to either or both tests exceeds the
aggregate limit, then the average contribution percentage of those Highly
Compensated Employees who also participate in a cash or deferred arrangement
will be reduced (beginning with such Highly Compensated Employee whose average
contribution percentage is the highest) so that the aggregate limit is not
exceeded. The amount by which each Highly Compensated Employee's contribution
percentage amount is reduced will be treated as an excess aggregate
contribution. The actual deferral percentage and average contribution percentage
of the Highly Compensated Employees are determined after any corrections
required to meet the actual deferral percentage and average contribution
percentage tests. Multiple use does not occur if both the actual deferral
percentage and the average contribution percentage of the Highly Compensated
Employees do not exceed 1.25 times the actual deferral percentage and average
contribution percentage of the non-Highly Compensated Employees. "Aggregate
Limit" means the greater of (i) the sum of (A) 1.25 times the greater of the
actual deferral percentage of non-Highly Compensated Employees for the Plan Year
or the average contribution percentage of non-Highly Compensated Employees for
the Plan Year beginning with or within the Plan Year of the cash or deferred
arrangement; and (B) the lesser of two times or two plus the lesser of such
actual deferral percentage or average contribution percentage; or (ii) the sum
of (A) 1.25 times the lesser of the actual deferral percentage of non-Highly
Compensated Employees for the Plan Year or the average contribution percentage
of non-Highly Compensated Employees for the Plan Year beginning with or within
the Plan Year of the cash or deferred arrangement; and (B) the lesser of two
times or two plus the greater of such actual deferral percentage or average
contribution percentage.
(c) Distribution of Excess Contributions. An excess contribution is the
excess, in any Plan Year, of the aggregate amount of Employer contributions
actually taken into account in determining the actual deferral
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January 01, 1999
<PAGE>
percentage for Highly Compensated Employees over the maximum amount of such
contributions permitted by the actual deferral test, determined by reducing
contributions made on behalf of Highly Compensated Employees beginning with the
Highly Compensated Employee with the highest actual deferral percentage. In the
event that excess contributions are made for any Plan Year, the Committee will
distribute the excess contributions in accordance with this paragraph. On or
before the 15th day of the third month following the end of each Plan Year, but
in no event later than the close of the following Plan Year, each Highly
Compensated Employee will have his or her portion of the excess contribution,
adjusted for any income or loss allocable to such portion, distributed to him.
Excess contributions of Participants who are subject to the family member
aggregation rules shall be allocated among the family members in proportion to
the elective deferrals (and amounts treated as elective deferrals) of each
family member that are combined to determine the combined Actual Deferral
Percentage. The income or loss attributable to excess contributions is the
income or loss for the Plan Year allocable to the Participant's elective
deferral account (and, if applicable, the qualified non-elective contribution
account or the qualified matching contribution account, or both) multiplied by a
fraction, the numerator of which is the Participant's excess contributions for
the Plan Year and the denominator of which is the Participant's Account balance
attributable to elective deferrals (and qualified non-elective contributions or
qualified matching contributions, or both, if any such contributions are taken
into account in determining the actual deferral percentage), without regard to
any income or losses allocable to such contributions for the Plan Year.
Alternatively, in the discretion of the Committee, income allocable to the
Participant's excess elective deferrals may be determined under any reasonable
method used by the Plan for allocating income on Plan assets. Excess
contributions will be distributed from the Participant's elective deferral
Account and qualified matching contributions Account, if applicable, in
proportion to the Participant's elective deferrals and qualified matching
contributions (to the extent used in the actual deferral percentage test) for
the Plan Year. Excess contributions will be distributed from the Participant's
qualified nonelective contribution Account only to the extent that such excess
contributions exceed the balance in the Participant's elective deferral Account
and qualified matching contributions account. Matching Contributions
attributable to excess contributions that are distributed to a Participant that
are not recharacterized shall be forfeited as of the distribution date of the
excess contribution.
(d) Definitions.
(i) The "contribution percentage" for a specified group of Participants
for a Plan Year shall be the average of the ratios (calculated
separately for each Participant in such group) of the amount of the
sum of Employer contributions and voluntary contributions paid under
the Plan on behalf of each such Participant for the Plan Year to the
Participant's Compensation for such Plan Year.
(ii) "Participant" for purposes of this Section 4.12 only includes all
Employees eligible to participate in this Plan even if not electing
to do so.
(iii) "Compensation" for purposes of this Section 4.12 only means
Compensation as defined in Section 2.1(ix) of this Plan prior to any
salary reductions under Section 4.1 of this Plan.
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January 01, 1999
<PAGE>
ARTICLE V
DETERMINATION AND VESTING OF PARTICIPANT ACCOUNTS
Section 5.1 Determination of Participants' Accounts. (a) Allocation of
Contributions. As of the last day of each calendar quarter the Plan Committee
shall allocate to the Account of each Participant (including a Participant who
terminates employment during the quarter) any amounts contributed by the
Employer to the Trust on behalf of such Participant under Section 4.2 of this
Plan for the calendar quarter then ended. Forfeitures under Section 7.3 of this
Plan shall be allocated along with Employer contributions during the first
calendar quarter after the end of the year in which the forfeitures occur. The
maximum allocation under this Section 5.1(a) to any Participant for any Plan
Year shall not exceed 10% of such Participant's Compensation. Voluntary
contributions and salary reductions under Section 4.1 of this Plan shall be
allocated to the Account of the Participant making such contribution.
(b) Allocation of Earnings, Losses and Changes in Fair Market Value of the
Net Assets of the Trust Fund; Allocation of Qualifying Employer Securities. Each
class (whether Class A or Class B) of Qualifying Employer Securities shall be
allocated to the Accounts of Participants as of the end of each biweekly payroll
period or as of the end of each calendar quarter after acquired by the Trust
Fund in the ratio that contributions under Section 4.1 of this Plan made to each
Account in the calendar quarter bear to the total contributions under that
Section 4.1 made to all Accounts for the calendar quarter. Any dividends, cash
or stock, paid on Qualifying Employer Securities shall be allocated along with
the Qualifying Employer Securities on which they are paid. Once Qualifying
Employer Securities are allocated to a Participant's Accounts, any dividends,
cash or stock, paid on such allocated securities shall be allocated directly to
such Accounts. Earnings and losses of the Trust Fund (other than on Qualifying
Employer Securities) shall be computed and allocated to the Participants in the
ratio which the total dollar value of the Account (whether or not vested and
excluding Qualifying Employer Securities) of each Participant in the Trust Fund
bears to the aggregate dollar value of the Accounts (excluding Qualifying
Employer Securities) of all Participants as of the annual computation date. Only
Participants in the Plan on the last day of the Plan Year shall share in the
allocation of earnings, losses and changes in fair market value of the net
assets of the Trust Fund (other than Qualifying Employer Securities) for that
year. Losses and declines in value of Participants' Accounts will not be
considered to be a forfeiture.
(c) Participant Accounts. The Plan Committee shall maintain an Account for
each Participant showing the number of shares allocated to his Account in the
Trust Fund as of the last previous annual computation date attributable to any
contributions made by the Employer, including any Employer contributions for the
year ending on such date. This Account shall be known as the Employer
contributions Account. Separate Accounts also shall be kept, showing the
voluntary and salary reduction contributions of each Participant, shares
allocated, and the earnings, losses and changes in fair market value thereof.
The Plan Committee shall distribute, or cause to be distributed, to each
Participant at least annually a written statement setting forth the value of
such Participant's Accounts as of the last day of the Plan Year, and such other
information as the Plan Committee shall determine. Qualifying Employer
Securities shall be valued at the mean between dealer "bid" and "ask" closing
prices of the stock in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc., or in the "pink sheets" published by
the National Quotation Bureau, Inc. Valuations of Qualifying Employer Securities
that are not readily tradable on an established securities market shall be made
by an independent appraiser.
(d) Valuation Dates. The Valuation Date of the Trust Fund shall be the last
day of each Plan Year, at
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January 01, 1999
<PAGE>
which time the Plan Committee shall determine the value of the net assets of the
Trust Fund (i.e., the value of all the assets of the Trust Fund at their then
current fair market value, less all liabilities) and the value of contributions
by each Employer and all Participants for such year.
(e) Computation Dates. The Plan Committee shall compute the value of each
Participant's Account annually on the last day of each Plan Year and shall base
such computations on the valuation of the assets in the Trust Fund on the
Valuation Date coincident with such date. Upon direct distribution under Section
7.2(a) of this Plan, the Plan Committee shall make a special computation by
which it shall adjust the value of such Participant's Account to reflect the
values determined as of the most recent Quarterly Anniversary Date prior to the
occurrence of such direct distribution. The value of his Account as so adjusted
shall be the amount which the Plan Committee shall use in determining the amount
which shall be distributable to such Participants. The Plan Committee shall be
under no obligation to compute the value of any Participant's Account more than
once annually, unless an event occurs which requires the direct distribution of
any part of a Participant's Account, in which case the Plan Committee shall
compute the Account of such Participant as provided above and, in its
discretion, may compute the Account of each Participant. To the extent
Qualifying Employer Securities have been allocated to the Account of any
Participant, the Plan Committee may distribute such Qualifying Employer
Securities in kind without a special computation of value.
(f) Suspense Account for Unallocated Amounts. If the amount to be allocated
to any Participant's Account would exceed the contribution limitations of
Sections 4.8 or 4.9 of this Plan, a separate suspense Account shall be
established to hold such unallocated amounts for any year or years provided
that: (i) no Employer contributions may be made at any time when their
allocations would be precluded by Section 415 of the Code; (ii) investment gains
and losses and other income are not allocated to the suspense Account; and (iii)
the amounts in the suspense Account are allocated under Section 5.1(a) of this
Plan as of each allocation date on which such amounts may be allocated until the
suspense Account is exhausted. In the event of Plan termination, the balance of
such suspense Account may revert to the Company, subject to regulations
governing such reversion.
Section 5.2 Vesting of Participants' Accounts. (a) General Rules. If any
Participant reaches his Normal Retirement Age, dies, or suffers Total Disability
while a Participant, his entire Account shall become fully vested without regard
to the number of years of service such Participant has had with the Employer.
Any Account whether vested or forfeitable shall become payable to a Participant
or his beneficiaries only to the extent provided in this Plan. A Participant or
former Participant who has designated a Beneficiary and who dies shall cease to
have any interest in this Plan or in his Account, and his Beneficiary shall
become entitled to distribution of the Participant's Account under this Plan and
not as a result of any transfer of the interest or Account. A Participant's
Account attributable to his own contributions or attributable to a rollover
contribution shall be fully vested at all times.
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(b) Vesting Schedule. A Participant shall have a vested interest in the
portion of his Account attributable to Employer contributions, in accordance
with the following schedule:
Percentage of Account
Years of Service Which is Vested
---------------- ---------------------
Fewer than 1 0
1 or more but fewer than 2 20
2 or more but fewer than 3 30
3 or more but fewer than 4 45
4 or more but fewer than 5 60
5 or more but fewer than 6 80
6 or more 100
Section 5.3 Full Vesting Upon Termination or Partial Termination of Plan or
Upon Complete Discontinuance of Employer Contributions. Upon the termination or
partial termination of this Plan or upon complete discontinuance of Employer
contributions, the Accounts of all Participants affected, as of the date such
termination, partial termination, or complete discontinuance of Employer
contributions occurred, shall be fully vested.
Section 5.4 Service Included in Determination of Vested Accounts. All years
of service with the Company and any Associated Company shall be included for the
purpose of determining a Participant's vested Account under Section 5.2 of this
Plan, except years of service excluded by reason of a Break in Service under
Section 5.5 of this Plan.
Section 5.5 Effect of Break in Service on Vesting. With respect to a
Participant who has five or more consecutive one-year breaks in service, years
of service after such Break in Service shall not be taken into account for
purposes of computing the Participant's vested Account balance attributable to
Employer contributions made before such five or more year period.
Section 5.6 Effect of Certain Distributions. (a) Participant Contributions.
The provisions of this Section 5.6 shall not apply to any Participant
contributions (including salary reductions) or rollover contributions.
(b) Repayment of Distribution. A Participant who terminates participation
for any reason other than retirement, disability, or death while any portion of
his Account in the Trust Fund is forfeitable and who receives a distribution of
his vested Account attributable to Employer contributions shall have the right
to pay back such distribution to the Plan. Such repayment may be made (i) only
if the Participant has returned to the employ of the Company or any Associated
Company, and (ii) before the earlier of the date which is five years after the
date the Participant is re-employed by the Employer, or the date on which the
Participant experiences any five consecutive one-year breaks in service
commencing after the distribution. Repayment of a Participant's Account
attributable to his salary reduction contributions, if any, shall not be
permitted under this Section 5.6. A Participant who desires to make repayment of
a distribution under this Section 5.6(b) shall make repayment directly to the
Plan Committee. If a Participant repays a distribution under this section, the
value of his Account shall be the amount of his Account prior to distribution,
unadjusted for any subsequent gains or losses. The amount of the Participant's
Account that was forfeited previously shall be restored from one or more of the
following sources, at the discretion of the Plan Committee: income or gain to
the Plan, forfeitures or Employer contributions.
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(c) Forfeiture of Account When Repayment of Distribution Is Not Made. If
distribution is made to a Participant and he does not repay such distribution
under the terms of Section 5.6(b) of this Plan when the time limit for repayment
expires under Section 5.6(b) above, the Participant shall forfeit the entire
portion of his nonvested Account (as adjusted for gains and losses) which was
not distributed to him. The Account shall be unadjusted for any increase in
vesting for service completed during the repayment period.
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ARTICLE VI
RETIREMENT DATE, DESIGNATION OF BENEFICIARY
Section 6.1 Normal Retirement Date. On the last date of the quarter in which
a Participant attains his Normal Retirement Age, for purposes of this Plan he
shall be entitled to retire voluntarily. The Employer may continue to employ a
Participant after he has attained his Normal Retirement Age with the consent of
such Participant. At any time thereafter such Participant may retire. Until
retirement, a Participant shall continue to participate in the Plan unless he
elects otherwise. A Participant who has completed 10 years of service with any
Employer or combination of Employers may elect to retire for purposes of this
Plan on the last day of any quarter during the 5-1/2 years prior to his Normal
Retirement Age upon application to and approval by the Plan Committee. In no
event may a Participant receive a distribution attributable to Employer
contributions prior to termination of the Participant's employment except upon
retirement for purposes of this Plan.
Section 6.2 Designation of Beneficiary. A Participant's full vested Account
balance shall be payable upon the death of the Participant, to the Participant's
surviving spouse or to his designated Beneficiary if there is no surviving
spouse or if the spouse consents to such Beneficiary designation in writing.
This spousal consent shall acknowledge the effect of such consent and shall be
witnessed by a Plan Committee member or a notary public. If there is no
surviving spouse or in the case of a spousal election not to receive the
Account, a Participant shall designate a Beneficiary to receive his Account in
the Trust Fund upon his death on the form prescribed by and delivered to the
Plan Committee. The Participant shall have the right to change or revoke a
designation at any time by filing a new designation or notice of revocation with
the Plan Administrator. No notice to any Beneficiary other than the spouse nor
consent by any Beneficiary other than the spouse shall be required to effect any
change of designation or revocation. If a Participant fails to designate a
Beneficiary before his death, or if no designated Beneficiary survives the
Participant, the Plan Committee shall direct the Trustee to pay his Account in
the Trust Fund to his surviving spouse, or if none, to his personal
representative. If no personal representative has been appointed actual notice
of such is given to the Plan Committee within 60 days after the Participant's
death, and if his Account does not exceed $5,000, the Plan Committee may direct
the Trustee to pay his Account to such person as may be entitled to it under the
laws of the state where such Participant resided at the date of his death. In
such case, the Plan Committee may require such proof of right or identity from
such person as the Plan Committee may deem necessary.
Section 6.3 Participant or Beneficiary Whose Whereabouts Are Unknown. In the
case of any Participant or Beneficiary whose whereabouts are unknown, the Plan
Committee shall notify such Participant or Beneficiary at his last known address
by certified mail with return receipt requested advising him of his right to a
pending distribution. If the Participant or Beneficiary cannot be located in
this manner, the Plan Committee shall direct the Trustee to establish a
custodial Account for such Participant or Beneficiary for the purpose of holding
the Participant's Account until it is claimed by the Participant or Beneficiary
or until proof of death satisfactory to the Plan Committee is received by the
Plan Committee. If such proof of death is received, the Plan Committee shall
direct the Trustee to distribute the Participant's Account in accordance with
the provisions of Section 6.2 of this Plan. Any Trustee fees or other
administrative expenses attributable to a custodial Account established and
maintained under this section shall be charged against such Account.
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ARTICLE VII
DISTRIBUTION FROM TRUST FUND
Section 7.1 When Accounts Become Distributable and Effect of Distribution.
If a Participant dies, suffers Total Disability, retires, or terminates his
employment for any other reason, the portion of this vested Account attributable
to Employer contributions, to Participant contributions, and to any rollover
contributions shall be distributable under Section 7.2 of this Plan. When the
Participant's Account becomes distributable, such Participant shall cease to
have any further interest or participation in the Trust Fund or any subsequent
accruals or contributions to the Trust Fund except as provided below: (i) a
Participant shall retain the right to receive distribution of his Account as
determined at the last prior regular computation or upon the special computation
as determined under Section 5.1 of this Plan; and (ii) except as provided in
Section 5.1 of this Plan, a Participant who makes contributions during any
quarter shall retain the right to receive his share in the Employer's
contribution allocated to his Account for such quarter.
Section 7.2 Distribution of Account. (a) Notification of Trustee and Nature
of Distribution. Quarterly after a Participant's vested Account is
distributable, the Plan Committee shall notify the Trustee in writing of the
Participant's name and address, the amount of his vested Account which is
distributable, the reason for its being distributable and the permissible manner
of distribution. A Participant's Account shall be distributed in cash or
Qualifying Employer Securities at the election of the Participant, provided that
Qualifying Employer Securities shall be distributed to a Participant who makes a
written demand for such to the Plan Committee. Cash always may be distributed in
lieu of fractional shares.
(b) Distribution Upon Retirement and Upon Total Disability. Except as
provided in Section 7.5, if a Participant's Account becomes distributable upon
his Termination of Employment with the Employer because such Participant has
attained retirement age or because of his Total Disability, the Trustee shall
pay such Participant's Account to the Participant, commencing within a
reasonable period of time (but not later than 60 days) after the close of the
Plan Year in which the Participant's Termination of Employment occurred in (i)
one lump sum distribution, or (ii) substantially equal annual installments over
a period not to exceed five years. If he dies before receiving all of his vested
Account, the remaining installments shall be paid to his Beneficiary under this
Section 7.2. Any payments received as disability benefits under this Plan are
intended to qualify as distribution from an accident and health Plan as
described in the Code.
(c) Distribution Upon Death. Except as provided in Section 7.5, if a
Participant's Account becomes distributable because of his death, his
Beneficiary may elect to receive such Participant's Account, commencing within a
reasonable period of time (but not later than 60 days) after the close of the
Plan Year in which the Participant's death occurred in (i) one lump sum
distribution, or (ii) substantially equal annual installments over a period not
to exceed five years. If the Beneficiary dies before receiving all of the
Participant's vested Account, the remaining payments shall be made to the
contingent Beneficiary, if any. If the Participant has not designated a
Beneficiary, or if he has designated a Beneficiary who dies and the Participant
has not designated a contingent Beneficiary, the Participant's vested Account,
or the undistributed portion of it, shall be paid in a lump sum under Section
6.2 of this Plan.
(d) Distribution Upon Other Termination of Employment. Except as provided in
Section 7.5, if a Participant's Account becomes distributable upon his
Termination of Employment for any reason other than attainment of retirement
age, disability, or death, the Trustee shall pay such Participant's Account to
the Participant, commencing within a reasonable period of time (but not later
than 60 days) after the close
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of the Plan Year in which the Participant incurs a one-year Break in Service in
one lump sum distribution. The vested Account of a Participant who has satisfied
the years of service requirement for early retirement under Section 6.1 of this
Plan, but who terminates employment prior to the early retirement age may be
distributed, at the option of the Participant, within 60 days after the close of
the Plan Year in which the Participant attains early retirement age, if such
date is earlier than the date on which this Account otherwise would be
distributable. If the Participant dies prior to receiving all of his vested
Account, the remainder shall be distributed to his Beneficiary under this
Section 7.2.
(e) Distribution for Rollover Transactions and Eligible Rollover
Distributions.
(i) Notwithstanding any other provision of this Section 7.2, a
Participant whose Account becomes distributable may request that the
Plan Committee direct the Trustee to distribute the entirety of the
Participant's vested Account in a single payment to the Participant
for the purpose of transferring such Account upon Termination of
Employment to another plan in a rollover transaction. A Participant
may not rollover the portion of his Account considered contributed
by the Participant, which includes all Participant contributions
other than salary deductions. A rollover contribution may include
all or any portion of any prior rollover contributions, any
earnings, losses, and changes in the fair market value of the
portion of a Participant's Account attributable to his own
contributions and the portion of a Participant's vested Account
attributable to salary reductions and Employer contributions. The
Participant shall make such rollover request in writing and shall
provide such information to the Plan Committee as the Plan Committee
requests, including the name of the plan to which his interest is to
be transferred and the name and address of the sponsor and the
Trustee of the new plan, when applicable.
(ii) This subsection applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that
otherwise would limit a Participant's distribution election under
this Article, a Participant may elect, at the time and in the manner
prescribed by the Plan Committee, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan
specified by the Participant in a direct rollover. An eligible
rollover distribution is any distribution of all or any portion of
the balance to the credit of the Participant, except that an
eligible rollover distribution does not include (A) any distribution
that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; (B) any
distribution to the extent such distribution is required under Code
Section 401(a)(9); and (C) the portion of any distribution that is
not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities). An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust described in Code
Section 401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity. A
distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as
defined in Code Section 414(p), are distributees with regard to the
interest of the spouse or former spouse. A direct rollover is a
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payment by the Plan to the eligible retirement plan specified by the
distributee. The Committee may establish procedures for the
distribution of eligible rollover distributions, including any
limitations on the amount eligible for a rollover distribution, to
the extent permitted by law.
(f) Distribution of a Participant's Contributions. Notwithstanding any other
provision of Section 7.2 of this Plan, but subject to the rules of Section 7.5
of this Plan; if a Participant terminates employment for any reason, he shall
receive distribution in one lump sum of his Account in the Trust Fund
attributable to Participant contributions and the earnings, losses, and changes
in fair market value of such contributions if he makes written demand for them
upon the Plan Committee at least two weeks prior to the end of any calendar
quarter after the termination of his employment. If a Participant so requests,
distribution of his Account attributable to Participant contributions shall be
made as soon as reasonably possible after the close of the calendar quarter
following his two weeks notice. Any amount attributable to Participant
contributions not distributed under this Section 7.2(f) shall be distributed
along with Employer contributions.
(g) Optional Forms of Benefits for Transferred Assets. Notwithstanding any
provision of this Plan to the contrary, to the extent that any optional form of
benefit under this Plan permits a distribution prior to the employee's
retirement, death, disability, or severance from employment, and prior to Plan
termination, the optional form of benefit is not available with respect to
benefits attributable to assets (including the post-transfer earnings thereon)
and liabilities that are transferred, within the meaning of section 414(1) of
the Internal Revenue Code, to this Plan from a money purchase pension plan
qualified under section 401(a) of the Internal Revenue Code (other than any
portion of those assets and liabilities attributable to voluntary employee
contributions).
Section 7.3 Disposition of Forfeitable Account on Termination of Employment.
If a Participant's employment is terminated for any reason other than
retirement, death, or Total Disability, while any part of his Account in the
Trust Fund is forfeitable, then that portion of his Account which is forfeitable
shall be forfeited by him on the earlier of the date the Participant receives
distribution or the date which he experiences five consecutive one-year breaks
in service. If the value of a Participant's vested Account balance is zero upon
the Participant's termination of employment, the Participant will be deemed to
have received a distribution of the vested Account balance immediately upon such
termination of employment. If a Participant who has received a distribution of
less than his or her entire Account upon termination of employment is reemployed
prior to five consecutive one-year breaks in service, the forfeited Account will
be restored from income or gains to the Plan, forfeitures, or Company
contributions, at the discretion of the Plan Committee, if the Participant
repays the distributed amount to the Plan pursuant to section 5.6(b). Any amount
forfeited will remain in the Trust Fund and will be allocated as provided in
Section 5.1 of this Plan.
Section 7.4 Assignment of Benefits. (a) General Rules. Except as provided in
this Section 7.4, all amounts payable by the Trustee shall be paid only to the
person entitled to them, and all such payments shall be paid directly to such
person and not to any other person or corporation. Such payments shall not be
subject to the claim of any creditor of a Participant, nor shall such payments
be taken in execution by attachment or garnishment or by any other legal or
equitable proceedings. No person shall have any right to alienate, anticipate,
commute, pledge, encumber, or assign any payments or benefits which he may
expect to receive contingently or otherwise, under this Plan, except the right
to designate a Beneficiary or beneficiaries; provided, that this Section 7.4
shall not affect, restrict, or abridge any right of setoff or lien which the
Trust may have by law.
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(b) Qualified Domestic Relations Orders.
(i) Section 7.4(a) of this Plan shall not apply with respect to payments
in accordance with the requirements of a qualified domestic
relations order. A qualified domestic relations order creates or
recognizes the existence of an alternate payee's right to, or
assigns to an alternate payee the right to, receive all or a portion
of the benefits otherwise payable to a Participant under the Plan. A
domestic relations order means any judgment, decree, or order
(including approval of a property settlement agreement) that relates
to the provision of child support, alimony payments, or marital
property rights to a spouse, former spouse, child, or other
dependent of a Participant, and is made pursuant to a state domestic
relations law (including a community property law). To qualify, the
domestic relations order must:
(A) Clearly state the name and last known mailing address of the
Participant and the name and mailing address of each alternate
payee covered by the order;
(B) Clearly state the amount or percentage of the Participant's
benefits to be paid by the Plan to each alternate payee, or
the manner in which the amount or percentage is to be
determined;
(C) Clearly state the number of payments or period to which the
order applies;
(D) Identify each Plan to which the order applies;
(E) Not require the Plan to provide any type or form of benefits,
or any option, not otherwise provided under the Plan;
(F) Not require the Plan to provide increased benefits (determined
on the basis of actuarial value); and
(G) Not require the payment of benefits to an alternate payee that
are required to be paid to another alternate payee under
another order previously determined to be a qualified domestic
relations order.
(ii) In the case of any distribution before a Participant has separated
from service, a qualified domestic relations order shall not fail to
meet the requirements of Section 7.4(b)(i)(E) of this Plan solely
because such order requires that payment of benefits be made to an
alternate payee (A) on or after the date the Participant attains the
earliest retirement age, (B) as if the Participant had retired on
the date on which such payment is to begin under such order, and (C)
in any form in which benefits may be paid under the Plan to the
Participant (other than in the form of a qualified joint and
survivor annuity with respect to the alternate payee and his
subsequent spouse). Payment of benefits before Termination of
Employment solely by reason of payments to an alternate payee under
a qualified domestic relations order shall not be deemed to be a
violation of Code Section 401(a) or (k).
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(c) Definitions.
(i) "Alternate payee" means any spouse, former spouse, child, or other
dependent of a Participant who is recognized by a qualified domestic
relations order as having a right to receive all, or a portion of,
the benefits payable under a Plan with respect to such Participant.
(ii) "Earliest retirement age" means the earlier of:
(A) The date on which the Participant is entitled to a
distribution under the Plan; or
(B) The later of the date the Participant attains age 50, or the
earliest date on which the Participant could begin receiving
benefits under the Plan if the Participant had separated from
service.
Section 7.5 Other Rules for Distribution of Fund. (a) Vested Accounts and
Consent to Distribution. No life annuity may be purchased or distributed under
this Plan and no amount (taking into consideration both Employer and Employee
contributions) may be distributed to a Participant prior to age 65 unless the
amount is distributed in a lump sum of $3,500 or less or the Participant
consents in writing to the distribution. Unless the Participant elects
otherwise, distribution must commence not later than 60 days after the end of
the Plan Year in which a Participant attains Normal Retirement Age or actually
retires, whichever is later. Unless otherwise elected by the Participant,
distributions must commence no later than one year after the close of the Plan
Year in which occurs the later of the Participant's Termination of Employment
because of death, disability or Normal Retirement Age, or the fifth Plan Year
following the Participants' separation from service; provided, however, that if
securities held in a Participant's Account were purchased with the proceeds of a
loan that has not been repaid in full, distributions may be delayed until the
end of the Plan Year during which the loan is repaid in full. The Participant's
Account must be distributed over a period not longer than five years or, five
years plus one additional year (but not more than five additional years) for
each $100,000 of Account balance in excess of $500,000.
(b) Distribution Rules. Notwithstanding any other provisions of this
section, the following distribution rules shall apply (unless a different method
of distribution applies under Section 242(b) of the Tax Equity and Fiscal
Responsibility Act of 1982):
(i) Before Death. The entire Account of each Participant (A) will be
distributed to him not later than the required beginning date; or
(B) shall be distributed commencing not later than the required
beginning date over (1) the life of the Participant (or the lives of
the Participant and his designated Beneficiary), or (2) a period not
extending beyond the life expectancy of the Participant (or the life
expectancy of the Participant and his designated Beneficiary).
(ii) After Death. If a Participant dies and distribution of his Account
has begun in accordance with Section 7.5(i)(B) of this Plan, the
remaining portion of his Account will be distributed at least as
rapidly as under the method of distribution being used under that
Section 7.5(i)(B) as of the date of the Participant's death. If a
Participant dies before distribution of the Participant's Account
has commenced, the entire interest of the Participant will be
distributed within five years after the death of the Participant.
The preceding sentence shall not apply if any portion of the
Participant's Account is payable to or for the benefit of a
designated Beneficiary, if such portion will be distributed over the
life of the designated Beneficiary, and if such distributions
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will begin not later than one year after the date of the
Participant's death or such later date as the Secretary of the
Treasury may prescribe by regulations. If the designated Beneficiary
is the surviving spouse of the Participant, the date on which the
distributions are required to begin shall not be earlier than the
date on which the Participant would have attained age 70-1/2, and if
the surviving spouse dies before the distribution to such spouse
begins, distributions shall be made as if the surviving spouse were
the Participant.
(iii) Life Expectancy. For purposes of this Section 7.5, the life
expectancy of an Employee and the Employee's spouse (other than in
the case of a life annuity) may be redetermined but not more
frequently than annually as determined by the Plan Committee.
(iv) Required Beginning Date. Required beginning date means April 1 of
the calendar year following the calendar year in which the
Participant attains age 70-1/2, unless otherwise provided by the
transitional rules under Code Section 401(a)(9) and the regulations
thereunder.
(v) Designated Beneficiary. Designated Beneficiary means any individual
designated as a Beneficiary by the Participant.
(vi) Treatment of Payments to Children. Under regulations prescribed by
the Secretary of the Treasury, any amount paid to a child shall be
treated as if it had been paid to the surviving spouse if such
amount will become payable to the surviving spouse upon such child
reaching majority (or such other designated event permitted under
regulations).
(vii) Spouse, Trust for Benefit of Spouse, or Estate As Beneficiary. If
distribution prior to a Participant's death has not commenced or has
commenced as installment payments from the Trust Fund and if the
Participant designates his spouse, a trust for the benefit of his
spouse, or his estate as his Beneficiary, the provisions of this
subsection shall apply, subject to the limitations in this Section
7.5:
(A) Spouse As Beneficiary. If a Participant designates his spouse
as his Beneficiary, upon the death of the Participant the
spouse shall elect (1) to receive the entire Account of the
Participant in a lump sum distribution, or (2) to receive
payment of the Account in installments as provided in Section
7.5(vii)(E) of this Plan. In the absence of an election by the
spouse, the Participant's Account shall be distributed to the
spouse in a lump sum within a period of time that satisfies
the requirements of this section. Notwithstanding any other
provisions of this Plan, the spouse at any time may direct the
Trustee to distribute all or any part of the Account to the
spouse, or may request that the Trustee segregate the Account
from the remainder of the Trust Fund and invest it in the
manner that the spouse specifies. The Trustee, in its sole
discretion, shall determine on a nondiscriminatory basis
whether to permit such segregation.
(B) QTIP Trust As Beneficiary. If a Participant designates as his
Beneficiary a qualified terminable interest property "QTIP"
trust for the benefit of his spouse, upon the death of the
Participant the Trustee of the QTIP trust shall elect for the
QTIP trust (1) to receive the entire Account of the
Participant in a lump sum distribution, or (2) to receive
payment of the Account in installments as provided in Section
7.5(vii)(E) of this Plan. In the absence of an election by the
QTIP Trustee, the Participant's Account shall be distributed
to the
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QTIP trust in a lump sum within a period of time that
satisfies the requirements of this Section 7.5.
Notwithstanding any other provisions of this Plan, the spouse
at any time may direct the Trustee to distribute all or any
part of the Account to the QTIP trust, or may request that the
Trustee segregate the Account from the remainder of the Trust
Fund and invest it in the manner that the QTIP Trustee
specifies. The Trustee, in its sole discretion, shall
determine on a nondiscriminatory basis whether to permit such
segregation.
(C) General Power of Appointment Trust As Beneficiary. If the
Participant designates as his Beneficiary a trust over which
his spouse has a general power of appointment, upon the death
of the Participant the spouse shall elect (1) for such trust
to receive the entire Account of the Participant in a lump sum
distribution, or (2) for such trust to receive payment of the
Account in installments as provided in Section 7.5(vii)(E) of
this Plan. In the absence of an election by the spouse, the
Participant's Account shall be distributed to such trust in a
lump sum within a period of time that satisfies the
requirements of this section. Notwithstanding any other
provisions of this Plan, the spouse at any time may direct the
Trustee to distribute all or any part of the Account to the
general power of appointment trust, or may request that the
Trustee segregate the Account from the remainder of the Trust
Fund and invest it in the manner that the spouse specifies.
The Trustee, in its sole discretion, shall determine on a
nondiscriminatory basis whether to permit such segregation.
(D) Estate As Beneficiary. If the Participant designates his
estate as his Beneficiary with a specific bequest of his
income in respect of decedent to his spouse, upon the death of
the Participant the personal representative of the Participant
(or the successor of the personal representative) shall elect
(1) to receive the entire Account of the Participant in a lump
sum distribution, or (2) for the spouse to receive payment of
the Account in installments as provided in Section 7.5(vii)(E)
of this Plan. In the absence of an election by the personal
representative (or his successor), the Participant's Account
shall be distributed to the personal representative (or his
successor) in a lump sum within a time period that satisfies
the requirements of this section. Notwithstanding any other
provisions of this Plan, the personal representative (or his
successor) at any time may direct the Trustee to distribute
all or any part of the Account, or may request that the
Trustee segregate the Account from the remainder of the Trust
Fund and invest it in the manner that the personal
representative (or his successor) specifies. The Trustee, in
its sole discretion, shall determine on a nondiscriminatory
basis whether to permit such segregation.
(E) Installment Distributions. If installment payments of the
Participant's Account are elected under this section, the
person making the election shall specify the amount of the
payments and when they shall be made, provided that payment
must be made no less frequently than annually. The total
installment payments each year shall equal the greater of (1)
all income from the Account, or (2) the minimum permissible
annual payment under this Section 7.5, and shall be limited as
provided under Section 7.2(c) of this Plan. If a spouse elects
installment payments, such spouse shall determine who shall
receive the amounts, if any, payable under such installment
election after such spouse's death.
Section 7.6 Withdrawals. (a) Employer Contributions. Upon completing the
requirements for early retirement provided in Section 6.1 of this Plan, a
Participant may elect to retire for purposes of this Plan
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and may request withdrawal from the Trust Fund of all or any portion of his
Account attributable to Employer contributions valued as of the most recent
preceding Valuation Date. If a Participant does make such a withdrawal, he shall
not be eligible to participate in the Plan again and he shall forfeit all income
which otherwise would have been credited to his Account on the last day of the
year in which he makes a withdrawal of Employer contributions. His Account shall
be credited or charged with any realized or unrealized gains or losses on such
date as though no such withdrawal had occurred.
(b) Voluntary Contributions. At any time a Participant may request
withdrawal of all or any part of his Account attributable to voluntary
contributions. A Participant desiring such a withdrawal shall file a written
request with the Plan Committee at least two weeks before the date on which
withdrawal is to be made. The Participant shall specify the date of withdrawal
in his request which date shall be the end of a calendar quarter and that date
shall be the withdrawal date for all purposes of this Plan whether or not he
actually receives his distribution on that date. The Plan Committee then shall
direct the Trustee to distribute the amount requested to the Participant. The
Trustee shall distribute the withdrawn contributions as soon as reasonably
possible after the withdrawal date. A Participant who makes withdrawal of any
portion of his Account under this Section 7.6(b) may not contribute to the Trust
Fund under Section 4.1 of this Plan until the first calendar quarter commencing
six months after withdrawal is made. Any expenses attributable to any withdrawal
under this Section 7.6(b) shall be charged to the Account of the Participant
requesting the withdrawal. Vested benefits under the Plan may not be forfeited
because a Participant withdraws his voluntary contributions.
(c) Salary Reductions. A Participant may withdraw his salary reduction
contributions to this Plan (but excluding any earnings, losses, and changes in
fair market value of such contributions in the case of a hardship withdrawal),
as reflected in his Account attributable to salary reductions, upon either
completing the requirements for early retirement under Section 6.1 of this Plan
or upon serious financial hardship, as defined below. A Participant desiring
such a withdrawal shall make his request in such form and manner as the Plan
Committee shall prescribe from time to time. If a Participant makes a withdrawal
upon eligibility for early retirement, he shall not be eligible to participate
in the Plan again and shall forfeit all income which otherwise would have been
credited to his Account on the last day of the year in which he makes
withdrawal. A hardship distribution cannot exceed the amount required to meet
the immediate financial need and cannot be reasonably available to the
Participant from other resources. If the Plan Committee determines in accordance
with a uniform and nondiscriminatory policy that serious financial hardship
exists, it may direct the Trustee to distribute the amount requested to the
Participant. Any expenses attributable to the hardship withdrawal shall be
charged to the Account of the Participant requesting the withdrawal. For the
purposes of this Section, a serious financial hardship is defined as an
immediate and heavy financial need of the Participant when such Participant
lacks other available resources. The following are the only financial needs
considered immediate and heavy:
(i) Deductible medical expenses (within the meaning of Code Section
213(d)) of the Participant, the Participant's spouse, children, or
dependents;
(ii) The purchase (excluding mortgage payments) of a principal residence
for the Participant;
(iii) Payment of tuition, and related expenses, for the next twelve months
of post-secondary education for the Participant, the Participant's
spouse, children, or dependents;
(iv) The need to prevent the eviction of the Participant from, or a
foreclosure on the mortgage of,
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the Participant's principal residence;
(v) Funeral expenses of a family member of the Participant; or
(vi) Any other reason deemed to be an immediate and heavy financial need
by the Secretary of Treasury.
Effective January 1, 1995, a distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the Participant only if (A) the
Participant has obtained all distributions, other than hardship distributions,
and all nontaxable loans available under all Plans maintained by the Company;
(B) all Plans maintained by the Company provide that the Participant's elective
deferrals and Participant contributions will be suspended for twelve months
after the receipt of the hardship distribution; (C) the distribution is not in
excess of the amount necessary to satisfy the immediate and heavy financial
need; and (D) all plans maintained by the Company provide that the Participant
may not make elective deferrals for the Participant's taxable year immediately
following the taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such taxable year less the amount
of such Participant's elective deferrals for the taxable year of the hardship
distribution.
Section 7.7 Put Option. If Qualifying Employer Securities distributed, as
part of the balance to the credit of the Participant distributed within one
taxable year, are not readily tradable on an established market, the Participant
receiving such Qualifying Employer Securities has a right to require the
Employer to repurchase such Qualifying Employer Securities at fair market value.
The put option period shall extend for 60 days after the date of distribution
and, if not exercised during that time period shall extend for an additional 60
day period in the following Plan Year (to the extent provided in Treasury
regulations). Payments for the Qualifying Employer Securities must be made in
substantially equal period payments over a period not exceeding five years and
must commence within 30 days after the exercise of the "put option". Adequate
security shall be provided and reasonable interest shall be paid on unpaid
amounts. Qualifying Employer Securities shall be readily tradable on an
established market if they are (i) listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, (ii) quoted
on a system sponsored by a national securities association registered under
Section 15A(b) of the Securities Exchange Act, including the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
or (iii) traded on any over the counter market by brokers or dealers who make
the market using "pink sheets" published by the National Quotation Bureau, Inc.
Section 7.8 Loans to Participants. (a) Uniform Non-Discriminatory Policy.
The Committee may establish a uniform and nondiscriminatory policy under which
it may direct the Trustee to make a loan to a Participant who makes a written
request for such a loan. In no event may all loans from all qualified plans of
the Company to an individual Participant exceed the lesser of (i) the greater of
$10,000 or one-half the present value of the Participant's nonforfeitable
accrued benefit under all such plans; or (ii) $50,000 reduced by the excess (if
any) of the highest outstanding balance of loans from all such plans during the
one year period ending on the day before the date on which such loan was made
over the outstanding balance of loans from all such plans on the date on which
such loan was made.
(b) Collateral Terms. All loans shall be secured adequately by collateral
which collateral may (in the Plan Committee's discretion) include up to 50% of
the Participant's vested Account, shall be considered investments of the Plan
and Trust, and shall bear a rate of interest considered reasonable on the date
on which the loan was made. Except to the extent it is used to acquire any
dwelling unit that within a
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reasonable time is to be used (determined at the time the loan is made) as a
principal residence of the Participant, any such loan shall be repaid within or
upon the earlier of the date prescribed by the Plan Committee, or five years
after the loan is made. To the extent that any loan is used to acquire the
principal residence of the Participant, such loan shall be repaid within a
reasonable period of time as determined by the Committee. Substantially level
amortization of the loan (with payments at least quarterly) shall be made over
the term of the loan. If a Participant does not repay such loan within the time
prescribed, then in addition to enforcing payment through any legal remedy, the
Plan Committee may instruct the Trustee to deduct the total amount of the loan
and any unpaid interest due on it from such Participant's Account, but no
foreclosure of the Participant's Account may occur prior to the Account being
distributable under this Article. In its discretion the Plan Committee may
require the Participant to repay the loan by payroll deduction. Loans may not be
made to shareholder-Employees or to owner-Employees. For purposes of this
requirement, a shareholder-Employee means an Employee or officer of an electing
small business (Subchapter S) corporation who owns (or is considered as owning
within the meaning of Code Section 319(a)(1)) on any day during the taxable year
of such corporation, more than five percent of the outstanding stock of the
corporation. An owner-Employee means an Employee who owns the entire interest of
an unincorporated trade or business or is a partner owning more than 10 percent
of the capital interest or profits in such partnership.
Section 7.9 Other Restrictions on Withdrawals. Notwithstanding other
provisions of this Plan and in particular Article VII of this Plan, the
following will apply to all transactions involving Qualifying Employer
Securities or Accounts which are the subject of this Plan:
(i) Six Month Limitation on Further Purchases. An officer or director
Participant making a withdrawal under this Plan must cease further
purchases of Qualifying Employer Securities in the Plan for six
months, or the Qualifying Employer Securities so distributed must be
held by that Participant six months prior to disposition; provided
that extraordinary distributions of all of the Qualifying Employer
Securities held by the Plan and distributions in connection with
death, retirement, disability, Termination of Employment, or a
qualified domestic relations order as defined by the Code or Title I
of the Employee Retirement Income Security Act, or the rules under
those acts, are not subject to this requirement; and
(ii) Six Month Limitation on Further Participation. An officer or
director Participant who ceases participation in the Plan may not
participate in the Plan again for at least six months.
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ARTICLE VIII
FIDUCIARY OBLIGATIONS
Section 8.1 General Fiduciary Duties. A Fiduciary shall discharge his duties
under the Plan solely in the interest of the Participants and the beneficiaries
and for the exclusive purpose of providing benefits to Participants and to their
beneficiaries and defraying reasonable expenses of administering the Plan. All
fiduciaries shall act with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. Except as authorized by regulations of the
Secretary of Labor, no Fiduciary may maintain the indicia of ownership of any
assets of the Plan outside the jurisdiction of the district courts of the United
States. A Fiduciary shall act in accordance with the documents and instruments
governing the Plan to the extent such documents and instruments are consistent
with the requirements of law.
Section 8.2 Allocation of Fiduciary Responsibility. A Named Fiduciary may
designate persons other than named fiduciaries to carry out Fiduciary
responsibilities (other than Trustee responsibilities) under the Plan.
Section 8.3 Liability of Fiduciaries. (a) Extent of Liability. A Fiduciary
who breaches any of the responsibilities, obligations, or duties imposed upon
him by this Plan or by the requirements of law shall be personally liable only
(i) to make good to the Plan any losses resulting from his breach, (ii) to
restore to the Plan any profits the Fiduciary has made through the use of Plan
assets for his personal Account, and (iii) to pay those penalties prescribed by
law arising from his breach. A Fiduciary shall be subject to such other
equitable or remedial relief as a court of law may deem appropriate, including
removal of the Fiduciary. A Fiduciary also may be removed for a violation of
Section 8.8 of this Plan (prohibition against certain persons holding certain
positions). No Fiduciary shall be liable with respect to the breach of a
Fiduciary duty if such breach was committed before he became a Fiduciary or
after he ceased to be a Fiduciary.
(b) Liability of Fiduciary for Breach by Co-Fiduciary. A Fiduciary shall be
liable for a breach of Fiduciary responsibility of another Fiduciary of this
Plan, only if he (i) participates knowingly in, or knowingly undertakes to
conceal, an act or omission of the other Fiduciary, and knows such act or
omission by the other Fiduciary is a breach of the other Fiduciary's duties,
(ii) enables another Fiduciary to commit a breach, by his failure to comply with
Section 8.1 of this Plan in the administration of the specific responsibilities
which give rise to his status as a Fiduciary, or (iii) has knowledge of a breach
of another Fiduciary and does not make reasonable efforts under the
circumstances to remedy the breach.
(c) Liability for Improper Delegation of Fiduciary Responsibility. A Named
Fiduciary who allocates any of his Fiduciary responsibilities to any person or
designates any person to carry out any of his Fiduciary responsibilities shall
be liable for the act or omission of such person in carrying out the
responsibility only to the extent that the Named Fiduciary fails to satisfy his
general Fiduciary duties of Section 8.1 of this Plan with respect to the
allocation or designation, with respect to the establishment or implementation
of the procedure by which he allocates the responsibilities, or in continuing
the allocation or designation. Nothing in this Section 8.3(c) shall prevent a
Named Fiduciary from being liable if he otherwise would be liable for an act or
omission under Section 8.3 of this Plan.
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(d) Fiduciary to whom Responsibilities are Allocated. Any person who has
been designated to carry out Fiduciary responsibilities under Section 8.2 of
this Plan shall be liable for such responsibilities under this section to the
same extent as any Named Fiduciary.
(e) Liability Insurance and Indemnification. Nothing in this Plan shall
preclude a Fiduciary from purchasing insurance to cover liability from and for
his own account. The Company may purchase insurance to cover potential liability
of those persons who serve in a Fiduciary capacity with regard to the Plan or
may indemnify a Fiduciary against liability and expenses reasonably incurred by
him in connection with any action to which such Fiduciary may be made a party by
reason of his being or having been a Fiduciary.
Section 8.4 Prohibited Transactions. No Fiduciary shall cause the Plan to
engage in a transaction if the Fiduciary knows or should know that the
transaction constitutes a prohibited transaction under law. No disqualified
person under law (other than a Fiduciary acting only as such) shall engage in a
prohibited transaction as prescribed by law.
Section 8.5 Receipts of Benefits by Fiduciaries. Nothing shall prohibit any
Fiduciary from receiving any benefit to which he may be entitled as a
Participant or Beneficiary in the Plan, if such benefit is computed and paid on
a basis which is consistent with the terms of the Plan applied to all other
Participants and beneficiaries. The determination of any matters affecting the
payment of benefits to any Fiduciary other than the Plan Committee shall be
determined by the Plan Committee. If the Plan Committee is an individual, the
determination of any matters affecting the payment of benefits to the Plan
Committee shall be made by a temporary Plan Committee who shall be appointed by
the Board of Directors for such purpose. If the Plan Committee is a group of
individuals, the determination of any matters affecting the payment of benefits
to any individual Plan Committee member shall be made by the remaining Plan
Committee members without the vote of such individual Plan Committee member. If
the remaining Plan Committee members are unable to agree on any matter affecting
the payment of such benefits, the Board of Directors shall appoint a temporary
Plan Committee to decide the matter.
Section 8.6 Compensation and Expenses of Fiduciaries. (a) General Rules. A
Fiduciary shall be entitled to receive any reasonable Compensation for services
rendered or for the reimbursement of expenses properly and actually incurred in
the performance of his duties under the Plan. However, no Fiduciary who already
receives full-time pay from an Employer shall receive Compensation from the
Plan, except for reimbursement of expenses properly and actually incurred. All
Compensation and expenses shall be paid by the Plan, unless the Company, in its
discretion, elects to pay all or any part of such Compensation and expenses.
(b) Compensation of Plan Committee and Plan Administration. A Plan
Administrator who is not a full-time Employee of an Employer shall be entitled
to such reasonable Compensation as the Plan Committee and Plan Administrator
mutually shall determine. A Plan Committee member who is not a full-time
Employee of an Employer shall be entitled to such reasonable Compensation as the
Company and the Plan Committee mutually shall determine. Any expenses properly
and actually incurred by the Plan Committee or the Plan Administrator due to a
request by a Participant shall be charged to the Account of the Participant on
whose behalf such expenses are incurred.
(c) Compensation of Trustee. A Trustee who is not a full-time Employee of an
Employer shall be entitled to such reasonable Compensation for its services as
the Plan Committee and the Trustee mutually
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shall determine.
(d) Compensation of Persons Retained or Employed by Named Fiduciary. The
Compensation of all agents, counsel, or other persons retained or employed by a
Named Fiduciary shall be determined by the Named Fiduciary employing such
person, with the Plan Committee's approval, provided that a person who is a
full-time Employee of an Employer shall receive no Compensation from the Plan.
Section 8.7 Service by Fiduciaries and Disqualified Persons. Nothing in this
Plan shall prohibit anyone from serving as a Fiduciary in addition to being an
officer, Employee, agent, or other representative of a disqualified person as
defined in the Code.
Section 8.8 Prohibition Against Certain Persons Holding Certain Positions.
No person who has been convicted of a felony shall be permitted to serve as an
administrator, Fiduciary, officer, Trustee, custodian, counsel, agent, or
Employee of this Plan, or as a consultant to this Plan, unless permitted under
law. The Plan Committee shall ascertain to the extent practical that no
violation of this section occurs. In any event, no person knowingly shall permit
any other person to serve in any capacity which would violate this section.
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ARTICLE IX
PLAN ADMINISTRATOR AND PLAN COMMITTEE
Section 9.1 Appointment of Plan Administrator and Plan Committee. The Board
of Directors by resolution shall appoint a Plan Administrator and Plan
Committee, both of whom shall hold office until resignation, death, or removal
by the Board of Directors. If the Board of Directors fails to appoint the Plan
Committee or Plan Administrator, or both, the Board of Directors shall be the
Plan Committee, the Plan Administrator, or both. Any person may serve in more
than one Fiduciary capacity, including service as Plan Administrator and Plan
Committee member. Any group of persons appointed by the Board of Directors may
serve in the capacity of Plan Committee, Plan Administrator, or both.
Section 9.2 Organization and Operation of Offices of Plan Administrator and
Plan Committee. The Plan Administrator and Plan Committee may adopt such
procedures as each deems desirable for the conduct of their respective affairs
and may appoint or employ a secretary or other agents, any of whom may be, but
need not be, an officer or Employee of the Company or an Associated Company. Any
agent may be removed at any time by the person appointing or employing him.
Section 9.3 Information To Be Made Available to Plan Committee and Plan
Administrator. To enable the Plan Committee and the Plan Administrator to
perform all of their respective duties under the Plan, each Employer shall
provide the Plan Committee and the Plan Administrator with access to the
following information for each Employee: (i) name and address; (ii) social
security number; (iii) birthdate; (iv) dates of commencement and Termination of
Employment; (v) reason for termination of employment; (vi) hours worked during
each year; (vii) annual Compensation; (viii) Employer contributions; and (ix)
such other information as the Plan Committee or the Plan Administrator may
require. To the extent the information is available in Employer records, an
Employer shall provide the Plan Committee and Plan Administrator with access to
information relating to each Employee's contributions, benefits received under
the Plan, and marital status. If such information is not available from the
Employer records, the Plan Committee shall obtain such information from the
Participants. The Plan Committee, the Plan Administrator and the Employer may
rely on and shall not be liable because of any information which an Employee
provides, either directly or indirectly. As soon as possible following any
Participant's death, Total Disability, retirement, or other Termination of
Employment, his Employer shall certify in writing to the Plan Committee and Plan
Administrator such Participant's name and the date and reason for his
Termination of Employment.
Section 9.4 Resignation and Removal of Plan Administrator or Plan Committee
Member; Appointment of Successors. Any Plan Administrator or Plan Committee
member may resign at any time by giving written notice to the Board of
Directors, effective as stated in such notice, otherwise upon receipt of such
notice. At any time the Plan Administrator or any Plan Committee member may be
removed by the Board of Directors without cause. As soon as practical, following
the death, resignation, or removal of any Plan Administrator or Plan Committee
member, the Board of Directors shall appoint a successor by resolution. Written
notice of the appointment of a successor Plan Administrator or successor Plan
Committee member shall be given by the Company to the Trustee. Until receipt by
the Trustee of such written notice, the Trustee shall not be charged with
knowledge or notice of such change.
Section 9.5 Duties and Powers of Plan Administrator, Reporting and
Disclosure. (a) General Requirements. The Plan Administrator shall be
responsible for all applicable reporting and disclosure
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requirements of law. The Plan Administrator shall prepare, file with the
Secretary of Labor, the Secretary of the Treasury, or the Pension Benefit
Guaranty Corporation, when applicable, and furnish to Participants and
beneficiaries, when applicable, the following: (i) summary plan description;
(ii) description of modifications and changes; (iii) annual report; (iv)
terminal and supplementary reports; (v) registration statement; and (vi) any
other return, report, or document required by law.
(b) Statement of Benefits Accrued and Vested. The Plan Administrator is to
furnish any Plan Participant or Beneficiary who so requests in writing, a
statement indicating, on the basis of the latest available information, the
total benefits accrued and the vested benefits, if any, which have accrued, or
the earliest date on which benefits will become vested. The Plan Administrator
shall furnish a written statement to any Participant who terminates employment
during the Plan Year and is entitled to a deferred vested benefit under the Plan
as of the end of the Plan Year, if no retirement benefits have been paid with
respect to such Participant during the Plan Year. The statement shall be an
individual statement and shall contain the information required in the annual
registration statement which the Plan Administrator is required to file with the
Secretary of the Treasury. The Plan Administrator shall furnish the individual
statement to the Participant before the expiration of the time prescribed for
filing the annual registration statement with the Secretary of the Treasury.
(c) Inspection of Documents. The Plan Administrator is to make available for
inspection copies of the Plan description and the latest annual report and the
agreements under which the Plan was established or is operated. Such documents
shall be available for examination by any Participant or Beneficiary in the
principal office of the Plan Administrator and in such other places as may be
necessary to make available all pertinent information to all Participants. Upon
written request by any Participant or Beneficiary, the Plan Administrator is to
furnish a copy of the last updated summary Plan description, Plan description,
and the latest annual report, any terminal report, and any agreements under
which the Plan is established or operated. In addition, the Plan Administrator
is to comply with every other requirement imposed on him by law.
(d) Employment of Advisers and Persons To Carry Out Responsibilities. The
Plan Administrator may appoint one or more persons to render advice with regard
to any responsibility the Plan Administrator has under the Plan and may employ
one or more persons (other than a Named Fiduciary) to carry out any of his
responsibilities under the Plan.
(e) Notice of Eligibility for Direct Rollover Distribution. The Plan
Administrator shall provide a written explanation to the recipient of any
eligible rollover distribution that income taxes will not be withheld on the
distribution to the extent such distribution is transferred in an eligible
rollover distribution to an eligible retirement plan.
Section 9.6 Duties and Powers of Plan Committee - In General. The Plan
Committee shall decide, in its sole and absolute discretion, all questions
arising in the administration, interpretation, and application of the Plan and
Trust, including all questions relating to eligibility, vesting, and
distribution, except as may be reserved under this Plan to the Company, its
Board of Directors or any Associated Company. The Plan Committee may designate
any person (other than the Plan Administrator or Trustee) to carry out any of
the Plan Committee's Fiduciary responsibilities under the Plan (other than a
Trustee Responsibility) and may appoint one or more persons to render advice
with regard to any responsibility the Plan Committee has under the Plan. The
Plan Committee from time to time shall direct the Trustee concerning the
payments to be made out of the Trust Fund pursuant to this Plan. All notices,
directions, information, and other
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communications from the Plan Committee shall be in writing.
Section 9.7 Duties and Powers of Plan Committee - Keeping of Records. The
Plan Committee shall keep a record of all the Plan Committee's proceedings and
shall keep all such books of Account, records, and other data as may be
necessary or advisable in its judgment for the administration of this Plan and
Trust, including records to reflect the affairs of this Plan, to determine the
amount of vested and/or forfeitable interests of the respective Participants in
the Trust Fund, and to determine the amount of all benefits payable under this
Plan. The Plan Committee shall maintain separate Accounts for each Participant
as provided under Section 5.1 of this Plan. Subject to the requirements of law,
any person dealing with the Plan Committee may rely on, and shall incur no
liability in relying on, a certificate or memorandum in writing signed by the
Plan Committee as evidence of any action taken or resolution adopted by the Plan
Committee.
Section 9.8 Duties and Powers of Plan Committee - Claims Procedure. (a)
Filing and Initial Determination of Claim. Any Participant, Beneficiary or his
duly authorized representative may file a claim for a Plan benefit to which the
claimant believes that he is entitled. Such a claim must be in writing and
delivered to the Plan Committee in person or by certified mail, postage prepaid.
Within 90 days after receipt of such claim, the Plan Committee shall send to the
claimant by certified mail, postage prepaid, notice of the granting or denying,
in whole or in part, of such claim unless special circumstances require an
extension of time for processing the claim. In no event may the extension exceed
90 days from the end of the initial period. If such extension is necessary the
claimant will receive a written notice to this effect prior to the expiration of
the initial 90-day period. The Plan Committee shall have full discretion
pursuant to the Plan to deny or grant a claim in whole or in part. If notice of
the denial of a claim is not furnished in accordance with this Section 9.8(a),
the claim shall be deemed denied and the claimant shall be permitted to exercise
his right of review pursuant to Section 9.8(c) and (d) of this Plan.
(b) Duty of Plan Committee Upon Denial of Claim. The Plan Committee shall
provide to every claimant who is denied a claim for benefits written notice
setting forth in a manner calculated to be understood by the claimant: (i) the
specific reason or reasons for the denial; (ii) specific reference to pertinent
Plan provisions on which the denial is based; (iii) a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material is necessary; and (iv) an
explanation of the Plan's claim review procedure.
(c) Request for Review of Claim Denial. Within 60 days after receipt by the
claimant of written notification of the denial in whole or in part of his claim,
the claimant or his duly authorized representative, upon written application to
the Plan Committee in person or by certified mail, postage prepaid, may request
a review of such denial, may review pertinent documents and may submit issues
and comments in writing. Upon its receipt of the request for review, the Plan
Committee shall notify the Board of Directors of the request.
(d) Claims Reviewer. Upon its receipt of notice of a request for review, the
Board of Directors shall appoint a person other than a Plan Committee member to
be the claims reviewer. The Plan Committee shall deliver to the claims reviewer
all documents submitted by the claimant and all other documents pertinent to the
review. The claims reviewer shall make a prompt decision on the review. The
decision on review shall be written in a manner calculated to be understood by
the claimant, and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based. The
decision on review shall be made not later than 60 days after the Plan
Committee's receipt of a
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<PAGE>
request for a review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered not later than 120
days after receipt of a request for review. If such extension is necessary the
claimant shall be given written notice of the extension prior to the expiration
of the initial 60-day period. If notice of the decision on review is not
furnished in accordance with this Section 9.8(d), the claim shall be deemed
denied and the claimant shall be permitted to exercise his right to legal remedy
pursuant to Section 9.8(e) of this Plan.
(e) Legal Remedy. After exhaustion of the claims procedure as provided under
this Plan, nothing shall prevent any person from pursuing any other legal
remedy.
Section 9.9 Duties and Powers of Plan Committee - Funding Policy. The policy
of each Employer is that this Plan shall be funded with Employer contributions
and Participant contributions. The Plan Committee shall determine the Plan's
short-run and long-run financial needs and regularly communicate these
requirements to the appropriate persons. The Plan Committee will determine
whether the Plan has a short-run need for liquidity, (e.g., to pay benefits) or
whether the liquidity is a long-run goal and investment growth is a more current
need. The Plan Committee shall communicate such information to the Trustee so
that investment policy can be coordinated appropriately with Plan needs.
Section 9.10 Duties and Powers of Plan Committee - Bonding of Fiduciaries
and Plan Officials. The Plan Committee shall procure bonds for every Fiduciary
of the Plan and every Plan official, if he handles funds of the Plan, in an
amount not less than 10% of the amount of funds handled and in no event less
than $1,000, except the Plan Committee shall not be required to procure such
bonds if: (i) the person is excepted from the bonding requirement by law; or
(ii) the Secretary of Labor exempts the Plan from the bonding requirements. The
bonds shall conform to the requirements of law.
Section 9.11 Duties and Powers of Plan Committee - Qualified Domestic
Relations Orders. (a) Establish Procedures. Effective as of January 1, 1985, the
Plan Committee shall establish reasonable procedures for determining the
qualification status of a domestic relations order. Such procedures: (i) shall
be in writing; (ii) shall provide to each person specified in a domestic
relations order as entitled to payment of Plan benefits notification of such
procedures promptly upon receipt by the Plan of the order; and (iii) shall
permit an alternate payee to designate a representative for receipt of copies of
notices that are sent to the alternate payee.
(b) Determination of Plan Committee. Within a reasonable period of time
after receipt of such order, the Plan Committee shall determine whether such
order is a qualified domestic relations order and notify the Participant and
each alternate payee of such determination. During any period in which the issue
of whether a qualified domestic relations order is a qualified domestic
relations order is being determined, the Plan Committee shall segregate in a
separate Account the amounts which would have been payable to the alternate
payee during such period if the order had been determined to be a qualified
domestic relations order. If, within 18 months the order is determined not to be
a qualified domestic relations order or the issue as to whether such order is a
qualified domestic relations order is not resolved, then the Plan Committee
shall pay under the terms of the Plan the segregated amounts to the person or
persons who would have been entitled to such amounts if there had been no order.
If a Fiduciary acts in accordance with the fiduciary responsibility provisions
of ERISA, then the Plan's obligation to the Participant and each alternate payee
shall be discharge to the extent of any payment made.
Section 9.12 Advice to Designated Fiduciaries. Any Fiduciary designated by
the Plan Committee or Plan Administrator may appoint with the consent of the
Plan Committee or Plan Administrator,
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respectively, one or more persons to render advice with regard to any
responsibility such designated Fiduciary has under the Plan.
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<PAGE>
ARTICLE X
POWERS AND DUTIES OF THE TRUSTEE
Section 10.1 Investment of Trust Fund. (a) Duties of Trustee. The duty of
the Trustee is to hold in trust the funds it receives. Subject to the direction
of the Plan Committee, the Trustee shall have exclusively authority and
discretion to manage and control the assets of the Plan and to manage, invest,
and reinvest the Trust Fund and the income from it under this article, without
distinction between principal and income, and shall be responsible only for such
sums that it actually receives as Trustee. The Trustee shall have no duty to
collect any sums from the Plan Committee. The Plan Committee will have the duty
to direct the Trustee with respect to the investment of the Trust Fund, subject
to the Participants' direction of investment under Section 10.1(d).
Notwithstanding any other provision of the Plan, the Trustee shall have no
responsibility to select the investment options offered to Participants under
Section 10.1(d) nor shall the Trustee have any discretion with respect to the
investment of Trust Fund assets.
(b) Powers of Trustee. The Trustee shall have the power to apply the funds
it receives to purchase shares of Qualifying Employer Securities, and the
Trustee may invest in Qualifying Employer Securities, up to 100% of the value of
Plan assets, without regard to the diversification requirement or the prudence
requirement to the extent it requires diversification. Purchases of stock may be
made by the Trustee in the open market or by private purchase, or, if available,
from the Company, or as the Trustee may determine in its sole discretion,
provided only that no private purchase or purchase from the Company may be made
at a price greater than the current market price for Qualifying Employer
Securities on the day of such purchase. The Trustee also may purchase stock from
Participants who receive distributions from this Trust, provided that all such
purchases shall be made at the current market price on the day of such purchase.
The Trustee also shall have the power to invest and/or reinvest any and all
money or property of any description at any time held by it and constituting a
part of the Trust Fund, without previous application to, or subsequent
ratification of, any court, tribunal, or commission, or any federal or state
governmental agency and may invest in real property and all interest in real
property, in bonds, notes, debentures, mortgages, commercial paper, preferred
stocks, common stocks, or other securities, rights, obligations, or property,
real or personal, including shares or certificates of participation issued by
regulated investment companies or regulated investment trusts, shares or units
of participation in qualified common trust funds, in qualified pooled funds, or
in pooled investment funds of an insurance Company qualified to do business in
the state. If the Trustee is a bank or similar financial institution supervised
by the United States or a state, it may invest Plan assets in its own deposits
(savings Accounts and certificates of deposit) if such deposits bear a
reasonable rate of interest.
(c) Diversification and Prudence Requirements. Except to the extent the
Trustee invests in the Qualifying Employer Securities, the Trustee shall
diversify the investments of the Plan to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not to do so. The Trustee
shall act with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims.
(d) Participant's Right to Designate Investments.
(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
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designate the investment of his Account attributable to salary reduction
contributions and voluntary contributions made to the Plan after such date, as
provided below.
(ii) Investments as of December 31, 1994, to be Invested by Trustee, at the
direction of the Plan Committee. All Accounts as of December 31, 1994, or such
later date as determined by the Plan Committee, will remain subject to
investment by the Trustee as directed by the Plan Committee, including
investment of up to 100% of such Accounts in Qualifying Employer Securities.
(iii) Procedure for Designation. Any designation or changes in designation
of the investment of a Participant's Account attributable to salary reductions
or voluntary contributions shall be made in writing on forms provided by the
Plan Committee and submitted to the Plan Committee or the Trustee, as determined
by the Plan Committee, at such times as the Plan Committee shall provide.
(iv) Investment Categories. The Plan Committee shall offer a broad range of
investment categories, as selected by the Plan Committee from time to time,
which categories shall include fixed income obligations of a secure nature, such
as savings accounts, certificates of deposit, and fixed income government and
corporate obligations. The investment categories also may include Qualifying
Employer Securities, other common stocks, real property, notes, mortgages,
commercial paper, preferred stocks, mutual funds, or other securities, rights,
obligations, or property, real or personal, including shares or certificates of
participation issued by regulated investment trusts and shares or units of
participation in qualified common Trust Funds or pooled funds.
(v) Absence of Investment Designation. In the absence of any written
designation of investment for the Participant's salary reductions or voluntary
contributions, the Trustee shall invest all funds received on Account of any
Participant in such category or categories as the Plan Committee may designate
from time to time.
(vi) Irrevocability of Investment Designation. Once a Participant has
designated the investment of his Account attributable to salary reductions or
voluntary contributions into Qualifying Employer Securities, such Accounts will
thereafter remain invested in Qualifying Employer Securities. A Participant's
rollover contributions and transfer contributions, if any, may be invested in
Qualifying Employer Securities and such investments may be changed quarterly in
the same manner as investments other than Qualifying Employer Securities are
changed under the Plan.
(vii) Sole and Exclusive Power of Participants. The right to designate
investment categories under this Section 10.1 shall be the sole and exclusive
investment power granted to Participants. Neither the Trustee nor the Plan
Committee shall not be liable for any loss which results from the Participant
exercising such control under this Section 10.1.
(viii) Expenses. Any expense incurred by the Trustee or the Plan Committee
will be charged directly against the value of the Account of the Participant on
whose behalf such expense is incurred. The Trustee or the Plan Committee may
allocate expenses to individual Accounts or commingled Accounts on a
nondiscriminatory basis.
(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 Communication,
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
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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 proceeds from the sale of such Qualifying
Employer Securities thereafter may be invested as directed by the Participant
pursuant to the provisions of this Section 10.1, disregarding Section 10.1(ii)
to the extent applicable to the Participant's special one-time election.
Participant Accounts (including proceeds from the 1997 Public Offering) invested
in Qualifying Employer Securities after the 1997 Public Offering will remain
subject to the prohibition against later sales provided in Section 10.1(vi).
Section 10.2 Administrative Powers of the Trustee. Subject to the
requirements imposed by law, the Trustee shall have all powers necessary or
advisable to carry out the provisions of this Plan and Trust and all inherent,
implied, and statutory powers not or subsequently provided by law, including
specifically the power to do any of the following:
(i) To cause any securities or other property to be registered and held
in its name as Trustee, or in the name of one or more of its
nominees, without disclosing the Fiduciary capacity, or to keep the
same in unregistered form payable to bearer;
(ii) To sell, grant options to sell, exchange, pledge, encumber,
mortgage, deed in trust, or use any other form of hypothecation, or
otherwise dispose of the whole or any part of the Trust Fund on such
terms and for such property or cash, in part cash and credit, as it
may deem best; to retain, hold, maintain, or continue any securities
or investments which it may hold as part of the Trust Fund for such
length of time as it may deem advisable; and generally, in all
respects, to do all things and exercise each and every right, power,
and privilege in connection with and in relation to the Trust Fund
as could be done, exercised, or executed by an individual holding
and owning such property in absolute and unconditional ownership;
(iii) To abandon, compromise, contest, and arbitrate claims and demands;
to institute, compromise, and defend actions at law (but without
obligation to do so); in connection with such powers, to employ
counsel as the Trustee shall deem advisable and as approved by the
Plan Committee; and to exercise such powers all at the risk and
expense of the Trust Fund;
(iv) To borrow money for this trust upon such terms and conditions as the
Trustee shall deem advisable, and to secure the repayment of such by
the mortgage or pledge of any assets of the Trust Fund, provided
that the Trustee may not borrow money to purchase Qualifying
Employer Securities;
(v) To vote in person or by proxy any shares of stock or rights held in
the Trust Fund as directed by the Plan Committee; to participate in
and to exchange securities or other property in reorganization,
liquidation, or dissolutions of any corporation, the securities of
which are held in the Trust Fund; and
(vi) To any amount due on any loan or advance made to the Trust Fund, to
charge against and pay from the Trust Fund all taxes of any nature
levied, assessed, or imposed upon the Trust Fund, and to pay all
reasonable expenses and attorney fees necessarily incurred by the
Trustee and
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<PAGE>
approved by the Plan Committee with respect to any of the foregoing
matters.
Section 10.3 Advice of Counsel. The Trustee may consult with legal counsel,
who may be counsel for the Company or any Associated Company, or Trustee's own
counsel, with respect to the meaning or construction of the Plan and Trust or
Trustee's obligations or duties. The Trustee shall be protected from any
responsibility with respect to any action taken or omitted by it in good faith
pursuant to the advice of such counsel, to the extent permitted by law.
Section 10.4 Records and Accounts of the Trustee. The Trustee shall keep all
such records and Accounts which may be necessary in the administration and
conduct of this trust. The Trustee's records and Accounts shall be open to
inspection by the Company, any Associated Company, the Plan Committee, and the
Plan Administrator, at all reasonable times during business hours. All income,
profits, recoveries, contributions, forfeitures, and any and all moneys,
securities, and properties of any kind at any time received or held by the
Trustee shall be held for investment purposes as a commingled Trust Fund.
Separate Accounts or records may be maintained for operational and accounting
purposes, but no such Account or record shall be considered as segregating any
funds or property from any other funds or property contained in the commingled
fund, except as otherwise provided. After the close of each year of the trust,
the Trustee shall render to the Company and the Plan Committee a statement of
assets and liabilities of the Trust Fund for such year.
Section 10.5 Appointment, Resignation, Removal, and Substitution of Trustee.
The Board of Directors by resolution shall appoint a Trustee or Trustees, each
of which shall hold office until resignation or removal by the Board of
Directors. The Trustee may resign at any time upon 30 days' written notice to
the Company. The Trustee may be removed at any time by the Company upon written
notice to the Trustee with or without cause. Upon resignation or removal of the
Trustee, the Company, by action of its Board of Directors, shall appoint a
successor Trustee which shall have the same powers and duties as are conferred
upon the Trustee appointed under this Plan. The resigning or removed Trustee
shall deliver to its successor Trustee all property of the Trust Fund, less a
reasonable amount necessary to provide for its Compensation, expenses, and any
taxes or advances chargeable or payable out of the Trust Fund. If the Trustee is
an individual, death shall be treated as a resignation, effective immediately.
If any corporate Trustee at any time shall be merged, or consolidated with, or
shall sell or transfer substantially all of its assets and business to another
corporation, whether state or federal, or shall be reorganized or reincorporated
in any manner, then the resulting or acquiring corporation shall be substituted
for such corporate Trustee without the execution of any instrument and without
any action upon the part of the Company, any Participant or Beneficiary, or any
other person having or claiming to have an interest in the Trust Fund or under
the Plan.
Section 10.6 Appointment of Trustee, Acceptance in Writing. The Trustee
shall accept its appointment as soon as practical by executing this Plan or by
delivering a signed document to the Company, a copy of which shall be sent to
the Plan Committee by the Trustee. The Board of Directors shall appoint a new
Trustee if the Trustee fails to accept its appointment in writing.
Section 10.7 Vote of Qualifying Employer Securities Held in Trust. If the
Employer securities of the Company are not publicly traded and if more than 10%
of the total Plan assets are securities of the Company, then for voting
purposes, each Participant shall be credited with his pro rata portion
(including fractional shares) of the Qualifying Employer Securities allocated to
his Account which are not encumbered. Each Participant shall be entitled to vote
the pro rata portion of Qualifying Employer
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Securities allocable to him under this Section 10.7. Unreleased Qualifying
Employer Securities shall be voted by the Trustee. The Plan Committee shall
certify to the Employer the number of shares to be voted by each Participant if
an event occurs which requires a vote of such shares. To the extent the
Participants do not vote Qualifying Employer Securities under this Section 10.7,
the Plan Committee shall vote such Qualifying Employer Securities. If the
Employer securities of the Company are publicly traded or if the Employer
securities of the Company are not publicly traded but not more than 10% of the
total Plan assets are securities of the Company, then the participants shall not
be entitled to vote the pro rata portion of Qualifying Employer Securities
allocable to them under this Section 10.7 and the Plan Committee shall vote all
Qualifying Employer Securities held in the Trust.
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ARTICLE XI
CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST
Section 11.1 Termination of Plan. The expectation of each Employer is to
continue this Plan indefinitely, but the continuance of the Plan is not assumed
as a contractual obligation by the Employer and the right is reserved to each
Employer, by action of its Board of Directors, to terminate this Plan in whole
or in part at any time. The termination of the Plan by an Employer in no event
shall have the effect of revesting any part of the Trust Fund in the Employer.
The Plan created by execution of this Plan with respect to any Employer shall be
terminated automatically in the event of the dissolution, consolidation or
merger of such Employer or the sale by such Employer of substantially all of its
assets, if the resulting successor corporation or business entity shall fail to
adopt the Plan and Trust under Section 11.3 of this Plan. If this Plan is
disqualified, the Board of Directors of the Company, in its discretion, may
terminate this Plan.
Section 11.2 Termination of Trust. The Trust created by execution of this
Plan shall continue in full force and effect for such time as may be necessary
to accomplish the purposes for which it is created, unless sooner terminated and
discontinued by the Board of Directors. Notice of such termination shall be
given to the Trustee by the Plan Committee in the form of an instrument in
writing executed by the Company pursuant to the action of its Board of
Directors, together with a certified copy of the resolution of the Board of
Directors to that effect. In its discretion the Plan Committee may receive a
favorable determination letter from the Internal Revenue Service stating that
the prior qualified status of the Plan has not been affected by such
termination. Such termination shall take effect as of the date of the delivery
of the notice of termination and favorable determination letter, if obtained, to
the Trustee. The Plan Administrator shall file such terminal reports as are
required in Article IX of this Plan.
Section 11.3 Continuance of Plan and Trust by Successor Business. With the
approval of the Company, a successor business may continue this Plan and Trust
by proper action of the proprietor or partners, if not a corporation, and, if a
corporation, by resolution of its Board of Directors, and by executing a proper
supplemental agreement to this Plan and Trust with the Trustee. Within 90 days
from the Effective Date of such dissolution, consolidation, merger, or sale of
assets of an Employer, if such successor business does not adopt and continue
this Plan and Trust, this Plan shall be terminated automatically as of the end
of such 90-day period.
Section 11.4 Merger, Consolidation, or Transfer of Assets or Liabilities of
the Plan. The Board of Directors may merge or consolidate this Plan with any
other plan or may transfer the assets or liabilities of the Plan to any other
plan if each Participant in the Plan (if the Plan then terminated) would receive
a benefit immediately after the merger, consolidation, or transfer which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan then had
terminated). If any merger, consolidation, or transfer of assets or liabilities
occurs, the Plan Administrator shall file such reports as required in Article IX
of this Plan.
Section 11.5 Distribution of Trust Fund on Termination of Trust. If the
trust is terminated under this Article XI, the Trustee shall determine the value
of the Trust Fund and of the respective interest of the Participants and
beneficiaries under Article V of this Plan as of the business day next following
the date of such termination. The value of the Account of each respective
Participant or Beneficiary in the Trust Fund shall be vested in its entirety as
of the date of the termination of the Plan. The Trustee then shall transfer to
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each Participant or Beneficiary the net balance of the Participant's Account
unless the Plan Committee directs the Trustee to retain the assets and pay them
under the terms of this Plan as if no termination had occurred.
Section 11.6 Amendments to Plan and Trust. At any time the Company may amend
this Plan and Trust by action of its Board of Directors, provided that no
amendment shall cause the Trust Fund to be diverted to purposes other than for
the exclusive benefit of the Participants and their beneficiaries. No amendment
shall decrease the vested interest of any Participant nor shall any amendment
increase the contribution of any Employer or Participant in the Plan. If an
amended vesting schedule is adopted, any Participant who has five or more years
of service at the later of the date the amendment is adopted or becomes
effective and who is disadvantaged by the amendment, may elect to remain under
the Plan's prior vesting schedule. Such election must be made within a period
established by the Plan Committee, in accordance with applicable regulations,
and on a form provided by and delivered to the Plan Committee. No amendment to
the Plan (including a change in the actuarial basis for determining optional
benefits) shall be effective to the extent that it has the effect of decreasing
a Participant's accrued benefit. For purposes of this Section 11.6, a Plan
amendment that has the effect of (i) eliminating or reducing an early retirement
benefit or a retirement-type subsidy, or (ii) eliminating an optional form of
benefit, with respect to benefits attributable to service before the amendment,
will be treated as reducing accrued benefits. No amendment shall discriminate in
favor of Employees who are officer, shareholders, or Highly Compensated
Employees. Notwithstanding anything in this Plan and Trust to the contrary, the
Plan and Trust may be amended at any time to conform to the provisions and
requirements of federal and state law with respect to employees' trusts or any
amendments to such laws or regulations or rulings issued pursuant to them. No
such amendment shall be considered prejudicial to the interest of any
Participant or Beneficiary under this Plan.
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ARTICLE XII
MISCELLANEOUS
Section 12.1 Benefits To Be Provided Solely from the Trust Fund. All
benefits payable under this Plan shall be paid or provided solely from the Trust
Fund, and no Employer assumes liability or responsibility for payment of
benefits.
Section 12.2 Notices from Participants To Be Filed with Plan Committee.
Whenever provision is made in the Plan that a Participant may exercise any
option or election or designate any Beneficiary, the action of each Participant
shall be evidenced by a written notice signed by the Participant and delivered
to the Plan Committee in person or by certified mail. If a form is furnished by
the Plan Committee for such purpose, a Participant shall give written notice of
his exercise of any option or election or of his designation of any Beneficiary
on the form provided for such purpose. Written notice shall not be effective
until received by the Plan Committee.
Section 12.3 Text To Control. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Plan and Trust exists, the text shall control.
Section 12.4 Severability. If any provision of this Plan and Trust is
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions. On the contrary, such remaining provisions
shall be fully severable, and this Plan and Trust shall be construed and
enforced as if such illegal or invalid provisions never had been inserted in
this Plan.
Section 12.5 Jurisdiction. This Plan shall be construed and administered
under the laws of the State of Alaska when the laws of that jurisdiction are not
in conflict with federal substantive law.
Section 12.6 Plan for Exclusive Benefit of Participants; Reversion
Prohibited. This Plan and Trust has been established for the exclusive benefit
of the Participants and their beneficiaries. Under no circumstances shall any
funds contributed to or held by the Trustee at any time revert to or be used by
or enjoyed by an Employer except to the extent permitted by Article IV of this
Plan.
Section 12.7 Transferability Restriction. A derivative security issued under
the Plan, including but not limited to Class B common stock of the Company, is
not transferable by the Participant other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act or the
rules under those acts. The designation of a beneficiary by an officer,
director, or other Participant in the Plan does not constitute a transfer under
the Plan.
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PLAN OF GENERAL COMMUNICATION, INC. PAGE 54
January 01, 1999
STATEMENT OF STOCK DESIGNATION
-------------------------------------------------------------
Setting forth a copy of a resolution creating and
authorizing the issuance of a series of preferred
stock designated as "Series B Convertible Redeemable
Accreting Preferred Stock" adopted by the board of
directors of General Communication, Inc.
-------------------------------------------------------------
Pursuant to AS 10.06.315 and 10.06.320 of the Alaska Statutes
-------------------------------------------------------------
We, the undersigned officers of General Communication, Inc., an Alaska
corporation ("Company"), hereby state and otherwise certify that, on April 21,
1999, the board of directors of the Company, pursuant to authority vested in it
by Article IV of the Company's Restated Articles of Incorporation and in
accordance with AS 10.06.315 and 10.06.318 of the Alaska Statutes, duly adopted
the following resolution creating a series of preferred stock designated as
"Series B Convertible Redeemable Accreting Preferred Stock":
RESOLUTION
"WHEREAS, General Communication, Inc. is authorized through its
Restated Articles of Incorporation to issue up to 100 million shares of Class A
Common Stock and up to 1 million shares of Preferred Stock, issuable from time
to time in one or more series;
WHEREAS, the Board of Directors of the Company is authorized, within
the limitations and restrictions contained in the Restated Articles of
Incorporation, to fix or alter the dividend rate, conversion rate, voting
rights, redemption prices, and liquidation preferences of any wholly unissued
series of Preferred Stock, the number of shares constituting any such series,
the designation of such series, and other terms and conditions of the issuance
of such stock;
Statement of Stock Designation
Page 1
<PAGE>
WHEREAS, the Company, through its Board of Directors, approved a
statement of stock designation pursuant to Article IV of the Restated Articles
of Incorporation and that statement was filed of record with the Alaska
Department of Commerce and Economic Development on or about January 17, 1991
pursuant to authority set forth in AS 10.06.315, 10.06.318, and 10.06.320 of the
Alaska Statutes, and the board subsequently authorized the issuance of Series A
Preferred Stock under that designation which was subsequently issued and later
retired, and the Company does not presently have outstanding any shares of its
Preferred Stock and is not otherwise obligated to issue such shares in the
future, and the Board of Directors desires to cancel and otherwise delete that
1991 statement of stock designation at this time and to fix the terms of a
second series of that Preferred Stock and the number of shares constituting that
series;
RESOLVED, that, pursuant to authority granted to and vested in the
Board of Directors by Article IV of the Restated Articles of Incorporation of
the Company, and in accordance with AS 10.06.315, 10.06.318, and 10.06.320 of
the Alaska Statutes, the board hereby cancels and otherwise deletes the 1991
statement of stock designation for the Series A preferred stock and hereby
declares that such statement is no longer a part of those articles;
RESOLVED, that, pursuant to authority granted to and vested in the
Board of Directors by Article IV of the Restated Articles of Incorporation of
the Company and in accordance with AS 10.06.315 and 10.06.318 of the Alaska
Statutes, the board hereby approves and otherwise directs the issuance, from 1
million shares of Preferred Stock authorized under those articles, a series of
Preferred Stock of the Company to consist of 35,000 shares designated as Series
B Convertible Redeemable Accreting Preferred Stock ("Series B Preferred Stock")
and hereby fixes the designation, rights, preferences, privileges, and
restrictions of the shares of that series, in addition to the designation,
rights, preferences, privileges and restrictions set forth in those articles
which are directly applicable to the Preferred Stock as follows:
Preface. Series B Convertible Redeemable Accreting Preferred
Stock. Of the 1,000,000 shares of Preferred Stock, authorized pursuant to
Article IV of the Restated Articles of Incorporation of the Company, 35,000
shall be designated Series B Convertible Redeemable Accreting Preferred Stock,
with the rights, preferences, privileges and restrictions set forth in this
paragraph.
Section 1. Definitions. For purposes of the following
Sections, the following definitions shall apply:
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"Additional Shares of Class A Common Stock" shall
have the meaning ascribed to such term in Section 8(i)(d) hereof.
"Annualized Operating Cash Flow" shall mean, as of
any date of determination, the product of two times Operating Cash Flow for the
two most recently ended fiscal quarters.
"Bankruptcy Event" shall mean the occurrence of any
of the following: (i) a court or governmental agency having appropriate
jurisdiction shall enter a decree or order for relief in respect of the Company
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the Company
or for any substantial part of its property or ordering the winding up or
liquidation of its affairs; (ii) there shall be commenced against the Company an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or any case, proceeding or other action for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for any substantial part of
its property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded for a period of sixty (60) consecutive
days; (iii) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of its property or make any general
assignment for the benefit of creditors; or (iv) the Company shall be unable to,
or shall admit in writing to its inability to, pay its debts generally as they
become due.
"Board" shall mean the Board of Directors of the
Company.
"Business Day" shall mean a day on which banks and
foreign exchange markets are open for the transaction of business in New York,
New York as relevant to the determination to be made or action to be taken.
"Capitalized Leases" shall mean capital leases and
subleases, as defined in accordance with GAAP.
"Change of Control" shall mean the occurrence of one
or more of the following events: (a) any change in the ownership of the Company
resulting in MCI WorldCom, Inc. and any of its wholly owned Subsidiaries, owning
Voting Stock with less than eighteen percent (18%) of the total combined voting
power of the Company, (b) MCI WorldCom, Inc. shall at any time have less than
two (2) representatives sitting on the Board for more than a sixty-day period,
(c) Ronald A. Duncan resigns or is removed from his position as Chief Executive
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Officer of the Company, other than as a result of death or disability, and is
not replaced within sixty (60) days of such resignation or removal with a person
acceptable to the holders of a majority of the outstanding Series B Preferred
Stock or (d) Ronald A. Duncan or his heirs transfers, sells or in any way
disposes of a material amount of the capital stock of the Company owned by him
as of the date hereof. A Change of Control shall be deemed to occur as of the
effective date of the first event, action or transaction leading to one of the
results described above.
"Class A Common Stock" shall mean the Class A Common
Stock of the Company.
"Class B Common Stock" shall mean the Class B Common
Stock of the Company.
"Closing Date" shall mean April 30, 1999.
"Closing Price" if the Class A Common Stock is traded
on a nationally recognized exchange or the National Market System of the
National Association of Security Dealers, Inc. Automated Quotation System, shall
mean the closing price as reported for composite transactions on the applicable
date, or, if no sales occurred on an applicable date, then the average of the
highest bid and lowest asked prices on such exchange or the National Market
System at the end of the day on such date. If the Class A Common Stock is not
traded on an exchange or the National Market System but is otherwise traded
over-the- counter, Closing Price shall mean the average of the highest bid and
lowest asked prices quoted in the National Association of Security Dealers, Inc.
Automated Quotation System as of the close of business on the applicable date,
or if not so quoted on such date, the average of the representative bid and
asked prices on such date in the domestic over-the-counter market as reported by
the National Quotation Bureau, Inc., or any similar successor organization.
"Common Stock" shall mean, collectively, the Class A
Common Stock and Class B Common Stock of the Company.
"Company" shall mean this corporation.
"Contingent Liability" shall mean, as to any person,
any obligation contingent or otherwise, of such person guaranteeing or having
the economic effect of guaranteeing any Debt or obligation of any other person
in any manner, whether directly or indirectly, including without limitation any
obligation of such person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt, (b) to
purchase property or services for the purpose of assuring the owner of such Debt
of its payment, or (c) to maintain the solvency, working capital, equity, cash
flow, fixed charge or other coverage ratio, or any other financial condition of
the primary obligor so as to enable the primary obligor
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to pay any Debt or to comply with any agreement relating to any Debt or
obligation, and shall, in any event, include any contingent obligation under any
letter of credit, application for any letter of credit or other related
documentation.
"Conversion Price" shall have the meaning ascribed to
such term in Section 8(b) hereof.
"Convertible Securities" shall have the meaning
ascribed to such term in Section 8(i)(c) hereof.
"Credit Agreement" shall mean that certain
$200,000,000 Amended and Restated Credit Agreement dated November 14, 1997
between GCI Holdings, Inc. as borrower and NationsBank of Texas, N.A., Credit
Lyonnais New York Branch and TD Securities (USA), Inc., as it may be amended or
supplemented from time to time.
"Debt" shall mean, all obligations, contingent or
otherwise, which in accordance with GAAP are required to be classified on the
balance sheet as liabilities, and in any event including Capitalized Leases,
Contingent Liabilities that are required to be disclosed and quantified in notes
to consolidated financial statements in accordance with GAAP, and liabilities
secured by any Lien on any property, regardless of whether such secured
liability is with or without recourse.
"Debt for Borrowed Money" shall mean, without
duplication, (a) all obligations of a person for borrowed money, (b) all
obligations of a person evidenced by bonds, debentures, notes, letters of credit
(or applications for letters of credit) or other similar instruments, (c) all
obligations of a person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, and (d) all obligations of a person secured by a Lien on any assets or
property of any person.
"Distribution" shall mean the declaration or payment
of any dividend (whether in cash or otherwise) on or in respect of any shares of
any class of capital stock of any person, other than dividends payable solely in
shares of common stock of such person; the purchase, redemption, or other
retirement of any shares of any class of capital stock of any person, directly
or indirectly through a subsidiary or otherwise; the return of capital by any
person to its shareholders as such; or any other distribution on or in respect
of any shares of any class of capital stock of any person.
"Effective Price" shall have the meaning ascribed in
Section 8(i)(d) hereof.
"Equity Security" shall mean any capital stock of the
Company or any security (whether stock or Debt for Borrowed Money) convertible
or exchangeable, with or without consideration, into or for any capital stock,
or any security (whether capital stock or Debt
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for Borrowed Money) carrying any warrant or right to subscribe to or purchase
any stock or similar security, or any such warrant or right.
"Exempt Issuances" shall have the meaning ascribed to
such term in Section 8(i)(a) hereof.
"Funded Debt" shall mean, without duplication, with
respect to any person, all Debt of such person, determined on a consolidated
basis and measured in accordance with GAAP that is either: (a) Debt for Borrowed
Money, (b) Debt having a final maturity (or extendable at the option of the
obligor for a period ending) more than one (1) year after the date of creation
thereof, notwithstanding the fact that the payments are required to be made less
than one (1) year after such date, (c) Capitalized Lease obligations (without
duplication), (d) reimbursement obligations relating to letters of credit
(without duplication), (e) Contingent Liabilities relating to any of the
foregoing (without duplication), (f) Withdrawal Liability, (g) Debt, if any,
associated with interest hedge agreements, (h) payments due under any
non-compete agreements, plus (i) payments due for the deferred purchase price of
property and services (but excluding trade payables that are less than ninety
(90) days old and any thereof that are being contested in good faith).
"GAAP" shall mean, as in effect from time to time,
generally accepted accounting principles used in the United States, consistently
applied.
"Initial Issue Date" shall mean the first date upon
which shares of Series B Preferred Stock are issued.
"Issue Date" shall mean the date of the original
issuance of a share of the Series B Preferred Stock.
"Junior Stock" shall mean the Common Stock and all
other shares of capital stock of the Company, whether presently outstanding or
hereafter issued, other than Series B Preferred Stock.
"Lien" shall mean any mortgage, lien, pledge, charge,
security interest, or other encumbrance of any kind, whether or not filed,
recorded or otherwise perfected under applicable law (including, any conditional
sale or other title retention agreement and any lease deemed to constitute a
security interest and any option or other agreement to give any security
interest).
"Liquidation Preference" shall have the meaning set
forth in Section 3(a) hereof.
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"Mandatory Redemption Date" shall have the meaning
ascribed thereto in Section 4(c) hereof.
"Net Total Interest Expense" shall have the
definition ascribed thereto in the Credit Agreement.
"Operating Cash Flow" shall mean, for any period,
determined in accordance with GAAP, the consolidated net income (loss) for such
period taken as a single accounting period, excluding extraordinary gains and
losses, plus the sum of the following amounts for such period to the extent
included in the determination of such consolidated net income: (a) depreciation
expense, (b) amortization expense and other non-cash charges reducing income,
(c) Net Total Interest Expense, (d) cash income tax expense, (e) deferred income
taxes, plus (f) for the fiscal quarter in which the Company or any of its
Subsidiaries purchases the transponders pursuant to that certain Transponder
Purchase Agreement for Galaxy X, dated August 24, 1995, among GCI Communication
Corp., an indirect wholly owned subsidiary of the Company, and Hughes
Communications Galaxy, Inc., now held by PanAmSat Corp., as assignee, and that
certain Transponder Service Agreement, dated August 24, 1995, among General
Communication Corp., an indirect wholly owned subsidiary of the Company, and
Hughes Communications Satellite Services, Inc. (the "Galaxy X Transponders"),
now held by PanAmSat Corp, as assignee, the annualized amount of economic
savings of the Company or any of its Subsidiaries resulting from the direct
purchase by the Company or any of its Subsidiaries of such Galaxy X Transponders
instead of leasing such Galaxy X Transponders from GCI Satellite Co., Inc., an
indirect wholly owned subsidiary of the Company, and leasing transponders from
other providers; provided, the calculation is made after giving effect to
acquisitions and dispositions of assets during such period as if such
transactions had occurred on the first day of such period. In calculating
"Operating Cash Flow," losses from local telephone businesses shall be offset by
amounts not exceeding $20,000,000 contributed to the Company or any of its
Subsidiaries from the net proceeds of any offering of the Series B Preferred
Stock issued by the Company. The amount attributable to such net proceeds which
is available for such offset shall be reduced by the amount of net proceeds
actually used for such offset as of any point in time.
"Payment Date" shall have the meaning ascribed
thereto in Section 4(d) and Section 4(e) hereof.
"Proposed Amendments" shall mean the proposed
amendments to Restated Articles of Incorporation of the Company which shall be
submitted by the Board to the shareholders of the Company and voted upon by the
shareholders at their next annual meeting of shareholders as required by the
Purchase Agreement. The Proposed Amendments provide that so long as any shares
of Series B Preferred Stock remain outstanding, the Company shall not, directly
or indirectly, without the written consent of the holders of a majority of the
then-outstanding shares of Series B Preferred Stock (i) liquidate or dissolve
the Company or (ii) permit the Company to be merged with or into, or
consolidated with, any other entity or sell all or
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substantially all of the assets of the Company in any case where the terms of
such merger, consolidation or sale would significantly and adversely affect the
rights and preferences of the Series B Preferred Stock.
"Purchase Agreement" shall mean the Series B
Preferred Stock Purchase Agreement by and between the Company, Toronto Dominion
Investments, Inc. and the other purchasers listed therein, dated as of April 30,
1999.
"Redemption Price" shall have the meaning ascribed
thereto in Section 4(f) hereof.
"Series B Preferred Stock" shall mean the Series B
Convertible Redeemable Accreting Preferred Stock of the Company.
"Subsidiary" of a person shall mean (i) any
corporation of which fifty one (51%) percent or more of the Voting Stock, or any
partnership of which 51% or more of outstanding partnership interests, is at any
time owned by the person, or by one or more Subsidiaries of such person, or by
such person and one or more Subsidiaries of such person, and (ii) any other
entity which is controlled or capable of being controlled by such person or by
one or more Subsidiaries of such person or by such person and one or more
Subsidiaries of such person.
"Total Debt" shall mean the outstanding principal
amount of all Funded Debt.
"Total Leverage Ratio" shall mean, without
duplication, as of any date of determination, the ratio of (i) Total Debt of the
Company (on an unconsolidated basis), its subsidiary, GCI, Inc., its subsidiary
GCI Holdings, Inc. and the Restricted Subsidiaries of GCI Holdings, Inc. (as
defined in the Credit Agreement) on such date of determination, to (ii)
Annualized Operating Cash Flow of such entities, all calculated on a
consolidated basis (except as noted above) in accordance with GAAP consistently
applied.
"Trading Day" shall mean, any date that a nationally
recognized exchange or the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System is open and accepting bids
for the sale of securities listed thereon.
"Triggering Event" shall mean (i) the acceleration of
any obligation outstanding under Funded Debt of the Company or any of its
Subsidiaries having an outstanding balance in excess of $5,000,000, (ii) a
Change of Control, (iii) a Bankruptcy Event, (iv) the breach of Section 7
hereof, (v) the liquidation or dissolution of the Company, or (vi) the merger of
the Company with or into, or the consolidation of the Company with any other
entity or the sale by the Company of all or substantially all of the assets of
the Company, where the terms of
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such merger, consolidation or sale would significantly and adversely affect the
rights and preferences of the Series B Preferred Stock; provided however, that
clauses (v) and (vi) above shall cease to be Triggering Events upon the approval
by the shareholders of the Company of the Proposed Amendments to the Restated
Articles of Incorporation and the effective filing of the Proposed Amendments
with the Alaska Department of Commerce and Economic Development. If the
shareholders of the Company fail to approve the Proposed Amendments or if such
amendments are not filed with the Alaska Department of Commerce and Economic
Development by August 31, 1999, then clauses (v) and (vi) shall remain
Triggering Events for so long as any shares of Series B Preferred Stock remain
outstanding.
"Voting Stock" shall mean any shares having general
voting power in electing the board of directors of any person (irrespective of
whether or not at the time stock of any other class or classes has or might have
voting power by reason or the happening of any contingency).
"Withdrawal Liability" shall have the meaning given
such term under Part I of Subtitle E of Title IV of the Employee Retirement
Income Security Act of 1974, as amended.
Section 2. Dividends.
(a) Right to Dividends. Dividends on each share of
Series B Preferred Stock shall accumulate and accrue from the Issue Date and
shall accrue from day to day thereafter, compounding semi-annually (to the
extent unpaid), whether or not earned or declared at a rate, through the fourth
anniversary of the Initial Issue Date, of 8.5% per annum and, after the fourth
anniversary of the Initial Issue Date, of 17% per annum on the stated amount of
$1,000 per share until paid, subject to Section 4(j) hereof. Dividends accruing
pursuant to this Section 2(a) shall be payable semi-annually in arrears upon
declaration by the Board and (i) during the first four years following the
Initial Issue Date shall be payable, at the option of the Company, either by the
delivery of additional shares of Series B Preferred Stock with a liquidation
value equal to the amount of the dividend or by the delivery of cash and (ii)
after the fourth anniversary of the Initial Issue Date shall be paid only in
cash. If, during the first four years following the Initial Issue Date, the
Company does not make any dividend payment in full in cash to the holders of the
then-outstanding shares of Series B Preferred Stock upon a semi-annual dividend
payment date, the Company shall be deemed to have declared and delivered such
dividend in additional shares of Series B Preferred Stock, as set forth above.
Dividends shall be cumulative so that, if all accrued dividends shall not have
been paid, such accrued and unpaid dividends shall first be fully paid before
any dividend or other distribution shall be paid or declared and set apart for
any Junior Stock.
(b) Priority. Until such time as all current and
accrued dividends on the Series B Preferred Stock for all periods from and after
the Initial Issue Date shall have been
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paid (i) no dividend whatsoever (other than a dividend payable solely in Common
Stock) shall be paid or declared, and no Distribution shall be made, on any
Junior Stock, and (ii) no shares of Junior Stock shall be purchased, redeemed or
acquired by the Company, and no monies shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or acquisition thereof
other than shares of Junior Stock purchased, redeemed or acquired by the Company
to fund the Company's deferred compensation arrangements. So long as any shares
of Series B Preferred Stock are outstanding, the Company shall not issue, or
obligate itself to issue, any other Equity Security senior to the Series B
Preferred Stock as to dividend or redemption rights or liquidation preferences
or, unless the consent of the holders of 80% of the outstanding shares of Series
B Preferred Stock is obtained, any other Equity Security on a parity with Series
B Preferred Stock as to dividend or redemption rights or liquidation
preferences.
Section 3. Liquidation Rights of Series B Preferred Stock.
(a) Preference. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of the then-outstanding shares of Series B Preferred Stock shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, whether such assets are capital, surplus or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of the Junior Stock, an amount (the "Liquidation
Preference") equal to $1,000 per share plus an amount equal to all accrued and
unpaid dividends thereon, whether or not earned or declared, to and including
the date full payment shall be tendered to the holders of the then-outstanding
shares of Series B Preferred Stock with respect to such liquidation, dissolution
or winding up, and no more. If upon any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, the assets to be distributed
to the holders of the then-outstanding shares of Series B Preferred Stock shall
be insufficient to permit the payment to such shareholders of the full
preferential amounts to which they are entitled, then all of the assets of the
Company shall be distributed ratably to the holders of the then-outstanding
shares of Series B Preferred Stock on the basis of the number of shares of
Series B Preferred Stock held by each such shareholder as compared to the
aggregate number of then-outstanding shares of Series B Preferred Stock. The (i)
merger or consolidation of the Company with or into any other entity or entities
where the Company is not the surviving entity (other than a merger solely for
the purpose of changing the Company's state of incorporation) or in which in
excess of 50% of the Company's voting power is transferred, or (ii) the sale or
transfer by the Company of all or substantially all of its assets, shall be
deemed to be a liquidation, dissolution and winding up of the Company within the
meaning of this Section 3.
(b) Remaining Assets. After the payment or
distribution to the holders of the then-outstanding shares of Series B Preferred
Stock of the full preferential amounts to which they are entitled, the holders
of the then-outstanding shares of Junior Stock shall be entitled to receive
ratably all remaining assets of the Company.
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Section 4. Redemption.
(a) Restriction on Redemption and Purchase. Except as
expressly provided in this Section 4, the Company shall not have the right to
purchase, call, redeem or otherwise acquire for value any or all of the Series B
Preferred Stock.
(b) Optional Redemption. At any time after the fourth
anniversary of the Initial Issue Date, the Company may, at its option, upon
provision of written notice at least sixty (60) days prior to the date set for
redemption, redeem the Series B Preferred Stock, in whole or in part, at the
Redemption Price hereinafter specified; provided, that the Company shall redeem
shares of Series B Preferred Stock having an aggregate Liquidation Preference of
at least Two Million Five Hundred Thousand Dollars ($2,500,000) upon each
Payment Date; and provided further, any partial redemption shall be effected
ratably among the holders of Series B Preferred Stock on the basis of the number
of shares of Series B Preferred Stock then held by each holder.
(c) Mandatory Redemption. The Company shall redeem
all outstanding shares of Series B Preferred Stock at the Redemption Price
hereinafter specified upon (i) the twelfth anniversary of the Initial Issue Date
or (ii) the occurrence of a Triggering Event (in either case, "Mandatory
Redemption Date").
(d) Optional Redemption Notice. The Company shall,
not less than sixty (60) days prior to the Payment Date for an optional
redemption pursuant to Section 4(b), give written notice to each holder of
record of shares of Series B Preferred Stock that the Company has determined to
exercise its optional redemption rights hereunder. This notice shall state the
number of then-outstanding shares of Series B Preferred Stock to be redeemed,
the Redemption Price, including the amount of dividends included in such price
and the calculation thereof, the Payment Date and the time, place and manner in
which the holder is to surrender to the Company the certificate or certificates
representing the shares of Series B Preferred Stock to be redeemed. "Payment
Date," for purposes of this Section 4(d), shall mean the date set by the Company
with respect to an optional redemption designated by the Company for payment of
the Redemption Price.
(e) Mandatory Redemption Notice. The Company shall
provide prompt, but in no event later than two (2) Business Days after the
Mandatory Redemption Date, notice to the holders of the Series B Preferred Stock
of the Mandatory Redemption Date. Such notice shall state the Redemption Price,
including the amount of dividends included in such price and the calculation
thereof, and the Payment Date, place and manner in which the holders are to
surrender to the Company the certificates representing shares of Series B
Preferred Stock to be redeemed. "Payment Date," for purposes of this Section
4(e), shall mean the date on or prior to the fifth Business Day after the
Mandatory Redemption Date designated by the Company for payment of the
Redemption Price.
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(f) Redemption Price. In all events, the Redemption
Price of the Series B Preferred Stock (the "Redemption Price") shall be an
amount per share equal to $1,000 plus the amount of all accrued and unpaid
dividends thereon, whether or not earned or declared, to and including the
Payment Date.
(g) Payment of Redemption Price and Surrender of
Stock. On the Payment Date, the Redemption Price of the Series B Preferred Stock
shall be paid to the holders of the Series B Preferred Stock. On or before the
Payment Date, each holder of shares of Series B Preferred Stock to be redeemed
shall surrender the certificate or certificates representing such shares to the
Company, duly endorsed, together with such other instruments as the Company may
reasonably require to insure that such shares of Series B Preferred Stock are
duly and validly transferred to the Company, free of all Liens, and on the
Payment Date the Redemption Price for such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and retired.
Upon an optional redemption of less than all of the then-outstanding shares of
Series B Preferred Stock, upon the surrender to the Company of a certificate or
certificates representing shares of Series B Preferred Stock to be redeemed and
payment by the Company of the Redemption Price, the Company shall issue to the
holder thereof a certificate representing any shares of Series B Preferred Stock
not redeemed but represented by the certificate or certificates surrendered.
(h) Insufficient Funds. If the funds of the Company
legally available for redemption of Series B Preferred Stock on the Payment Date
with respect to a Mandatory Redemption Date are insufficient to redeem all of
the Series B Preferred Stock that are subject to redemption pursuant to Section
4(c) on such date, those funds that are so available will be used to redeem the
maximum possible number of such shares of the Series B Preferred Stock ratably
among the holders thereof on the basis of the number of shares of Series B
Preferred Stock held by each such shareholder. At the earliest time thereafter
as additional funds of the Company are legally available for redemption of
Series B Preferred Stock in the manner provided above, such funds will be
immediately used to redeem the balance of such Series B Preferred Stock subject
to redemption.
(i) Deposit of Funds. At least three (3) Business
Days prior to a Payment Date, the Company shall deposit with any bank or trust
company in the United States, having a capital and surplus of at least $1
billion as a trust fund, a sum equal to the aggregate Redemption Price, with
irrevocable instructions and authority to the bank or trust company to pay, on
or after the Payment Date, the Redemption Price to the respective holders of
then-outstanding shares of Series B Preferred Stock upon the surrender of their
share certificates. The deposit shall constitute full payment of the shares to
their holders; provided, that, until all shares of Series B Preferred Stock are
redeemed and full payment made therefor, the holders thereof shall continue to
be considered shareholders with respect to such shares and shall have all rights
with respect thereto, including the right to receive from the bank or trust
company payment of the Redemption Price of the shares, without interest, upon
surrender of their certificates therefor.
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Any monies so deposited and unclaimed at the end of one year from the Payment
Date shall be released or repaid to the Company, after which the holders of
shares of Series B Preferred Stock called for redemption shall be entitled to
receive payment of the Redemption Price only from the Company.
(j) Accrual of Dividends. Unless the Company defaults
in making the payment of the Redemption Price in accordance with Section 4(i)
hereof, dividends on Series B Preferred Stock subject to redemption will cease
to accrue on and after the Payment Date.
(k) Waiver. At any time after receiving notice of
Mandatory Redemption and prior to two Business Days before the Payment Date, the
holders of Series B Preferred Stock may, by written consent of holders of at
least 80% of the then outstanding Series B Preferred Stock, waive the redemption
of the Series B Preferred Stock as to such mandatory redemption event in which
case the Company shall not be obligated to redeem the shares of Series B
Preferred Stock as to such redemption event. Upon receipt of any such waiver,
the Company shall promptly provide written notice to all holders of Series B
Preferred Stock.
Section 5. Voting Rights.
(a) Series B Preferred Stock. Each holder of shares
of Series B Preferred Stock shall be entitled to vote on all matters submitted
to a vote of the holders of Class A Common Stock and, except as otherwise
expressly provided herein, shall be entitled to the number of votes equal to the
largest number of full shares of Class A Common Stock into which such shares of
Series B Preferred Stock could be converted, pursuant to the provisions of
Section 8(b) hereof, at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken.
(b) Common Stock. Each holder of shares of Class A
Common Stock shall be entitled to one vote for each share thereof held, and each
holder of shares of Class B Common Stock shall be entitled to ten votes for each
share thereof held, as provided in Article IV, Section (b) of the Restated
Articles of Incorporation. Except as otherwise expressly provided herein or as
required by law, the holders of Series B Preferred Stock and the holders of
Common Stock shall vote together and not as separate classes.
Section 6. Restrictions and Limitations. So long as any shares
of Series B Preferred Stock remain outstanding, the Company shall not, directly
or indirectly, without the written consent of the holders of 80% with respect to
items (c), (e) or (g), or a majority with respect to items (a), (b), (d) or (f),
of the then-outstanding shares of Series B Preferred Stock:
(a) Purchase, redeem or otherwise acquire for value
(or pay into or set aside as a sinking fund for such purpose) any Junior Stock
or any warrant, option or right to
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purchase any Junior Stock, other than purchases of shares of Junior Stock for
the purpose of funding deferred compensation arrangements;
(b) Declare or pay any dividends on or declare or
make any other Distribution, direct or indirect (other than a dividend payable
solely in shares of Class A Common Stock), on account of Junior Stock or set
apart any sum for any such purpose;
(c) Amend its Articles of Incorporation in any manner
that would significantly and adversely affect the rights or preferences of the
Series B Preferred Stock;
(d) Take any action which would result in taxation of
the holders of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any comparable provision of
the Code as hereafter from time to time amended);
(e) Issue any additional shares of Series B Preferred
Stock after the Initial Issue Date, except pursuant to Section 2 hereof;
(f) Following the effective date of the Proposed
Amendments, liquidate or dissolve the Company; or
(g) Following the effective date of the Proposed
Amendments, permit the Company to be merged with or into, or consolidated with
any other entity or sell all or substantially all of the assets of the Company
in any case where the terms of such merger, consolidation or sale would
significantly and adversely affect the rights and preferences of the Series B
Preferred Stock.
Section 7. Debt Incurrence Covenant. At all times that any
shares of Series B Preferred Stock are outstanding, the Company shall not incur
any Funded Debt if, as a result of such additional Funded Debt, the Company's
Total Leverage Ratio would exceed 7.0:1.
Section 8. Conversion. The holders of Series B Preferred Stock
shall have the following conversion rights:
(a) Right to Convert. Each share of Series B
Preferred Stock shall be convertible, at any time at the option of the holder
thereof, into fully paid and nonassessable shares of Class A Common Stock. Such
conversion right shall continue to apply to any share of Series B Preferred
Stock called for redemption pursuant to Section 4 hereof until the close of
business on the Business Day immediately preceding the applicable Payment Date.
(b) Conversion Price. Each share of Series B
Preferred Stock shall initially be convertible into that number of shares of
Class A Common Stock determined by dividing the then Liquidation Preference of
such share of Series B Preferred Stock by the then
Statement of Stock Designation
Page 14
<PAGE>
conversion price, as adjusted pursuant to this Section 8, which conversion price
shall initially be equal to $5.55 per share (the "Conversion Price").
(c) Mechanics of Conversion. Each holder of Series B
Preferred Stock who desires to convert the same into shares of Class A Common
Stock shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Company or of any transfer agent for the Series B Preferred
Stock or Class A Common Stock, and shall give written notice to the Company at
such office that such holder elects to convert the same and shall state therein
the number of shares of Series B Preferred Stock being converted. Thereupon the
Company shall promptly issue and deliver to such holder a certificate or
certificates for the number of shares of Class A Common Stock to which such
holder is entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate representing the shares of Series B Preferred Stock to be converted,
and the person entitled to receive the shares of Class A Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder of
such shares of Class A Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If
the Company at any time or from time to time after the Initial Issue Date
effects a subdivision of the outstanding Class A Common Stock, the Conversion
Price then in effect immediately before that subdivision shall be
proportionately decreased, and, conversely, if the Company at any time or from
time to time after the Initial Issue Date combines the outstanding shares of
Class A Common Stock into a smaller number of shares, the Conversion Price then
in effect immediately before that combination shall be proportionately
increased. Any adjustment under this subsection (d) shall become effective at
the open of business on the date the subdivision or combination becomes
effective.
(e) Adjustment for Certain Dividends and
Distributions. If the Company at any time or from time to time after the Initial
Issue Date makes, or fixes a record date for the determination of holders of
Class A Common Stock entitled to receive, a dividend or other Distribution
payable in additional shares of Class A Common Stock, then and in each such
event the Conversion Price then in effect shall be reset as of the time of such
issuance or, in the event such record date is fixed, as of the open of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction (1) the numerator of which is the total number of shares of Class A
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (2) the denominator
of which shall be the total number of shares of Class A Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Class A Common Stock
issuable in payment of such dividend or Distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
Distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter
Statement of Stock Designation
Page 15
<PAGE>
the Conversion Price shall be adjusted pursuant to this subsection (e) as of the
time of actual payment of such dividends or Distributions.
(f) Adjustments for Other Dividends and
Distributions. In the event the Company at any time or from time to time after
the Initial Issue Date makes, or fixes, a record date for the determination of
holders of Class A Common Stock entitled to receive, a dividend or other
Distribution payable in securities of the Company other than shares of Common
Stock, then and in each such event provision shall be made so that the holders
of Series B Preferred Stock shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Company which they would have received had their Series B
Preferred Stock been converted into Class A Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 8 with respect to the rights of the
holders of the Series B Preferred Stock.
(g) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Initial Issue Date, the Class A Common Stock issuable upon the conversion of the
Series B Preferred Stock is changed into the same or a different number of
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 8), then and in any such event each
holder of Series B Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, by
holders of the maximum number of shares of Class A Common Stock into which such
shares of Series B Preferred Stock could have been converted immediately prior
to such recapitalization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales
of Assets. If at any time or from time to time after the Initial Issue Date
there is a capital reorganization of the Class A Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 8) or a merger or consolidation of
the Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other person,
then, as a part of such reorganization, merger, consolidation or sale, provision
shall be made so that the holders of the Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series B Preferred
Stock the number of shares of stock or other securities or property to which a
holder of the number of shares of Class A Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 8 with respect to the
rights of the holders of the Series B Preferred Stock after the reorganization,
Statement of Stock Designation
Page 16
<PAGE>
merger, consolidation or sale to the end that the provisions of this Section 8
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series B Preferred Stock) shall be
applicable after that event and be as nearly equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
a) If at any time or from time to time after
the Initial Issue Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (i) to have issued or sold, Additional Shares of
Class A Common Stock (as hereinafter defined) (other than (A) as a dividend or
other Distribution on any class of stock as provided in subsection (e) above,
(B) upon a subdivision or combination of shares of Class A Common Stock as
provided in subsection (d) above, or (C) shares to be issued to officers,
directors, employees, agents or consultants of the Company pursuant to stock
options or equity incentive plans approved by the Board of Directors of the
Company and representing not more than 5% of the outstanding Class A Common
Stock as of the Initial Issue Date (the "Exempt Issuances")) for an Effective
Price (as hereinafter defined) less than the then existing Conversion Price,
then and in each such case the then existing Conversion Price shall be reduced,
as of the opening of business on the date of such issue or sale, by multiplying
such Conversion Price in effect immediately prior to such new issuance by a
fraction (i) the numerator of which shall be (A) the number of shares of Class A
Common Stock outstanding at the close of business on the day preceding the date
of such issue or sale (assuming conversion of all outstanding shares of Series B
Preferred Stock at the then Conversion Price) plus (B) the number of Shares of
Class A Common Stock which the aggregate consideration received (or by the
express provisions hereof deemed to have been received by the Company for the
total number of Additional Shares of Class A Common Stock so issued) would
purchase at such Conversion Price, and (ii) the denominator of which shall be
the number of shares of Class A Common Stock outstanding at the close of
business on the date of such issuance or sale after giving effect to such issue
of Additional Shares of Class A Common Stock (assuming conversion of all
outstanding shares of Preferred Stock into shares of Class A Common Stock at the
then Conversion Price).
b) For the purpose of making any adjustment
required under this subsection (i), the consideration received by the Company
for any issue or sale of securities shall (A) to the extent it consists of cash
be computed at the amount of cash received by the Company, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board, (C) if Additional Shares of
Class A Common Stock, Convertible Securities (as hereinafter defined) or rights
or options to purchase either Additional Shares of Class A Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Class A
Statement of Stock Designation
Page 17
<PAGE>
Common Stock, Convertible Securities or rights or options, and (D) be computed
after reduction for all expenses payable by the Company in connection with such
issue or sale.
c) For the purpose of the adjustment
required under this subsection (i), if the Company issues or sells any rights or
options for the purchase of, or stock or other securities convertible into or
exchangeable for, Additional Shares of Class A Common Stock (such convertible or
exchangeable stock or securities being hereinafter referred to as "Convertible
Securities") or rights or options for the purchase of Convertible Securities,
and if the Effective Price of such Additional Shares of Class A Common Stock
ultimately issuable pursuant thereto is less than the then Conversion Price,
then in each case the Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum number
of Additional Shares of Class A Common Stock issuable upon exercise, conversion
or exchange thereof and to have received as consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise of
such rights or options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof. No further adjustment of
the Conversion Price, adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Class A Common Stock on the exercise of any such rights or
options or the conversion or exchange of any such Convertible Securities. If any
such rights or options or the conversion or exchange privilege represented by
any such Convertible Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Class A Common Stock so issued were the Additional Shares
of Class A Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion or exchange of such Convertible
Securities, and such Additional Shares of Class A Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted or exchanged, plus the consideration, if any, actually
received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion or
exchange of such Convertible Securities. A similar readjustment will be made if
the amount actually paid to the Company upon exercise of conversion of any
Convertible Securities exceeds the minimum amount assumed pursuant to this
Section 8(i).
d) "Additional Shares of Class A Common
Stock" shall mean all shares of Class A Common Stock issued by the Company after
the Series B Issuance Date,
Statement of Stock Designation
Page 18
<PAGE>
whether or not subsequently reacquired or retired by the Company, other than (i)
shares of Class A Common Stock issued upon conversion of the Series B Preferred
Stock and (ii) the shares of Class A Common Stock issued as Exempt Issuances.
The "Effective Price" of Additional Shares of Class A Common Stock shall mean
the quotient determined by dividing the total number of Additional Shares of
Class A Common Stock issued or sold, or deemed to have been issued or sold by
the Company under this subsection (i), into the aggregate consideration
received, or deemed to have been received, by the Company for such issue under
this subsection (i), for such Additional Shares of Class A Common Stock.
(j) Accountants' Certificate of Adjustment. In each
case of an adjustment or readjustment of the Conversion Price, the Company, at
its expense, shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of the Series B Preferred Stock
at the holder's address as shown in the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Company for any
Additional Shares of Class A Common Stock issued or sold or deemed to have been
issued or sold, (2) the Conversion Price at the time in effect, (3) the number
of Additional Shares of Class A Common Stock and (4) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Series B Preferred Stock.
(k) Notices of Record Date. In the event of (i) any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other Distribution, or (ii) any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company, any merger or consolidation of the Company with or into any other
corporation, or any transfer of all or substantially all of the assets of the
Company to any other person or any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall mail to each holder
of Series B Preferred Stock at least ten (10) days prior to the record date
specified therein, a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or Distribution and a description
of such dividend or Distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed, as to when the holders of record of Class A Common Stock (or other
securities) shall be entitled to exchange their shares of Class A Common Stock
(or other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
Statement of Stock Designation
Page 19
<PAGE>
(l) Mandatory Conversion. At any time following the
third anniversary of the Initial Issue Date, the Company may require the
immediate conversion of all outstanding shares of Series B Preferred Stock into
shares of Class A Common Stock pursuant to the procedures set forth in this
Section 8 by written notice to all holders of Series B Preferred Stock at the
then effective Conversion Price; provided however, the Company may require
conversion pursuant to this Section 8(l) only if the shares of Class A Common
Stock are traded on a nationally recognized exchange or the National Market
System of the National Association of Security Dealers, Inc. Automated Quotation
System and such shares then have a Closing Price equal to or greater than two
times the then effective Conversion Price and have had such a Closing Price for
a period of thirty consecutive Trading Days.
(m) Conversion Following Default in Payment of
Redemption Price. Notwithstanding anything herein to the contrary, in the event
that the Company fails to make full payment of the Redemption Price on any
Payment Date pursuant to Section 4 hereof, for any reason, including the
prohibition of such payment pursuant to the Credit Agreement, the holders of
shares of Series B Preferred Stock remaining outstanding shall have the right to
convert such shares of Series B Preferred Stock, in whole or in part, pursuant
to the procedures set forth in this Section 8, into shares of Class A Common
Stock at a Conversion Price equal to ninety-five percent (95%) of the average
Closing Price of the Company's Class A Common Stock for the ten (10) Trading
Days immediately prior to the date of conversion. Any shares of Series B
Preferred Stock not so converted shall remain outstanding and shall continue to
represent an obligation of the Company to pay the Redemption Price with respect
thereto. Notwithstanding anything herein to the contrary, the aggregate number
of shares of Class A Common Stock issued upon conversion of shares of Series B
Preferred Stock pursuant to this Section 8(m) shall, in any event, not exceed
19.9% of the total number of issued and outstanding shares of capital stock of
the Company as of the Initial Issue Date.
Section 10. Exclusive Remedy. So long as any obligation is
outstanding under the Credit Agreement, the sole remedy available to holders of
Series B Preferred Stock for the Company's failure to make full payment in cash
of the Redemption Price when required pursuant to Section 4 hereof, shall be the
conversion of the Series B Preferred Stock into shares of Class A Common Stock
pursuant to Section 8(m) hereof unless the lenders under the Credit Agreement
consent to payment in cash.
Section 11. No Reissuance of Series B Preferred Stock. No
share of Series B Preferred Stock acquired by the Company upon conversion, by
reason of redemption, purchase, or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Company shall be authorized to issue.
RESOLVED FURTHER, that, because certain of the terms and conditions of
the issuance of the Series B Preferred Stock relating to rights of holders of
that stock to vote
Statement of Stock Designation
Page 20
<PAGE>
as a class on certain specific activities of the Company, as further described
in Sections 1-11 above, will not become effective until certain amendments to
the Company's Restated Articles of Incorporation become effective, the Board of
Directors shall seek approval of amendments to those articles from the
shareholders of the Company at the annual shareholder meeting to be held on or
about June 10, 1999 or such other date on which it is held, and such terms
relating to those class votes will not become effective until that portion of
those amendments are approved by those shareholders and the amendments are filed
with the Alaska Department of Commerce and Economic Development;
RESOLVED FURTHER, that the president of the Company or any vice
president designated by him and the secretary of the Company or any assistant
secretary of the Company are hereby authorized and directed to take those steps
necessary to cause the issuance and sale of the Series B Preferred Stock
including to execute a statement to be filed in accordance with the requirements
of AS 10.06.320 of the Alaska Statutes and to seek shareholder approval of those
amendments to the Company's Restated Articles of Incorporation to allow all of
the terms of ownership of the Series B Preferred Stock to become effective."
IN WITNESS WHEREOF, the Company has caused this Statement of Stock
Designation to be duly executed on its behalf at Anchorage, Alaska as of this
21st day of April, 1999.
GENERAL COMMUNICATION, INC.
By: /s/
G. Wilson Hughes
Its: Executive Vice President
By: /s/
John M. Lowber
Its: Secretary
Statement of Stock Designation
Page 21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1999 AND THE INTERIM CONDENSED CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000075679
<NAME> GCI, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,169
<SECURITIES> 0
<RECEIVABLES> 41,660
<ALLOWANCES> 1,384
<INVENTORY> 1,611
<CURRENT-ASSETS> 53,209
<PP&E> 412,067
<DEPRECIATION> 91,342
<TOTAL-ASSETS> 637,560
<CURRENT-LIABILITIES> 49,451
<BONDS> 355,874
0
0
<COMMON> 209,605
<OTHER-SE> (13,845)
<TOTAL-LIABILITY-AND-EQUITY> 637,560
<SALES> 0
<TOTAL-REVENUES> 61,338
<CGS> 0
<TOTAL-COSTS> 27,870
<OTHER-EXPENSES> 32,757
<LOSS-PROVISION> 1,079
<INTEREST-EXPENSE> 7,080
<INCOME-PRETAX> (7,328)
<INCOME-TAX> (3,052)
<INCOME-CONTINUING> (4,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (344)
<NET-INCOME> (4,865)
<EPS-PRIMARY> (48,650)
<EPS-DILUTED> (48,650)
</TABLE>
