As filed with the Securities and Exchange
Commission on October 4, 1996 Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------
GENERAL COMMUNICATION, INC.
(Exact name of registrant as specified in its charter)
Alaska 4899 92-0072737
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2550 Denali Street, Suite 1000, Anchorage, Alaska 99503-2781
(907) 265-5600
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
John M. Lowber
General Communication, Inc.
2550 Denali Street, Suite 1000, Anchorage, Alaska 99503-2781
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------------------------
Copy to: Julius J. Brecht, Esq.
Wohlforth, Argetsinger,Johnson & Brecht, A Professional Corporation
900 West 5th Avenue, Suite 600, Anchorage, Alaska 99501
(907) 276-6401
------------------------------------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class
of securities to be Amount to be Proposed maximum Proposed maximum Amount of registration
registered registered (1) offering price per unit (2) aggregate offering price (2) fee (2)
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Communication,
Inc. Class A 14,723,077 --- --- $25,932.69
Common Stock
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1 Maximum number of shares should all offerees accept offers made to them
under the Acquisition Plan. See, "PROPOSED TRANSACTIONS."
2 Calculated pursuant to Rule 457(c), the registration fee is based upon the
average of the hight and low market price of the Company Class A stock on
September 30, 1996.
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--------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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GENERAL COMMUNICATION, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information Required
by Items of Form S-4.
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Item Number and Heading in
Form S-4 Registration Statement Location in Prospectus
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ................................... Inside Front and Outside Back Cover Pages; Available
Information; Incorporation of Certain Documents by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information......................... Summary; Risk Factors
4. Terms of the Transaction ..................... Summary; The Acquisition Plan; Proposed Transactions;
Description of Company Capital Stock
5. Pro Forma Financial Information .............. Summary: Index to Financial Statements: Pro Forma
Financial Information -- Company
6. Material Contacts with Company being Acquired Summary: Material Contacts with Cable Companies;
Acquisition Plan: Recommendations of the Company Board
and Its Reasons for the Acquisition Plan
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be Underwriters *
8. Interests of Named Experts and Counsel........ Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Risk Factors
10. Information with Respect to S-3 Registrants *
11. Incorporation of Certain Information by Reference *
12. Information with Respect to S-2 or S-3 Annual Report; Incorporation of Certain Documents by
Registrants Reference; Recent Developments
13. Incorporation of Certain Information by Incorporation of Certain Documents by Reference
Reference ....................................
14. Information with Respect to Registrants Other
than S-3 or S-2 Registrants................... *
15. Information with Respect to S-3 Companies .... *
16. Information with Respect to S-2 or S-3 Companies *
17. Information with Respect to Companies Other than Summary; Certain Information Regarding Cable Companies
S-3 or S-2 Companies..........................
18. Information if Proxies, Consents or Summary; Company Annual Meeting; Management of the
Authorizations are to be Solicited ........... Company; Appraisal Rights; Ownership of the Company;
Relationship with Independent Accountant; Annual
Report; Submission of Shareholder Proposals
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an *
Exchange Offer ...............................
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* Omitted because inapplicable or answer is in the negative.
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<PAGE>
GENERAL COMMUNICATION, INC.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503-2781
(907) 265-5600
October 4, 1996
Re: 1996 Annual Meeting of Shareholders of General Communication, Inc.
Dear Shareholder:
The board of directors of General Communication, Inc. cordially invites
and encourages you to attend the annual meeting of shareholders of the Company.
The meeting will be held in the Denali Ballroom of the Regal Alaskan Hotel at
4800 Spenard Road, Anchorage, Alaska at 6:00 p.m. (Alaska Time) on October 17,
1996. The board has chosen the close of business on August 19, 1996 ("Record
Date") as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting. A reception for shareholders will be held
prior to the meeting from 5:00 p.m. to 6:00 p.m. at the site of the meeting.
Copies of the Notice of Annual Meeting of Shareholders, the Proxy, the
Proxy Statement/Prospectus, the Annual Report to shareholders in the form of the
Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 1995, and
the unaudited quarterly report for the six-month period ended June 30, 1996 are
enclosed covering the formal business to be conducted at the meeting.
At the meeting, the shareholders will be asked (1) to elect individuals
to fill three positions on the board of directors as a classified board as
required by the Bylaws of the Company, and (2) to approve a plan ("Acquisition
Plan") whereby the Company will acquire substantially all of the assets or all
of the securities of seven cable companies offering cable television services in
Alaska for consideration including 14,723,077 shares of Company Class A common
stock ("Company Stock") and will separately and in addition increase its capital
by issuing and selling 2,000,000 additional shares of Class A common stock ("MCI
Company Stock") to MCI Telecommunications Corporation (an existing control
shareholder of the Company) for $13,000,000 and subject to other conditions, and
to conduct other business as described more fully in the Proxy
Statement/Prospectus and as may properly come before the meeting.
Regardless of the number of shares you own, your careful consideration
of and vote on these matters is important. However, as of the Record Date, the
number and percentage of outstanding shares entitled to vote held by directors
and executive officers of the Company and their affiliates was 9,984,702 shares
constituting approximately 50.3% of the total outstanding Class A common stock
and 2,679,499 shares constituting approximately 65.6% of the outstanding Class B
common stock. As of the Record Date, 7,562,430 shares constituting approximately
38.1% of the outstanding Class A common stock and 4,085,461 shares constituting
approximately 58.8% of the outstanding Class B common stock of the Company were
subject to a Voting Agreement described in the Proxy Statement/Prospectus. When
combined, the voting power held by management of the Company and the parties to
the Voting Agreement constituted approximately 60.8% of the outstanding voting
power of Class A and Class B common stock of the Company as of the Record Date.
The parties to that agreement and management of the Company have indicated their
intention to vote for the Acquisition Plan. If such shares are so voted,
election of management's slate for the Company Board, and approval of the
Acquisition Plan and the issuance of the MCI Company Stock and the Company Stock
are assured. Subsequent to closing on the purchase of all of the security
interests in Prime Cable of Alaska, L.P., one of the cable companies to be
acquired under the Acquisition Plan, the Voting Agreement will terminate, and
the sellers of the security interests in Prime Cable of Alaska, L.P. will become
parties to a New Voting Agreement along with the former parties to the
<PAGE>
Voting Agreement. Assuming the issuance of the Company Stock and the MCI Company
Stock as of the Record Date, the parties to the New Voting Agreement will hold
in the aggregate approximately 58.7% of the combined voting power of the
Company's outstanding common stock and will be in a position to control the
Company. See, "RISK FACTORS: Concentration of Stock Ownership" within the Proxy
Statement/Prospectus.
If the Company Stock and MCI Company Stock had been issued under the
Acquisition Plan as of the Record Date, the percentage ownership of the
aggregate outstanding Company Class A and Class B common stock would have become
as follows: (1) Prime Sellers (prior to any distributions to their securities
holders, including other Prime Group members) - 29%; (2) MCI - 23% (down from
approximately 31% immediately prior to the closing on the Proposed
Transactions); (3) the Company's employees and management combined - 10%; (down
from approximately 17% immediately prior to the closing on the Proposed
Transactions); (4) Alaskan Cable - 7%; and (5) others - 31%.
In order to ensure that we have a quorum and that your shares will be
voted at the meeting, please complete, date and sign the enclosed Proxy and
return it promptly in the enclosed addressed and stamped envelope.
In addition to conducting the formal business at the meeting, we shall
also review the Company's activities over the past year and its plans for the
future. I sincerely hope you will be able to join us.
Sincerely,
Ronald A. Duncan
President and Chief Executive Officer
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GENERAL COMMUNICATION, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 17, 1996
--------------------------------------------
TO THE SHAREHOLDERS OF
GENERAL COMMUNICATION, INC.
NOTICE IS HEREBY GIVEN that, pursuant to the Bylaws of General
Communication, Inc. ("Company") and the call of the board of directors of the
Company ("Company Board"), the annual meeting ("Annual Meeting") of shareholders
of the Company will be held in the Denali Ballroom of the Regal Alaskan Hotel at
4800 Spenard Road, Anchorage, Alaska at 6:00 p.m. (Alaska Time) on October 17,
1996, for the purpose of considering and voting upon the following matters:
(1) Election of three directors in Class I of the classified
Company Board for three year terms;
(2) Approval of a plan ("Acquisition Plan") whereby the Company
will acquire substantially all of the assets or all of the
securities of seven companies offering cable television
services in Alaska (Prime Cable of Alaska, L.P., Alaskan Cable
Network/Fairbanks, Inc., Alaskan Cable Network/Juneau, Inc.,
Alaskan Cable Network/Ketchikan-Sitka, Inc., Alaska
Cablevision, McCaw/Rock Homer Cable Systems, J.V., and
McCaw/Rock Seward Cable Systems, J.V.) for a purchase price of
approximately $280.7 million to include the issuance of
14,723,077 shares of Company Class A common stock (to be
issued to the security holders of four of the cable companies,
i.e., Prime Cable of Alaska, L.P. and the three corporations
comprising the Alaskan Cable companies) and whereby the
Company will separately and in addition increase its capital
by issuing 2,000,000 shares of Company Class A common stock to
MCI Telecommunications Corporation for $13,000,000 ("MCI
Company Stock") and subject to other conditions as set forth
in several securities and asset purchase agreements with the
cable companies and with MCI; and
(3) Transaction of such other business as may properly come before
the Annual Meeting and any adjournment or adjournments of it.
Approval by the shareholders of the Acquisition Plan will constitute
approval of the issuance of (1) the Company Stock to the security holders of
Prime Cable of Alaska, L.P. and the three corporations comprising the Alaskan
Cable companies and (2) the MCI Company Stock to MCI.
All of the above matters are more fully described in the accompanying
Proxy Statement/Prospectus. A reception for shareholders will precede the Annual
Meeting, commencing at 5:00 p.m.
By resolution adopted by the Company Board, the close of business on
August 19, 1996 has been fixed as the record date for the Annual Meeting
("Record Date"). Only holders of shares of Class A or Class B common stock of
the Company of record as of the Record Date will be entitled to notice of and to
vote at the Annual Meeting or any adjournment or adjournments of it.
The accompanying form of Company Proxy is solicited by the Company
Board. Reference is made to the attached Proxy Statement/Prospectus for further
information with regard to the business to be transacted at the Annual Meeting.
A list of shareholders of the Company as of the Record Date will be kept at the
Company's offices at 2550 Denali Street, Suite 1000, Anchorage, Alaska for a
period of 30 days prior to the meeting and will be subject to inspection by any
shareholder of record as of the Record Date at any time during normal business
hours.
<PAGE>
Whether or not you expect to attend the meeting in person, please sign
and date the enclosed Company Proxy and mail it to the secretary of the Company
Board in the enclosed addressed and stamped envelope. If you send in your
Company Proxy and later do attend the Annual Meeting to vote in person or
otherwise decide to revoke your Company Proxy, you may revoke your proxy at any
time before authority thereby granted is exercised by giving written notice of
revocation to the Secretary of the Company Board delivered to 2550 Denali
Street, Suite 1000, Anchorage, Alaska or at the Annual Meeting. You may also
revoke this proxy by a duly exercised proxy bearing a later date. You may then
vote in person or by other proxy as provided by the Bylaws of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
John M. Lowber, Secretary
Anchorage, Alaska
October 4, 1996
PLEASE EXECUTE AND RETURN THE ENCLOSED COMPANY PROXY PROMPTLY, WHETHER OR NOT
YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING.
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GENERAL COMMUNICATION, INC. PRIME CABLE OF ALASKA, L.P. ALASKAN CABLE NETWORK/
2550 Denali Street, Suite 1000 One American Center FAIRBANKS, INC.
Anchorage, Alaska 99503-2781 600 Congress Avenue, Suite 3000 ALASKAN CABLE NETWORK/
Austin, Texas 78701 JUNEAU, INC.
ALASKAN CABLE NETWORK/
KETCHIKAN-SITKA, INC.
Kent Farms
Middleburg, Virginia 20117
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PROXY STATEMENT PROSPECTUS
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For the Annual Meeting of Shareholders
to be held on October 17, 1996.
This Proxy Statement/Prospectus is being furnished to holders of common
stock of General Communication, Inc., an Alaska corporation in connection with
the solicitation of proxies by the board of directors of the Company for use at
the Annual Meeting of the shareholders of the Company, or any adjournment or
postponement of it. The Annual Meeting is to be held on October 17, 1996 and is
called (1) to elect three members of its seven member Company Board, (2) to
adopt the Acquisition Plan to acquire substantially all of the assets or all of
the securities of seven Cable Companies providing services in Alaska and
separately to increase its capitalization through a private offering of Company
common stock to MCI, and (3) to conduct other business as may properly come
before the meeting.
The total purchase price (approximately $280,700,000) is to be paid by
the Company through the issuance of Company Stock in the amount of 14,723,077
shares of Company Class A common stock and bank financing of approximately
$162,000,000 (including assumption of approximately $103,000,000 of existing
Prime debt and new financing of approximately $59,000,000), sale of the MCI
Company Stock for $13,000,000 and other financing of approximately $10,000,000.
The Company Stock is to be divided between the following Cable Companies for
further distribution to their respective security holders and subject to share
holdback: (1) Prime -- Prime Company Shares in the amount of 11,800,000 shares;
and (2) Alaskan Cable companies -- Alaskan Cable Company Shares in the amount of
2,923,077 shares. Through the MCI Proposed Transaction (a private offering
separate from this offering of Company Stock) the Company will offer to MCI the
MCI Company Stock in the amount of 2,000,000 shares of Company Class A common
stock for a total purchase price of $13,000,000. Approval by the Company
shareholders of the Acquisition Plan will constitute approval of the issuance of
(1) the Company Stock to the Prime Sellers and the shareholders of Alaskan Cable
and (2) the MCI Company Stock to MCI. See, "SUMMARY: Acquisition Plan, Proposed
Transactions"; "ACQUISITION PLAN"; and "PROPOSED TRANSACTIONS."
The Company has filed a registration statement on Form S-4 under the
Securities Act of 1933, as amended, relating to the offer of the Company Stock.
This Proxy Statement/Prospectus is being furnished to the following: (1) to the
security holders of Prime to seek their consent and approval as to the Company's
offer to acquire, directly or indirectly, all of the general and limited partner
interests and participation interests in Prime; (2) to the limited partners of
PCLP to seek their consent to the disposition to the Company of all the capital
stock of Prime General Partner, the sole general partner of Prime, which is
owned by PCLP; (3) to the shareholders of ACI, a limited partner of Prime, to
seek their consent to the disposition to the Company of all the capital stock of
ACI, which owns a limited partner interest in Prime; (4) to the sole shareholder
of each of the three corporations comprising Alaskan Cable to seek each
respective shareholder's consent and approval as to the Company's offer to
acquire all of the assets of each of those corporations; and (5) to the
shareholders of the Company to seek their consent and approval of the
Acquisition Plan and to seek the election of management's slate for the Company
Board.
-------------------
AN INVESTMENT IN THE SECURITIES OFFERED THROUGH THIS PROXY STATEMENT/PROSPECTUS
IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE, "RISK FACTORS" BEGINNING
AT PAGE 24 OF THE PROXY STATEMENT/PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
This Proxy Statement/Prospectus and the accompanying form of Proxy or
Consent, as the case may be, are first being mailed to the shareholders of the
Company and Alaskan Cable and to the Prime Group on or about October 7, 1996.
The date of this Proxy Statement/Prospectus is October 4, 1996.
THE COMPANY STOCK TO BE ISSUED AS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS
HAS NOT BEEN REGISTERED WITH THE STATE OF FLORIDA. AN OFFER MADE TO AN INVESTOR
WHO HAS AN INVESTMENT DIRECTLY OR INDIRECTLY WITH A CABLE COMPANY AND WHO IS A
RESIDENT OF THE STATE OF FLORIDA IS VOIDABLE BY THAT INVESTOR WITHIN THREE DAYS
AFTER THE CONSENT DEADLINE (OCTOBER 28, 1996).
-------------------
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance with that act
files and has filed reports, proxy statements and other information with the
Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a Web-site
that contains reports, proxy and information statements and other information
filed electronically by the Company, and can be found at http://www.sec.gov.
This Proxy Statement/Prospectus does not include all of the information
set forth in the Registration Statement filed by the Company with the Commission
under the Securities Act, as permitted by the rules and regulations of the
Commission. The Registration Statement including any amendments, schedules and
exhibits filed or incorporated by reference as a part of it, is available for
inspection and copying as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated in the Registration
Statement by reference as to the contents of any contract or other document
referred to in the Registration Statement or in such contract or other document
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document. Each such statement shall be deemed qualified
in its entirety by such reference.
No person has been authorized to give any information or make any
representation other than those contained or incorporated by reference in this
Proxy Statement/Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy the securities covered by this Proxy Statement/Prospectus or a
solicitation of a proxy in any jurisdiction where, or to or from any person to
whom, it is unlawful to make such offer, solicitation of an offer or proxy
solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities made under it shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date of this document or that the
information contained or incorporated by reference in it is correct as of any
time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission under the Exchange Act are incorporated herein by reference:
(1) Company's Annual Report on Form 10-K, for the year ended December
31, 1995, as amended through Form 10-K/A, dated April 25, 1996 (Commission File
No. 0-15279);
(2) Company's Quarterly Reports on Forms 10-Q for the quarters ended
March 31, 1996 and for June 30, 1996 (Commission File No. 0-15279);
(3) Company's Current Report on Form 8-K dated March 28, 1996, as
amended by Form 8-K/A dated May 20, 1996, announcing the Company's entering into
several letters of intent to proceed with the Acquisition Plan (Commission File
No. 0-15279);
REGISTRATION STATEMENT
Page ii
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(4) In that the Company has elected, pursuant to Item 12(a)(2)(iii) of
Form S-4, to provide a copy of its latest quarterly report which was delivered
to security holders, financial information equivalent to that required to be
presented in Part I of Form 10-Q.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Registration Statement shall be deemed to be
modified or superseded for purposes of this Registration Statement to the extent
that a statement contained in it (or in any other subsequently filed document
that is or is deemed to be incorporated by reference) modifies or supersedes
such previous statement. Any statement so modified or superseded shall not be
deemed to constitute a part of the Registration Statement except as so modified
or superseded.
All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference.
Information contained in this Proxy Statement/Prospectus concerning
Prime, Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock
Seward was provided to the Company by those entities.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED IN THIS REGISTRATION STATEMENT OR DELIVERED WITH IT.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE IN THIS REGISTRATION STATEMENT) ARE
AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY PERSON TO WHOM
THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, FROM JOHN M. LOWBER, SENIOR
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, GENERAL COMMUNICATION, INC., 2550
DENALI STREET, SUITE 1000, ANCHORAGE, ALASKA 99503-2781 (TELEPHONE NO.
907/265-5600). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY OCTOBER 10, 1996, THAT IS, NOT LATER THAN FIVE BUSINESS DAYS
BEFORE THE ANNUAL MEETING.
REGISTRATION STATEMENT
Page iii
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TABLE OF CONTENTS
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AVAILABLE INFORMATION........................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ................................................................ ii
SUMMARY......................................................................................................... 1
Executive Summary...................................................................................... 1
The Company............................................................................................ 3
Cable Companies and MCI................................................................................ 3
Company Annual Meeting................................................................................. 4
Cable Company Security Holder Consents................................................................. 5
Acquisition Plan, Proposed Transactions................................................................ 6
Interests of Certain Persons in the Acquisition Plan................................................... 12
Appraisal Rights....................................................................................... 12
Certain Federal Income Tax Consequences................................................................ 12
Comparative Market Price Data.......................................................................... 13
Holders................................................................................................ 14
Dividends.............................................................................................. 14
Selected Historical Financial and Pro Forma Data and
Certain Comparative Per Share Data............................................................ 15
Capitalization Table................................................................................... 22
Material Contacts with Cable Companies................................................................. 24
RISK FACTORS.................................................................................................... 24
Risks and Effects of the Proposed Transactions......................................................... 24
Risks of the Businesses in Which the Company Will Be Engaged........................................... 28
Economic Risks......................................................................................... 29
Company Common Stock Inherent Factors.................................................................. 31
COMPANY ANNUAL MEETING.......................................................................................... 33
General................................................................................................ 33
Time and Place......................................................................................... 34
Purpose................................................................................................ 34
Outstanding Voting Securities.......................................................................... 34
Voting Rights, Votes Required for Approval............................................................. 34
Proxies................................................................................................ 35
Recommendations of Company Board....................................................................... 36
CABLE COMPANY SECURITY HOLDER CONSENTS.......................................................................... 36
Purpose................................................................................................ 36
Time and Place......................................................................................... 36
Outstanding Voting Securities.......................................................................... 37
Voting Rights, Votes Required for Approval and Consents................................................ 37
Expenses............................................................................................... 38
ACQUISITION PLAN................................................................................................ 38
Background............................................................................................. 38
Recommendation of Company Board and Its Reasons for the Acquisition Plan............................... 39
REGISTRATION STATEMENT
Page iv
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Recommendations of the Cable Company Boards and
Their Reasons for the Acquisition Plan........................................................ 43
Determination of Value................................................................................. 46
Interests of Certain Persons in the Acquisition Plan................................................... 48
CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN.................................................................... 54
General................................................................................................ 54
Security Holder Investment Changes..................................................................... 54
Company Cable Systems.................................................................................. 56
Certain Federal Income Tax Consequences................................................................ 57
Accounting Treatment................................................................................... 62
APPRAISAL RIGHTS................................................................................................ 62
Prime.................................................................................................. 62
Alaskan Cable.......................................................................................... 62
PROPOSED TRANSACTIONS........................................................................................... 63
General................................................................................................ 63
Cable Company Purchase Agreements...................................................................... 63
Registration Rights Agreements......................................................................... 74
ACI and PCFI Merger Agreements......................................................................... 74
Prime Management Agreement............................................................................. 76
New Voting Agreement................................................................................... 77
MCI Purchase Agreement................................................................................. 78
Certain Personal Matters............................................................................... 83
Certain Restrictions on Resale of Company Stock and MCI Company Stock.................................. 83
Incorporation by Reference, Excluded Schedules......................................................... 83
CERTAIN INFORMATION CONCERNING THE COMPANY...................................................................... 85
Background and Description of Business................................................................. 85
Products and Services.................................................................................. 85
Subsidiaries........................................................................................... 86
Other Information...................................................................................... 87
CERTAIN INFORMATION REGARDING THE CABLE COMPANIES............................................................... 87
Background and Description of Business................................................................. 87
Market Price of and Dividends of Cable Companies.......................................................100
Selected and Supplementary Financial Data for Certain Cable Companies..................................100
Management's Discussion and Analysis of Financial Condition and
Results of Operation for Certain Cable Companies..............................................101
Recent Developments Involving Cable Companies..........................................................117
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................................................118
Regulatory Developments, Competition and Legislation/Regulation........................................118
RECENT DEVELOPMENTS.............................................................................................127
REGISTRATION STATEMENT
Page v
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DESCRIPTION OF COMPANY CAPITAL STOCK............................................................................128
Common Stock...........................................................................................128
Preferred Stock........................................................................................128
Limitation of Liability and Indemnification............................................................129
Certain Charter Provisions.............................................................................130
COMPARISON OF SECURITY HOLDER RIGHTS IN THE COMPANY
AND CERTAIN CABLE COMPANIES........................................130
General................................................................................................130
Authorized Capitalization..............................................................................131
Voting.................................................................................................131
Annual and Special Meetings of Securities Holders......................................................133
Board of Directors or Governing Body...................................................................133
Removal of Directors or Governing Body.................................................................134
Vacancies on the Board of Directors or Other Governing Body............................................134
Mergers, Consolidations and Sale of Assets.............................................................135
Amendment to Articles of Incorporation or Other Organizing Documents...................................135
Amendment to Bylaws....................................................................................136
Limitation on Liability of Directors and Officers......................................................136
Preferred Stock........................................................................................138
MANAGEMENT OF THE COMPANY.......................................................................................138
General................................................................................................138
Business Background of Directors, Nominees, and Executive Officers of the Company......................138
Compliance with Section 16(a) of the Exchange Act......................................................141
Remuneration of Directors and Executive Officers.......................................................141
Employment Contracts and Termination of Employment and
Change of Control Arrangements................................................................149
Report on Repricing of Options/SARs....................................................................150
Compensation Committee Interlocks and Insider Participation............................................150
Compensation Committee Report on Executive Compensation................................................150
Performance Graph......................................................................................152
OWNERSHIP OF THE COMPANY........................................................................................153
Principal Shareholders.................................................................................153
Management.............................................................................................155
Changes in Control.....................................................................................157
DISTRIBUTION OF COMPANY STOCK...................................................................................158
Principal Security Holders.............................................................................158
Management.............................................................................................161
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................163
Certain Transactions with Management and Others........................................................163
Indebtedness of Management.............................................................................165
SECURITIES ACT INDEMNIFICATION..................................................................................166
LITIGATION AND REGULATORY MATTERS...............................................................................166
REGISTRATION STATEMENT
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS................................................................167
ANNUAL REPORT...................................................................................................167
SUBMISSION OF SHAREHOLDER PROPOSALS.............................................................................167
EXPERTS.........................................................................................................167
OTHER INFORMATION...............................................................................................169
Business...............................................................................................169
Market Price of and Dividends on the Company's
Common Equity and Related Stockholder Matters..................................................171
Selected Financial Data................................................................................172
Supplementary Financial Data...........................................................................173
Management's Discussion and Analysis of Financial Condition and
Result of Operations...........................................................................174
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures..........................................................................179
INDEX TO FINANCIAL STATEMENTS................................................................................. F-1
Historical Financial Statements...................................................................... F-1
Pro Forma Combined Condensed Financial Statements (Unaudited)........................................ F-58
</TABLE>
REGISTRATION STATEMENT
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<PAGE>
DEFINITIONS
The following are some of the terms generally used in this Proxy
Statement/Prospectus and the location in the Proxy Statement/Prospectus where
each term is further described.
"1992 Cable Act" means the federal Cable Television Consumer Protection
and Competition Act of 1992. See, "CERTAIN INFORMATION REGARDING THE CABLE
COMPANIES: Regulatory Developments, Competition and Legislation/Regulation --
Regulatory Developments."
"1996 Telecom Act" means the 1996 federal Telecommunications Act which
became effective in February, 1996. See, "CERTAIN INFORMATION REGARDING THE
COMPANY: Regulatory Developments, Competition and Legislation/Regulation."
"ACI" means Alaska Cable, Inc., a Delaware corporation and limited
partner of Prime, having several shareholders including PVII. See, "CERTAIN
INFORMATION REGARDING THE CABLE COMPANIES: Background and Description of
Business--Prime-Organizational Structure."
"ACI Escrow Agreement" means an agreement between the shareholders of
ACI pursuant to the Prime Proposed Transaction to deposit into escrow as a group
50% of the aggregate number of shares of Prime Company Shares receivable by them
in connection with the ACI Merger, less the number of shares deposited by them
pursuant to the Prime Escrow Holdback. See, "PROPOSED TRANSACTIONS: Cable
Company Purchase Agreements--Escrow and Holdback Agreements."
"ACI Merger" means the merger of ACI with and into GCI Cable through
the ACI Merger Agreement. See, "PROPOSED TRANSACTIONS: ACI and PCFI Merger
Agreements."
"Acquisition Plan" means the plan to acquire securities and assets of
the Cable Companies to be implemented through a series of Proposed Transactions.
See, "ACQUISITION PLAN."
"Alaska Cablevision" means Alaska Cablevision, Inc., a Delaware
corporation. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Background
and Description of Business--Alaska Cablevision."
"Alaska Cablevision Proposed Transaction" means the Proposed
Transaction between Alaska Cablevision and the Company. See, "PROPOSED
TRANSACTIONS: General."
"Alaskan Cable" means the three corporations comprising the Alaskan
Cable Network companies, i.e., Alaskan Cable Network/Fairbanks, Inc. ("Alaskan
Cable/Fairbanks"), Alaskan Cable Network/Juneau, Inc. ("Alaskan Cable/Juneau"),
and Alaskan Cable Network/Ketchikan-Sitka, Inc. ("Alaskan Cable/Ketchikan"), all
three of which are Alaska corporations. See, "CERTAIN INFORMATION REGARDING THE
CABLE COMPANIES: Background and Description of Business--Alaskan Cable."
"Alaskan Cable Company Shares" means 2,923,077 shares of Company Class
A common stock to be issued in the Alaskan Cable Proposed Transaction and
divided into separate portions to each of the three corporations comprising
Alaskan Cable. See, "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--General, Closing Date."
"Alaskan Cable Proposed Transaction" means the Proposed Transaction
between Alaskan Cable and the Company. See, "PROPOSED TRANSACTIONS: General."
REGISTRATION STATEMENT
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<PAGE>
"Annual Meeting" means the 1996 annual meeting by shareholders of the
Company to be held at 6:00 p.m. (Alaska Time) on October 17, 1996. See, "COMPANY
ANNUAL MEETING: General."
"APUC" means Alaska Public Utilities Commission. See, "PROPOSED
TRANSACTIONS: Cable Company Proposed Agreements--Governmental Approval."
"CPS" means a cable programming service. See, "CERTAIN INFORMATION
REGARDING THE CABLE COMPANIES: Background and Description of Business--General."
"Cablevision Company Notes" means the subordinated convertible notes to
be issued by the Company as partial payment for the assets of Alaska Cablevision
pursuant to the Alaska Cablevision Purchase Agreement. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--Consideration To Be
Received-Alaska Cablevision."
"Cable Companies" means the seven cable television companies which have
entered into Purchase Agreements with the Company, i.e., Prime, the three
corporations comprising Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer, and
McCaw/Rock Seward. See, "ACQUISITION PLAN: Background."
"Closing Date" means the date on which the Purchase Agreements are to
close. See, "PROPOSED TRANSACTIONS: Cable Company Purchase Agreements--General,
Closing Date."
"Code" means the Internal Revenue Code of 1986, as amended. See,
"CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN: Certain Federal Income Tax
Consequences."
"Communications Act" means the federal Communications Act of 1934. See,
"CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Regulatory Developments,
Competition and Legislation/Regulation--Regulatory Developments."
"Company" means General Communication, Inc., an Alaska corporation.
See, "CERTAIN INFORMATION CONCERNING THE COMPANY: Background and Description of
Business."
"Company Articles" means the Restated Articles of Incorporation of the
Company. See, "DESCRIPTION OF COMPANY CAPITAL STOCK."
"Company Board" means the board of directors of the Company. See,
"MANAGEMENT OF THE COMPANY."
"Company Bylaws" means the revised Bylaws of the Company. See,
"DESCRIPTION OF COMPANY CAPITAL STOCK."
"Company Cable Systems" means the Prime Alaska Systems and the cable
television systems to be acquired from the Cable Companies other than Prime
through the Acquisition Plan. See, "CERTAIN CONSEQUENCES OF THE ACQUISITION
PLAN: Company Cable Systems."
"Company Stock" means 14,723,077 shares of Company Class A common stock
to be issued through this Proxy Statement/Prospectus in the following amounts to
the following persons: (1) Prime Sellers -- Prime Company Shares and (2) Alaskan
Cable -- Alaskan Cable Company Shares. See, "PROPOSED TRANSACTIONS: Cable
Company Purchase Agreements--General, Closing Date."
REGISTRATION STATEMENT
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<PAGE>
"Consent" means the document through which a Prime Seller or a
shareholder of one of the three corporations comprising Alaskan Cable may
express that person's consent and approval of the corresponding Proposed
Transaction. See, "CABLE COMPANY SECURITY HOLDER CONSENTS: Purpose."
"Consent Deadline" means 12:00 midnight (Alaska Time) on October 28,
1996 by which the Consents are to be received from the following: (1) Prime
Group--delivered to Prime at One America Center, 600 Congress Avenue, Suite
3000, Austin, Texas 78701, and (2) Alaskan Cable--delivered to the board of
directors of the corresponding corporation of Alaskan Cable at Kent Farms,
Middleburg, Virginia 22117. See "CABLE COMPANY SECURITY HOLDER CONSENTS: Time
and Place."
"Credit Agreement" means the senior credit facility provided to the
Company by the Senior Lenders. See, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS: Certain Transactions with Management and Others--Credit
Agreement."
"Delaware Partnership Act" means the Delaware Revised Uniform Limited
Partnership Act, as amended. See, "COMPARISON OF SECURITY HOLDER RIGHTS IN THE
COMPANY AND IN CERTAIN CABLE COMPANIES: Voting--Prime."
"equity participation interests" means the profit participation
contractual rights held by three entities (BancBoston Capital, Inc., First
Chicago Investment Corporation and Madison Dearborn Partners V) to share in the
appreciation of the value of the equity of Prime. See, "ACQUISITION PLAN:
Interests of Certain Persons in the Acquisition Plan -- Prime Equity
Participation Interest Holders" and "CERTAIN INFORMATION REGARDING THE CABLE
COMPANIES: Background and Description of Business--Prime-Organizational
Structure."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means Federal Communications Commission. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--Governmental Approvals."
"FTC" means the Federal Trade Commission. See, "PROPOSED TRANSACTIONS:
Cable Company Purchase Agreements--Governmental Approvals."
"GCC" means GCI Communication Corp., an Alaska corporation and wholly
owned subsidiary of the Company. See, "CERTAIN INFORMATION CONCERNING THE
COMPANY: Subsidiaries."
"GCI Cable" means GCI Cable, Inc., an Alaska corporation and
wholly-owned subsidiary of the Company. See, "CERTAIN INFORMATION CONCERNING THE
COMPANY: Subsidiaries."
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended. See, "PROPOSED TRANSACTIONS: Cable Company
Purchase Agreements--Governmental Approvals."
"McCaw/Rock Homer" means McCaw/Rock Homer Cable Systems, J.V., an
Alaska joint venture. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--McCaw/Rock Homer."
"McCaw/Rock Homer Proposed Transaction" means the Proposed Transaction
between McCaw/Rock Homer and the Company. See, "PROPOSED TRANSACTIONS: General."
REGISTRATION STATEMENT
Page x
<PAGE>
"McCaw/Rock Seward" means McCaw/Rock Seward Cable Systems, J.V., an
Alaska joint venture. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--McCaw/Rock Seward."
"McCaw/Rock Seward Proposed Transaction" means the Proposed Transaction
between McCaw/Rock Seward and the Company. See, "PROPOSED TRANSACTIONS:
General."
"MCI" means MCI Telecommunications Corporation, a Delaware corporation.
See, "PROPOSED TRANSACTIONS: MCI Purchase Agreement."
"MCI Company Stock" means 2 million shares of Company Class A common
stock to be offered to MCI pursuant to the MCI Proposed Transaction. See
"PROPOSED TRANSACTIONS: MCI Purchase Agreement."
"MCI Proposed Transaction" means the Proposed Transaction between MCI
and the Company, whereby the Company will offer the MCI Company Stock to MCI for
$13 million. See, "PROPOSED TRANSACTIONS: General."
"NPT" means a new product tier. See, "CERTAIN INFORMATION REGARDING THE
CABLE COMPANIES: Background and Description of Business--General."
"New Voting Agreement" means an agreement to be entered into by the
Prime Sellers (and their distributees, including other Prime Group members, who
agree in writing to be bound thereby), through PIIM, their designated agent,
MCI, TCI-GCI, Inc., Ronald A. Duncan (President and Chief Executive Officer of
the Company and member of the Company Board), and Robert M. Walp (Vice Chairman
of the Company and member of the Company Board) on or after closing on the Prime
Purchase Agreement and the MCI Purchase Agreement pertaining to the voting of
common stock of the Company held by those parties to the agreement and which
upon becoming effective is to replace the Voting Agreement. See, "PROPOSED
TRANSACTIONS: New Voting Agreement."
"PCFI Merger" means the merger of PCFI with and into GCI Cable through
the PCFI Merger Agreement. See, "PROPOSED TRANSACTIONS: ACI and PCFI Merger
Agreements."
"PCLP" means Prime Cable Limited Partnership, a Delaware limited
partnership with PGP as managing general partner and the sole shareholder of
Prime General Partner. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Prime-Organizational Structure."
"PCS" means personal communication service, a telephone service where a
telephone number or numbers are assigned to a person rather than to a fixed
location thereby allowing that person to receive and make calls from any
location within the service area. See, "CERTAIN INFORMATION CONCERNING THE
COMPANY: Products and Services."
"PGP" means Prime Cable GP, Inc., a Delaware corporation and general
partner of PCLP. See, "ACQUISITION PLAN: Interests of Certain Persons in the
Acquisition Plan--Prime Security Ownership and Officer/Director Relationships."
"PI" means Prime Investors, L.P., a Delaware limited partnership and
the general partner of PVII. See, "ACQUISITION PLAN: Interests of Certain
Persons in the Acquisition Plan--Prime Security Ownership and Officer/Director
Relationships."
REGISTRATION STATEMENT
Page xi
<PAGE>
"PIIM" means Prime II Management, L.P., a Delaware limited partnership
whose sole general partner is PMI. See, "ACQUISITION PLAN: Interests of Certain
Persons in the Acquisition Plan--Prime Security Ownership and Officer/Director
Relationships."
"PMG" means Prime II Management Group, Inc., a Texas corporation and a
general partner of Prime Holdings. See, "ACQUISITION PLAN: Interests of Certain
Persons in the Acquisition Plan--Prime Security Ownership and Officer/Director
Relationships."
"PMI" means Prime II Management, Inc., a Delaware corporation and sole
general partner of PIIM. See, "ACQUISITION PLAN: Interests of Certain Persons in
the Acquisition Plan--Prime Security Ownership and Officer/Director
Relationships."
"Prime" means Prime Cable of Alaska, L.P, a Delaware limited
partnership with Prime General Partner as its general partner. See, "CERTAIN
INFORMATION REGARDING THE CABLE COMPANIES: Background and Description of
Business."
"Prime Alaska Systems" means the cable television systems in Alaska
operated by Prime. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Prime-Organizational Structure."
"Prime Company Shares" means 11,800,000 shares of Company Class A
common stock to be issued in the Prime Proposed Transaction. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--General, Closing Date."
"Prime Escrow Holdback" means the holdback and escrow pursuant to the
Prime Purchase Agreement of a portion of the Prime Company Shares ("Prime Escrow
Holdback Shares") in the amount of 1,093,750 shares of Company Class A common
stock or cash or irrevocable letter of credit equal to $8,750,000 to secure each
party's indemnification for breaches of representations, warranties, and
covenants under that agreement, where, if no breach of the Prime Purchase
Agreement has occurred, the Prime Escrow Holdback Shares, such escrowed funds or
letter of credit is to be released to the partner which deposited them into
escrow, effective as of 180 days after that final closing. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--Escrow and Holdback
Agreements-Prime."
"Prime General Partner" or "PCFI" means Prime Cable Fund I, Inc., a
Delaware corporation and the sole general partner of Prime. See, "CERTAIN
INFORMATION REGARDING THE CABLE COMPANIES: Background and Description of
Business--Prime-Organizational Structure."
"Prime Group" means holders, directly or indirectly, of all of the
limited and general partner and equity participation interests of Prime and the
security holders of Prime Growth, Prime Holdings, PCLP, ACI and PVII. See,
"CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Background and Description
of Business--Prime-Organizational Structure."
"Prime Growth" means Prime Cable Growth Partners, L.P., a Delaware
limited partnership with PVI and Prime Holdings as general partners, and limited
partner of Prime. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Prime-Organizational Structure."
"Prime Holdings" means Prime Venture I Holdings, L.P., a Delaware
limited partnership with PMG and PVI as general partners, and a limited partner
of Prime and general partner of Prime Growth. See, "CERTAIN INFORMATION
REGARDING THE CABLE COMPANIES: Background and Description of
Business--Prime-Organizational Structure."
REGISTRATION STATEMENT
Page xii
<PAGE>
"Prime Management Agreement" means the agreement the Company will, at
closing on the Purchase Agreements, enter into with PIIM whereby PIIM will
manage the Company Cable Systems. See, "PROPOSED TRANSACTIONS: Prime Management
Agreement."
"Prime Partnership Agreement" means the Prime Cable of Alaska, L.P.
Amended and Restated Agreement of Limited Partnership, dated June 30, 1989, as
amended on August 9, 1991 and May 20, 1994. See, "CERTAIN INFORMATION REGARDING
THE CABLE COMPANIES: Background and Description of
Business--Prime-Organizational Structure."
"Prime Proposed Transaction" means the Proposed Transaction between
Prime and the Company. See, "PROPOSED TRANSACTIONS: General."
"Prime Sellers" means Prime Growth, Prime Holdings, PCLP, the
shareholders of ACI, and the holders of the equity participation interests in
Prime. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Background and
Description of Business--Prime-Organizational Structure."
"Proposed Transactions" means the proposed securities or asset Purchase
Agreements with each of the Cable Companies and the Company and a separate
Purchase Agreement between the Company and MCI, other documents related to the
Purchase Agreements (including Registration Rights Agreements, the Prime
Management Agreement and the New Voting Agreement), the ACI Merger Agreement,
and the PCFI Merger Agreement. See, "PROPOSED TRANSACTIONS."
"Purchase Agreements" means the agreements through which the Company
will acquire all of the security interests in Prime, will acquire all of the
assets of Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock
Seward, and will set forth the terms for the sale of the MCI Company Stock. See,
"PROPOSED TRANSACTIONS: Cable Company Purchase Agreements; --MCI Purchase
Agreement."
"PVI" means Prime Venture I, Inc., a Delaware corporation, a general
partner of Prime Growth and a general partner of Prime Holdings. See,
"ACQUISITION PLAN: Interests of Certain Persons in the Acquisition Plan--Prime
Security Ownership and Officer/Director Relationships."
"PVII" means Prime Venture II, L.P., a Delaware limited partnership
with PI as managing general partner, and a shareholder of ACI. See, "ACQUISITION
PLAN: Interests of Certain Persons in the Acquisition Plan--Prime Security
Ownership and Officer/Director Relationships."
"Record Date" means August 19, 1996. See, "COMPANY ANNUAL MEETING:
Outstanding Voting Shares."
"Registration Rights Agreements" means the four agreements setting
forth certain securities registration rights of the Prime Sellers, Alaskan
Cable, Alaska Cablevision, and MCI, respectively. See, "PROPOSED TRANSACTIONS:
Registration Rights Agreements" and "PROPOSED TRANSACTIONS: MCI Purchase
Agreement--Registration Rights Agreement."
"Securities Act" means the federal Securities Act of 1933, as amended.
"Senior Lenders" means NationsBank of Texas, N.A. in Dallas, Texas,
Toronto-Dominion Bank in New York, New York, National Bank of Alaska in
Anchorage, Alaska, and Credit Lyonnais in New York, New York, the lenders of the
Company who have entered into the Credit Agreement with the Company. See,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Certain Transactions with
Management and Others--Credit Agreement."
REGISTRATION STATEMENT
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<PAGE>
"Voting Agreement" means the agreement entered into on May 28, 1993
between Ronald A. Duncan (President and Chief Executive Officer of the Company
and member of the Company Board), Robert M. Walp (Vice Chairman of the Company
and member of the Company Board), MCI, and WestMarc Communications, Inc.
(replaced by TCI-GCI, Inc. in 1995) and pertaining to the voting of common stock
of the Company held by those parties to the agreement. See, "OWNERSHIP OF THE
COMPANY: Changes in Control--Voting Agreement."
REGISTRATION STATEMENT
Page xiv
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus. This summary is not
intended to be complete and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement/Prospectus and the
documents incorporated by reference or otherwise referred to in it. Security
holders are urged to review the entire Proxy Statement/Prospectus carefully.
Executive Summary
Proposed Transactions. Through separate Proposed Transactions, the
Company will acquire, directly or indirectly, all of the securities of Prime
presently held by the limited partners of Prime and Prime General Partner, will
acquire substantially all of the assets of the three corporations comprising
Alaskan Cable, and will acquire substantially all of the assets of Alaska
Cablevision, McCaw/Rock Homer and McCaw/Rock Seward. These seven Cable Companies
provide cable television services through distribution systems passing
approximately 74% of the households throughout Alaska. See, "PROPOSED
TRANSACTIONS" and "ACQUISITION PLAN."
Consideration. The total purchase price for the acquisition of the
Cable Companies (approximately $280,700,000) is to be paid by the Company
through the issuance of the Company Stock in the amount of 14,723,077 shares of
Company Class A common stock (valued at $95,700,000), bank financing of
approximately $162,000,000 (including assumption of approximately $103,000,000
of existing Prime debt and new financing of approximately $59,000,000), sale of
the MCI Company Stock for $13,000,000, and the issuance of the Cablevision
Company Notes in the amount of approximately $10,000,000. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--General, Closing Date."
The Company will, at closing on the Purchase Agreements, pay
consideration for the securities of Prime and the assets of the other Cable
Companies as follows: (1) for all of the securities of Prime, the Prime Sellers
will receive, for subsequent distribution to the Prime Group, the Prime Company
Shares, subject to share holdback provisions; (2) for substantially all of the
assets of the three corporations comprising Alaskan Cable, consideration to be
distributed among the three corporation comprising Alaskan Cable, for subsequent
distribution to each such corporation's respective sole shareholder, where the
distribution will be agreed to by those corporations and the Company,
aggregating for those three corporations (a) $51,000,000 payable in cash, and
(b) the Alaskan Cable Company Shares, subject to share holdback provisions; (3)
for substantially all of the assets of Alaska Cablevision, consideration in the
amount of (a) $16,650,000, payable in cash, subject to adjustment at closing,
and (b) the Cablevision Company Notes, subject to note holdback, which notes
will be convertible into shares of Company Class A common stock; (4) for
substantially all of the assets of McCaw/Rock Homer, consideration in the amount
of $1,466,132, payable in cash, subject to adjustment and holdback provisions;
and (5) for substantially all of the assets of McCaw/Rock Seward, consideration
in the amount of $2,883,868, payable in cash, subject to adjustment and holdback
provisions. In addition, in a private offering separate from this Proxy
Statement/Prospectus, MCI, in return for payment to the Company of $13,000,000
and subject to the terms of the MCI Proposed Transaction, will be issued the MCI
Company Stock. See, "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--Consideration to be Received" and "PROPOSED TRANSACTIONS: MCI
Purchase Agreement."
Actions Necessary for Consummation of Acquisition Plan. The closing and
consummation of one Proposed Transaction is not dependent upon the closing and
consummation of one or more of the other Proposed Transactions, with the
exception that the Prime Purchase Agreement and the MCI Proposed Transaction are
each contingent upon the closing of the other. "PROPOSED TRANSACTIONS:
REGISTRATION STATEMENT
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<PAGE>
Cable Company Purchase Agreements--General, Closing Date" and "PROPOSED
TRANSACTIONS: MCI Purchase Agreement."
Each Purchase Agreement is subject to the satisfaction of certain
conditions generally including the following: (1) the Acquisition Plan and the
Proposed Transactions contemplated by it shall have been duly approved by the
shareholders of the Company and separately by the security holders of each of
the Cable Companies and consented to by the Senior Lenders and the lenders of
Prime, Alaskan Cable and Alaska Cablevision, and, as to the replacement of the
Voting Agreement with the New Voting Agreement, the board of directors of MCI
and the other parties to the Voting Agreement; (2) the waiting period applicable
to the consummation of the respective Proposed Transactions under the
Hart-Scott-Rodino Act shall have expired or shall have been terminated; (3) the
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, any necessary state securities law approvals
shall have been obtained, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and remain in
effect; (4) all consents of the APUC necessary for the transfer of control of
the cable television franchises, to the extent required to be obtained under the
Acquisition Plan, shall have been obtained; and (5) the FCC shall have
consented, to the extent such consent is legally required, to transfer of
control to the Company of all FCC licenses possessed by the Cable Companies,
except where the failure to receive such consent will not have a materially
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities, or operation of the Company and the Cable Companies,
taken as a whole. See, "PROPOSED TRANSACTIONS: Conditions to the Proposed
Transactions."
As of the Record Date, the Company anticipated it would be in
compliance with all applicable state securities laws prior to an offer of the
Company Stock and it would be in compliance with item (4) and (5) by the Closing
Date. Of these five items, only item (4) as it pertains to the franchises held
by Prime and Alaskan Cable to provide cable television to certain military
installations was considered waivable prior to closing on the respective
Purchase Agreements, but only with the consent of the parties to the Purchase
Agreement affected by the waiver. As of the Record Date the waiting periods
applicable to the Proposed Transactions under the Hart-Scott-Rodino Act had
lapsed or terminated with no adverse action taken against the Acquisition Plan,
the Company or other parties associated with the plan. See, "CERTAIN INFORMATION
REGARDING THE CABLE COMPANIES: Background and Description of Business--Prime;
Alaska Cable" and "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--Governmental Approvals."
Changes in Control. With the consummation of the Prime Purchase
Agreement, the Alaskan Cable Purchase Agreement, and the MCI Purchase Agreement,
the Company will issue Company Stock and MCI Company Stock totalling
approximately 16.7 million new shares of Class A common stock, and several new
persons will become shareholders. The issuance of the Company Stock and the MCI
Company Stock will dilute the holdings of existing shareholders of the Company,
and the concentration of ownership of the Company will become even greater in a
few shareholders. If the Company Stock and MCI Company Stock had been issued
under the Acquisition Plan as of the Record Date, the percentage ownership of
the aggregate outstanding Company Class A and Class B common stock would have
become as follows: (1) Prime Sellers (prior to any distributions to their
security holders, including other Prime Group members) - 29%; (2) MCI - 23%
(down from approximately 31% immediately prior to the closing on the Proposed
Transactions); (3) the Company's employees and management combined - 10% (down
from approximately 17% immediately prior to the closing on the Proposed
Transactions); (4) Alaskan Cable - 7%; and (5) others - 31%. See, "RISK FACTORS:
Concentration of Stock Ownership."
REGISTRATION STATEMENT
Page 2
<PAGE>
The Company
The Company, through its wholly-owned subsidiaries, provides a broad
spectrum of telecommunication services to residential, commercial and
governmental customers primarily throughout Alaska. The Company operates in two
industry segments and offers five primary product lines. The message and data
transmission services industry segment offers message toll, private line, and
private network services, and the system sales and service industry segment
offers data communication equipment sales and technical services.
In March, 1995 the Company was the successful bidder on a license
auctioned off by the FCC as a part of a plan by the FCC to license PCS
throughout the country. The license will allow the Company to enter into the PCS
market and to provide PCS in Alaska. PCS systems are expected to make an
individual carrying a pocket-sized telephone available at the same number,
whether at home, at work, or traveling. A caller using a PCS system will not
need to know the location of the person the caller is trying to reach. The
difference in the way a PCS system is configured as compared to a cellular
system means that a PCS system could be less costly to operate than a cellular
system and therefore less expensive for users. Rapid growth of cellular
telephone service and the anticipation of PCS systems has generated substantial
interest in wireless communications. The Company believes that with the license
for Alaska, it will be able to organize the necessary resources and provide such
services in Alaska because of its experience in providing telecommunication
services in Alaska and its business relationship with MCI.
Management of the Company believes the functionally distinct lines that
have historically existed between telephone and cable services, are beginning to
converge. The Acquisition Plan allows the Company to integrate cable services to
bring more information not only to more customers but in a manner that is
expected to be quicker, more efficient and more cost effective than before.
Management further believes the Acquisition Plan will allow consolidation of
operations of cable television services in the state and offer a platform for
developing new customer products and services for the Company over the next
several years.
The Company's other products and services are described elsewhere in
this Proxy Statement/Prospectus. See, "CERTAIN INFORMATION CONCERNING THE
COMPANY."
The Company is an Alaska corporation incorporated in 1979 and has
principal executive offices located at 2550 Denali Street, Suite 1000,
Anchorage, Alaska 99503-2781, and telephone number (907) 265-5600. The affairs
of the Company are directed by a seven member board of directors. Individuals
are elected to board membership in three classes of staggered three year terms
with annual elections.
The Company Class A common stock is designated as a national market
system stock on the Nasdaq Stock Market, and the stock is traded on the Nasdaq
Stock Market under the symbol "GNCMA." The Company Class B common stock is
quoted in the over-the-counter market and traded on a more limited basis.
Cable Companies and MCI
Prime. Prime General Partner is the sole general partner of Prime, and
Prime has three limited partners (ACI, Prime Growth, Prime Holdings). The sole
shareholder of Prime General Partner is PCLP. All of these entities, including
Prime, were organized under Delaware law. Three entities hold equity
participation interests to share in the appreciation of the value of the equity
of Prime. Prime is engaged in the ownership and operation of the Prime Alaska
Systems, i.e., cable television businesses located in Anchorage, Eagle River,
Chugiak, Kenai, Soldotna, Bethel, Fort Richardson and Elmendorf Air Force Base,
Alaska. The mailing address and telephone number of the principal executive
offices of Prime General
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Partner are One American Center, 600 Congress Avenue, Suite 3000, Austin, Texas
78701 and (512) 476-7888. See, "CERTAIN INFORMATION REGARDING CABLE COMPANIES:
Prime" and "ACQUISITION PLAN: Interests of Certain Persons in the Acquisition
Plan -- Prime Equity Participation Interest Holders."
Alaskan Cable. The three corporations comprising Alaskan Cable are as
follows: (1) Alaskan Cable/Fairbanks; (2) Alaskan Cable/Juneau; and (3) Alaskan
Cable/Ketchikan. Alaskan Cable is principally engaged in the ownership and
operation of cable television businesses and cable television systems located in
Fairbanks, Juneau, Sitka, and Ketchikan, Alaska. The mailing address and
telephone number for the principal executive offices of all three of these
corporations are Kent Farms, Middleburg, Virginia 20117, and (540) 687-4000.
See, "CERTAIN INFORMATION REGARDING CABLE COMPANIES: Alaskan Cable."
Alaska Cablevision. Alaska Cablevision is principally engaged in the
ownership and operation of cable television businesses and cable television
systems located in Petersburg, Wrangell, Cordova, Valdez, Kodiak, Kotzebue, and
Nome, Alaska. The mailing address and telephone number of Alaska Cablevision's
principal executive offices are 135 Lake Street South, Suite 265, Kirkland,
Washington 98033 and (206) 822-0252. See, "CERTAIN INFORMATION REGARDING CABLE
COMPANIES: Alaska Cablevision."
McCaw/Rock Homer. McCaw/Rock Homer is principally engaged in the
ownership and operation of the cable television business and cable television
system located in Homer, Alaska. The joint venturers of McCaw/Rock Homer are
Rock Associates, Inc. and McCaw Communications of Homer, Inc. The mailing
address and telephone number of the principal executive offices of McCaw/Rock
Homer are 135 Lake Street South, Suite 265, Kirkland, Washington 98033 and (206)
822-0252. See, "CERTAIN INFORMATION REGARDING CABLE COMPANIES: McCaw/Rock
Homer."
McCaw/Rock Seward. McCaw/Rock Seward is principally engaged in the
ownership and operation of the cable television business and cable television
system located in Seward, Alaska. The joint venturers of McCaw/Rock Seward are
Rock Associates, Inc. and McCaw Communications of Seward, Inc. The mailing
address and telephone number of the principal executive offices of McCaw/Rock
Seward are 135 Lake Street South, Suite 265, Kirkland, Washington 98033 and
(206) 822-0252. See, "CERTAIN INFORMATION REGARDING CABLE COMPANIES: McCaw/Rock
Seward."
MCI. MCI, a Delaware corporation, provides a broad spectrum of
telecommunication services throughout the United States and the world. The
corporation has been a principal customer of the Company for many years and
since March, 1993 has been the holder of the largest number of shares of Company
Class A and Class B common stock, has through the Voting Agreement been able to
designate two members of the Company Board, and has entered into a series of
agreements with the Company pertaining to services provided by each to the other
company. The mailing address and telephone number of the principal executive
offices of MCI are 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006 and
(202) 872-1600. See, "PROPOSED TRANSACTIONS: MCI Purchase Agreement."
Company Annual Meeting
The Annual Meeting of shareholders of the Company will be held in the
Denali Ballroom of the Regal Alaskan Hotel at 4800 Spenard Road, Anchorage,
Alaska at 6 p.m. (Alaska Time) on October 17, 1996. At the Annual Meeting, the
shareholders will be asked to do the following: (1) to elect individuals to fill
three positions on the Company Board; (2) to approve the Acquisition Plan; and
(3) to conduct other business as may properly come before the Annual Meeting.
See, "COMPANY ANNUAL MEETING" and "ACQUISITION PLAN."
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In accordance with the Company Bylaws, the Record Date has been set as
August 19, 1996, the date indicated in the Notice of Annual Meeting of
Shareholders of the Company accompanying this Proxy Statement/Prospectus. The
Record Date is the date for the determination of holders of Company common stock
entitled to vote at the Annual Meeting. As to each of the agenda items to be
addressed at the Annual Meeting, each share of Company Class A common stock is
entitled to one vote, and each share of Company Class B common stock is entitled
to ten votes. The adoption of the Annual Meeting agenda items will each require
an affirmative vote of the holders of at least a simple majority of the voting
power of the issued and outstanding Company Class A and Class B common stock
entitled to vote as of the Record Date. The Company Articles expressly provide
for non-cumulative voting in the election of directors.
As of the Record Date, the percentage of outstanding shares entitled to
vote held by directors and executive officers of the Company and their
affiliates was 9,984,702 shares constituting approximately 50.3% of the
outstanding Class A and 2,679,499 shares constituting approximately 65.6% of the
outstanding Class B common stock. As of the Record Date, 7,562,430 shares
constituting approximately 38.1% of the outstanding Class A common stock and
4,085,461 shares constituting approximately 58.8% of the outstanding Class B
common stock of the Company were subject to the Voting Agreement described
elsewhere in this Proxy Statement/Prospectus. Also as of the Record Date the
voting power of the common stock of the Company subject to the Voting Agreement
was approximately 52.2% of the effective voting power of the combined
outstanding Class A and Class B common stock of the Company. When combined, the
voting power held by management of the Company and the parties to the Voting
Agreement constituted approximately 60.8% of the outstanding voting power of
Class A and Class B common stock of the Company as of the Record Date. The
executive officers and directors of the Company as well as the persons subject
to the Voting Agreement have indicated they will vote their shares in the
Company in favor of management's slate of directors for the Company Board and
will vote for adoption of the Acquisition Plan. See, "COMPANY ANNUAL MEETING"
and "OWNERSHIP OF THE COMPANY: Changes in Control -- Voting Agreement."
Should the shares held by management of the Company and the shares
subject to the Voting Agreement be voted for management's slate for the Company
Board and for the Acquisition Plan as the parties have previously indicated,
management's slate of directors for the Company Board and the Acquisition Plan
would be approved and adopted at the Annual Meeting and the issuance of the MCI
Company Stock and the issuance of the Company Stock would be assured
irrespective of the vote of any other shareholder of the Company.
Cable Company Security Holder Consents
General. Prime and Alaskan Cable have chosen to seek the consent and
approval of their respective groups of security holders of record as of the
Record Date to their respective Proposed Transactions by means of written
Consents in lieu of special meetings of security holders. These Consents are to
be received by the Consent Deadline. See, "CABLE COMPANY SECURITY HOLDER
CONSENTS: Time and Place."
Prime. At the same time this Proxy Statement/Prospectus is sent to the
Company's shareholders, the Prime Group will be requested to give their written
consents to the Prime Proposed Transaction.
For purposes of determining parties entitled to vote or to give their
consents to the Prime Proposed Transaction, it is anticipated that there will be
no transfers of securities of a Prime Group member whose approval or consent to
the Prime Proposed Transaction or any part thereof, is required, except for
possible transfers by limited partners of PCLP. In the case of ACI, its
shareholders will be asked to sign a written consent of shareholders (such
consent will either be unanimous or be signed by the holders of at least
REGISTRATION STATEMENT
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66-2/3% of the shares) approving the ACI Merger of ACI with and into GCI Cable,
and the sole shareholder of Prime General Partner will sign a written consent to
the PCFI Merger of Prime General Partner with and into GCI Cable, in each case
in lieu of a meeting of shareholders. The other Prime entities whose approval or
consent is required are limited partnerships, consisting of PCLP, Prime Growth,
Prime Holdings and PVII. Under applicable Delaware law, the provisions of the
respective limited partnership agreements, or as otherwise required by the
general partner, the consent of holders of the requisite percentages of limited
partner interests in such partnerships (at least 80% in the case of Prime Growth
and at least 66-2/3% in the case of each of Prime Holdings, PVII and PCLP) will
be effective to bind the other holders, including transferees of such holders in
the event of any subsequent transfer of a limited partner interest in any such
entities, which is not anticipated.
Prime General Partner will seek consents separately from the limited
partners of Prime and separately from the security holders of each limited
partner of Prime, and from PCLP (the sole shareholder of Prime General Partner).
In the case of each limited partnership that is a limited partner of Prime, each
such limited partner is entitled to vote or consent based upon that partner's
limited partner interest in the particular limited partnership. The ACI Merger
must be approved by the affirmative vote of the holders of a majority of the
outstanding shares of ACI's Class A common stock, which is the only class of ACI
stock entitled to vote on the merger. Each share of ACI Class A common stock is
entitled to one vote. The PCFI Merger must be approved by the affirmative vote
of the holders of a majority of the outstanding shares of common stock of Prime
General Partner, which is the only authorized class of PCFI stock. Each share of
Prime General Partner common stock is entitled to one vote. See, "CABLE COMPANY
SECURITY HOLDER CONSENTS: Voting Rights, Votes Required for Approval and
Consents."
As of the Record Date, neither Prime General Partner nor any of its
officers or directors held any direct limited partner interests in Prime
entitled to vote on the Prime Proposed Transaction. As of that date, neither the
officers or directors of ACI nor of the general partners of the other two of the
three limited partners of Prime (Prime Holdings and Prime Growth), nor any of
their officers or directors held any outstanding limited partner interests in
Prime entitled to vote on the Prime Proposed Transaction. Certain of the
officers and directors of Prime General Partner are also officers and directors
of the general partners of PCLP, Prime Growth, Prime Holdings and PVII. See,
"ACQUISITION PLAN: Interests of Certain Persons in the Acquisition Plan--Prime
Security Ownership and Officer/Director Relationships" and "DISTRIBUTION OF
COMPANY STOCK: Management--Prime."
Alaskan Cable. The sole shareholder of each of the three corporations
comprising Alaskan Cable will be invited and encouraged by the respective boards
of directors to give its written consent to the Acquisition Plan as it pertains
to that corporation, i.e., the Alaskan Cable Proposed Transaction, and the
subsequent distribution of the Alaskan Cable Company Shares to the respective
shareholder of the respective corporation. See, "CABLE COMPANY SECURITY HOLDER
CONSENTS: Voting Rights, Votes Required for Approval and Consents."
As of the Record Date, Jack Kent Cooke, a director and executive
officer of each of the three corporations comprising Alaskan Cable, controlled
directly or indirectly through affiliates all of the shares of outstanding
voting common stock of all of those corporations entitled to vote on the Alaskan
Cable Proposed Transactions. Mr. Cooke executed the Alaskan Cable Proposed
Transactions as an executive officer of each of those corporations.
Acquisition Plan, Proposed Transactions
General. Through the Acquisition Plan the Company will acquire assets
or securities of the seven Cable Companies having cable distribution systems
passing approximately 74% of the households throughout Alaska: (1) Prime; (2)
three corporations comprising Alaskan Cable; (3) Alaska Cablevision;
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(4) McCaw/Rock Homer; and (5) McCaw/Rock Seward. The total purchase price for
the acquisition of the Cable Companies to be paid by the Company to the Cable
Companies under the Purchase Agreements is approximately $280,700,000 and will
be paid by the Company through the issuance of the Company Stock (valued at
$95,700,000), bank financing of approximately $162,000,000 (including assumption
of approximately $103,000,000 of existing Prime debt and new financing of
approximately $59,000,000), sale of the MCI Company Stock for $13,000,000, and
the sale of Cablevision Company Notes for $10,000,000. The offer and sale of the
MCI Company Stock to MCI will be a part of the Acquisition Plan but made through
a private offering and a separate agreement. The Company Stock and MCI Company
Stock were valued by the parties at $6.50 per share for an aggregate total value
of $108,700,000. On October 3, 1996, the last trading day before the date of
this Proxy Statement/Prospectus, the last reported sale price on the Nasdaq
Stock Market for shares of the Company Class A common stock was $5.875 per
share. The Acquisition Plan is to be implemented through the Proposed
Transactions, i.e., Purchase Agreements with each of the Cable Companies and a
separate Purchase Agreement between the Company and MCI and related agreements
entered into separately between the Company and each Cable Company.
Consideration to be Received. Pursuant to the Purchase Agreements, the
Cable Companies will upon closing receive the following consideration: (1)
Prime--in return for the following consideration, the Company will issue Company
Stock (a) to the holders of equity participation interests in Prime in exchange
for such interests, (b) to Prime Growth and Prime Holdings in exchange for their
limited partner interests in Prime and (c) pursuant to the mergers of ACI and
Prime General Partner with and into GCI Cable, pro rata on the same basis had
such shares been distributed in accordance with the Prime Partnership Agreement,
but subject to share holdback provisions of the Prime Purchase Agreement; (2)
Alaskan Cable--in return for transfer to the Company of substantially all of the
assets of Alaskan Cable (subject to adjustment at closing), each corporation
comprising Alaskan Cable will receive or be issued a portion of the
consideration which will be agreed to by those corporations and the Company and
for subsequent distribution to their respective sole shareholders, aggregating
for those three corporations (a) $51,000,000, in cash, and (b) the Alaskan Cable
Company Shares, i.e., 2,923,077 shares of Company Class A common stock, subject
to share holdback; (3) Alaska Cablevision--in return for transfer to the Company
of substantially all of the assets of Alaska Cablevision (excluding certain
identified assets), the shareholders of Alaska Cablevision will receive or be
issued pro rata, based upon shareholdings in Alaska Cablevision, (a) $16,650,000
payable in cash, subject to adjustment at closing on the Alaska Cablevision
Purchase Agreement, and (b) $10,000,000 in Cablevision Company Notes, subject to
note holdback and convertible into shares of Company Class A common stock; (4)
McCaw/Rock Homer--in return for transfer to the Company of substantially all of
the assets of the joint venture (with certain identified exclusions), the joint
venturers will receive $1,466,132 (subject to adjustment and holdback at
closing), in cash; and (5) McCaw/Rock Seward--in return for transfer to the
Company of substantially all of the assets of the joint venture (with certain
identified exclusions), the joint venturers will receive $2,883,868 (subject to
adjustment and holdback at closing), in cash.
In addition, in a private offering, separate from this Proxy
Statement/Prospectus, MCI in return for payment to the Company of $13,000,000,
will be issued the MCI Company Stock, i.e, 2,000,000 shares of Company Class A
common stock. See, "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--Consideration To Be Received" and "PROPOSED TRANSACTIONS: MCI
Purchase Agreement."
Interconnection of Proposed Transactions. The closing and consummation
of one Proposed Transaction is not dependent upon the closing and consummation
of one or more of the other Proposed Transactions, with the exception that the
Prime Purchase Agreement and the MCI Proposed Transaction are each contingent
upon the closing of the other. The cable systems operated by the seven Cable
Companies are at least several hundred and up to in excess of one thousand miles
apart from one another. While the Company proposes to operate them through one
or more subsidiaries and subject to
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the Prime Management Agreement, the economic viability of the operation of these
systems is not dependent upon the integration of the systems. Therefore, the
Company believes the failure to close on one or more of the Proposed
Transactions will not affect the economic viability of going forward with the
remaining Proposed Transactions. The Company is prepared, subject to its
shareholders' approval and other conditions as set forth in the Proposed
Transactions described elsewhere in this Proxy Statement/Prospectus, to close on
one or more or all of the Purchase Agreements. See, "PROPOSED TRANSACTIONS."
Recommendations of the Board of Directors of the Company and the
Governing Bodies of the Cable Companies. The Company Board has unanimously
approved the Acquisition Plan, has determined unanimously that the plan is
advisable and fair and in the best interests of the Company and its shareholders
taken as a whole and unanimously recommends that holders of shares of common
stock of the Company vote "FOR" approval of the Acquisition Plan. The Company
Board believes that the plan represents an opportunity for the Company to
acquire substantial cable television company assets and securities. The Company
Board has concluded that the plan will benefit the Company because the Company
Board believes that, in acquiring Prime as a wholly-held subsidiary, it will be
acquiring a cable system operation with a consistent record of revenue growth
and cash flow provided by operations. The Company Board further believes that
the acquisition of the Cable Company assets or securities provide the Company
with the opportunity to realize operational efficiencies and strategic
opportunities to enter new product markets where the cable systems of those
Cable Companies are located throughout the State of Alaska, and will increase
the Company's cash provided by operations and borrowing capacity. See,
"ACQUISITION PLAN: Recommendation of the Company Board and Its Reasons for the
Acquisition Plan; Recommendations of the Cable Company Boards and Their Reasons
for the Acquisition Plan" and "CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN:
Management and Personnel."
In reaching these conclusions, the Company Board considered a number of
factors, including among other things, the terms and conditions of the Proposed
Transactions, information with respect to the financial condition, business,
operations and prospects of the Cable Companies and the Company on both a
historical and prospective basis, including certain information reflecting the
combination of the assets or securities of the Cable Companies as envisioned in
the Acquisition Plan and the Company on a pro forma combined basis and the Cable
Companies' historical cash provided by operations, and the views and opinions of
the management of the Company. In making its final determination on the
Acquisition Plan, the Company Board did not seek or receive independent
valuations or opinions as to the fairness of the consideration to be paid in
connection with any of the Proposed Transactions. See, "ACQUISITION PLAN:
Recommendation of Company Board and Its Reasons for the Acquisition Plan" and
"COMPANY ANNUAL MEETING: Recommendations of Company Board."
The board of directors of Prime General Partner and the respective
boards of directors of the three corporations comprising Alaskan Cable each
independently and unanimously approved the relevant portions of the Acquisition
Plan, and determined the relevant portions of the Acquisition Plan are advisable
and fair and in the best interests of the respective company. Prime General
Partner determined that the Prime Proposed Transaction was in the best interests
of the Prime Group, taken as a whole, and recommended that the members of the
Prime Group vote "FOR" or otherwise consent and approve the Prime Proposed
Transaction. The respective boards of directors of the three corporations
comprising Alaskan Cable determined that the Alaskan Cable Proposed Transaction
was in the best interests of the respective sole shareholder of each
corporation, and recommended that the respective sole shareholder consent and
approve the Alaskan Cable Proposed Transaction as it related to that
corporation. In reaching its decision to approve the Acquisition Plan and to
recommend to its security holders to vote to approve the Acquisition Plan, the
respective governing bodies previously referred to considered the following
factors: (1) industry, economic, and market conditions, including anticipated
regulation that could increase competition between telephone companies, cable
companies, and long distance carriers, could
REGISTRATION STATEMENT
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result in increased consolidation within the cable industry; (2) presentations
by management of the Company in the form of the Company's initial proposal for a
joint use of Prime's facilities and later, after the Company re-evaluated
Prime's counter offer for the Company to acquire Prime, in the form of the
Company's counter proposal to acquire Prime and, once a tentative consensus was
reached between management of the Company and management of Prime, the separate
proposals by management of the Company to acquire Alaskan Cable, Alaska
Cablevision, McCaw/Rock Homer and McCaw/Rock Seward (see, "ACQUISITION PLAN:
Recommendation of Company Board and Its Reasons for the Acquisition
Plan--Decision-Making Process"); (3) the terms of the Acquisition Plan,
including the consideration to be received by the security holders of that
governing body's company, and the representations, warranties, covenants, and
conditions of the parties contained in the corresponding Proposed Transactions;
(4) the opportunity for the security holders of the governing body's company to
participate, as holders of Company Class A common stock, in a larger more
diversified publicly-held company (of which, in the case of Prime, it would
become a significant part of the Company, and of which, in the case of the other
Cable Companies, their assets would contribute to access to a larger share of
the Alaska cable television marketplace); and (5) in the case of Prime, to
accomplish a portion of the Prime Proposed Transaction by means of
reorganizations designed to be tax-free to certain of its security holders
(shareholders of ACI and Prime General Partner, respectively). While Prime's
initial proposal to the Company for the Company to acquire Prime was based upon
the method of valuation of Prime described elsewhere in this Proxy
Statement/Prospectus (see, "ACQUISITION PLAN: Determination of Value"),
ultimately Prime accepted the Company's method of valuation of the Company Class
A common stock at 1.3 times its market price of $5.00 per share prior to March
14, 1996, resulting in the $6.50 per share valuation used as the basis for the
Prime Proposed Transaction. The same value was used in subsequent negotiation of
the terms of the Alaskan Cablevision Proposed Transaction. The Prime Proposed
Transaction will not be tax-free to the partners of Prime Growth and Prime
Holdings. In addition, in the event that Prime Company Shares are distributed to
the partners of PCLP (following the PCFI Merger) or to the partners of any one
or more of the limited partnerships that are shareholders of ACI (following the
ACI Merger), such distributions may be taxable to such partners to the extent
that the fair value of such shares distributed exceeded their adjusted bases in
the distributing partnership, although a proposed Treasury Regulation would
treat such distributions as not taxable. See, "CERTAIN CONSEQUENCES OF THE
ACQUISITION PLAN: Certain Federal Income Tax Consequences." The Company and
Alaska Cablevision and the joint venturers in McCaw/Rock Homer and the joint
venturers in McCaw/Rock Seward have executed Purchase Agreements for the sale to
the Company of the respective assets of that corporation and those joint
ventures. See, "ACQUISITION PLAN: Cable Companies' Reasons for the Acquisition."
In making the decision to enter into the Prime Proposed Transaction,
neither the signatories nor Prime nor the Company in particular sought or relied
upon a financial advisor for a determination or opinion on fairness of
consideration for the securities to be exchanged in the transaction. Jack Kent
Cooke, the president of each of the three corporations comprising Alaskan Cable
and, indirectly, the controlling shareholder of them, has directed Alaskan Cable
to adopt the Alaskan Cable Proposed Transaction. In making the decision to enter
into the Alaskan Cable Proposed Transaction, neither Mr. Cooke nor Alaskan Cable
nor the Company sought or relied upon a financial advisor for a determination or
opinion on fairness of consideration for the securities or assets exchanged in
the transaction.
Conditions of the Acquisition Plan. As of the Record Date, the
respective obligations of the Company and the Cable Companies to consummate the
Acquisition Plan are subject to the satisfaction of certain conditions generally
including the following: (1) the Acquisition Plan and the Proposed Transactions
contemplated by it shall have been duly approved by the shareholders of the
Company and separately by the security holders of each of the Cable Companies
and consented to by the Senior Lenders and the lenders of Prime, Alaskan Cable
and Alaska Cablevision, and, as to the replacement of the Voting Agreement with
the New Voting Agreement, the board of directors of MCI and the other parties to
the Voting Agreement; (2) the Registration Statement shall have become effective
in accordance with
REGISTRATION STATEMENT
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the provisions of the Securities Act, any necessary state securities law
approvals shall have been obtained, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and remain in effect; (3) all consents of governmental entities
necessary for the transfer of control of the cable television franchises, to the
extent required to be obtained under the Acquisition Plan, shall have been
obtained, e.g., consent of the APUC; and (4) the FCC shall have consented, to
the extent such consent is legally required, to the transfer of control to the
Company of all FCC licenses possessed by the Cable Companies, except where the
failure to receive such consent will not have a materially adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
or operation of the Company and the Cable Companies, taken as a whole. See,
"ACQUISITION PLAN"; "PROPOSED TRANSACTIONS"; and "CERTAIN CONSEQUENCES OF THE
ACQUISITION PLAN: Certain Federal Income Tax Consequences."
In the case of a given Purchase Agreement, the consent of the parties
to that agreement would be required to waive any of these conditions as they
pertain to that agreement. In the case of the Prime Proposed Transaction, the
consent of each of the Prime Sellers and the Company would be required in order
to waive any of the above enumerated conditions to the parties' respective
obligations to consummate the Prime Proposed Transaction, except that the Prime
Sellers may in their sole discretion unanimously agree to waive the condition
referenced in item (2) above with respect to the effectiveness of the
Registration Statement.
Regulatory Approvals. As of the Record Date, the only governmental
consents and governmental filings of which the Company and the Cable Companies
were aware that had to be obtained or made in connection with the consummation
of the Acquisition Plan, other than in connection with compliance with federal
securities laws, were as follows: (1) filings with, and consents, orders or
approvals required to be received from, the APUC which are required in
connection with the transfer of control of the certificates of public
convenience and necessity issued by the APUC related to the cable television
operations of the Cable Companies; (2) filings with, and consents, orders or
approvals required to be received from, the FCC in connection with the transfer
of control of licenses related to the cable television operations of the Cable
Companies; (3) filings with, and consents orders or approvals required to be
received from, various U.S. military contracting officers that are required in
connection with the transfer of control of contracts to provide cable television
service to various U.S. military installations related to the cable television
operations of the Cable Companies; and (4) state securities registration or
exemption from registration requirements. Of these items, only item (3) as it
pertains to the franchises held by Prime and Alaskan Cable to provide cable
television to certain military installations, was considered waivable prior to
closing on the respective Purchase Agreements. See, "CERTAIN INFORMATION
REGARDING THE CABLE COMPANIES: Background and Description of Business--Prime;
Alaskan Cable" and "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreement--Governmental Approvals."
Applications for transfer of control to the Company of 15 certificates
of public convenience and necessity held by the various Cable Companies were
filed with the APUC on May 23, 1996 and approved in an order dated September 23,
1996, such transfers to be effective on the Closing Date. No other local
governmental or state authorization is required for the transfer of the
certificates of public convenience and necessity or otherwise for the Company to
take control and operate the cable systems of the Cable Companies located in
Alaska.
The approval of the transfer of the 15 certificates of public
convenience and necessity to the Company by the FCC is not required under
federal law, with one area of limited exception. The Cable Companies operate in
part through the use of several radio-band frequencies licensed through the FCC.
On August 5, 15, and 16, 1996, the Company and the Cable Companies applied to
the FCC for a transfer of these licenses. The FCC procedure for the transfer of
such licenses is considered routine. As of the
REGISTRATION STATEMENT
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Record Date, the FCC had granted transfers for some of the Alaska Cablevision
licenses, and approval of transfers of the remaining licenses was expected prior
to October 31, 1996.
As of the Record Date, the Company and Prime were seeking consent of
the military commanders of the military bases serviced by the Prime Alaska
Systems to the assignment of the respective franchises for those bases.
Similarly the Company and Alaskan Cable were, as of that date seeking consent of
the military commanders at the military bases serviced by the Alaskan Cable
cable systems to the assignment of the respective franchises for those bases.
Should such commanders wish to defer such consents until after closing on the
corresponding Purchase Agreement, the Company and the corresponding Cable
Company will seek the assignment or other transfer of those franchises
subsequent to that closing.
The Company and the Cable Companies intend to pursue vigorously all
required authorizations that have not been obtained as of the Record Date. There
can be no assurance, however, that such approvals will, in fact, be obtained or,
if obtained, as to the time of their receipt. See, "PROPOSED TRANSACTIONS: Cable
Company Purchase Agreements--Governmental Approvals."
Prior to the Record Date, the statutory waiting period under the
Hart-Scott-Rodino Act had expired in the case of the Company and Mr. Jack Kent
Cooke (as the ultimate parent entity of the three corporations comprising
Alaskan Cable). Also prior to the Record Date, the statutory waiting period had
been terminated by the FTC and the U.S. Department of Justice in the case of the
Company and ACI (as the ultimate parent entity of Prime).
Termination of Acquisition Plan. Each of the Purchase Agreements with
the Cable Companies and the MCI Proposed Transaction is subject to termination
by mutual consent of the parties, upon default, or if not closed by a specified
date. In the case of each of the Cable Companies the corresponding Purchase
Agreement is subject to termination if not closed by October 31, 1996 or, if the
consent of the APUC is not obtained by that date, then at the option of the
Company or the corresponding Cable Company no later than December 31, 1996.
However, that final closing date may be extended by mutual consent of the
corresponding parties to that Purchase Agreement. The MCI Proposed Transaction
is subject to termination at the option of either party if the agreement is not
closed on or before December 31, 1996. The MCI Proposed Transaction is also
contingent upon the consummation of the Prime Purchase Agreement. See, "PROPOSED
TRANSACTIONS: MCI Purchase Agreement."
Accounting Treatment. The several Proposed Transactions shall be
accounted for using the purchase method for accounting and financial reporting
purposes.
Changes in Control. It is estimated that, if the Acquisition Plan were
consummated as of the Record Date, the percentage ownership of outstanding
shares of Company Class A and Class B common stock would be as follows: (1)
Prime Sellers (prior to any distributions to their securities holders, including
other Prime Group members) -- 29% (2) MCI -- 23% (down from approximately 31%
immediately prior to closing on the Proposed Transactions on that date); (3) the
Company's employees and management combined -- 10% (down from approximately 17%
immediately prior to closing on the Proposed Transactions on that date); (4)
Alaskan Cable -- 7%; and (5) others -- 31%. Upon consummation of the Acquisition
Plan, the ownership of Company common stock by MCI, the Prime Sellers (and their
distributees, including other Prime Group members, who agree in writing to be
bound thereby) and certain other persons will be subject to the New Voting
Agreement described elsewhere in this Proxy Statement/Prospectus. Should the
Acquisition Plan have been completed as of the Record Date, the ownership of
Company common stock subject to the New Voting Agreement would have been in
excess of 58% of the outstanding common stock of the Company and the parties to
the agreement would then have the power to control the Company. See, "RISK
FACTORS: Company Common Stock Inherent Factors--Concentration of Stock
Ownership" and "PROPOSED TRANSACTIONS: New Voting Agreement." The
REGISTRATION STATEMENT
Page 11
<PAGE>
actual ownership and voting interests of these shareholders and prospective
shareholders of the Company will depend upon a variety of factors and may vary
from the estimated percentages set forth above.
Interests of Certain Persons in the Acquisition Plan
In considering the recommendation of the Company Board with respect to
the Acquisition Plan, shareholders of the Company, the Prime Group, and the
shareholders of Alaskan Cable should be aware that no member of the Company
Board or of management of the Company has any interests in the Acquisition Plan
that is in addition to or different from the interests of the shareholders of
the Company generally. Similarly, in considering the recommendations of Prime
General Partner and the board of directors of each of the three corporations
comprising Alaskan Cable with respect to the plan, the corresponding security
holders should be aware that neither the Company nor management of those Cable
Companies is aware of any member of those governing bodies or officers of those
companies that has any interest in the Acquisition Plan that is in addition to
or different from the interests of the security holders of those companies
generally, other than as disclosed elsewhere in this Proxy Statement/Prospectus.
See, "ACQUISITION PLAN: Interests of Certain Persons in the Acquisition."
Appraisal Rights
Under Alaska corporate law, the law under which the three corporations
comprising Alaskan Cable were incorporated and to which the corresponding
Alaskan Cable Proposed Transaction is subject, holders of securities of
corporations subject to a sale of assets not in the ordinary course of business
such as the Alaskan Cable Proposed Transaction are provided certain rights to
dissent from such action being taken. The parties to the Alaskan Cable Proposed
Transaction have resolved that 100% approval of the outstanding voting common
stock of the three corporations comprising Alaskan Cable will be required in
order for that Proposed Transaction to close. That is, should one shareholder
dissent, the Alaskan Cable Proposed Transaction would not go forward, and there
would be no dissenter's appraisal rights. See, "APPRAISAL RIGHTS: Alaskan
Cable."
Prime, PCLP and two of Prime's limited partners are Delaware limited
partnerships. Prime General Partner and ACI, the third of the three limited
partners of Prime, are Delaware corporations. Delaware partnership law provides
for contract appraisal rights as agreed to under a limited partnership
agreement. However, none of the Prime limited partnerships provide appraisal
rights to a limited partner who may dissent from the Prime Proposed Transaction.
The Delaware General Corporation Law provides appraisal rights to shareholders
in the context of a merger, such as contemplated for ACI and Prime General
Partner. However, that law expressly prohibits appraisal rights where the stock
to be received by the shareholders in the merger is a national market system
security traded on the Nasdaq Stock Market as is the Company Stock to be issued
in the Prime Proposed Transactions. See, "APPRAISAL RIGHTS: Prime."
Certain Federal Income Tax Consequences
The ACI Merger and PCFI Merger are intended to qualify as
reorganizations within the meaning of Section 368(a) of the Code. Special tax
counsel to Prime has provided opinions to the effect that no gain or loss will
be recognized by the shareholders of ACI or Prime General Partner other than
with respect to cash received in lieu of fractional shares. Such opinions are
subject to certain assumptions as more fully described under "CERTAIN
CONSEQUENCES OF THE ACQUISITION PLAN: Certain Federal Income Tax
Consequences--Prime." None of the other portions of the Proposed Transactions
involving Alaskan Cable or the Prime Sellers (other than shareholders of ACI and
Prime General Partner, respectively) are expected to qualify as reorganizations
within the meaning of Section 368(a) of the Code. These tax consequences and
certain federal income tax consequences pertaining to other Prime Group,
REGISTRATION STATEMENT
Page 12
<PAGE>
Alaskan Cable, and the Company are described elsewhere in this Proxy
Statement/Prospectus. See, "CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN:
Certain Federal Income Tax Consequences."
Comparative Market Price Data
Company. The Company Class A common stock is designated a national
market system stock by the Nasdaq Stock Market, and it is traded on the Nasdaq
Stock Market under the symbol "GNCMA." The following table sets forth the high
and low sale prices of Company Class A common stock for the periods indicated
from March 14, 1996 (the day before the public announcement of the Acquisition
Plan) through the week ended September 28, 1996. The prices are quoted as the
highest and lowest for the corresponding day or week, are rounded up to the
nearest eighth, do not include retail markups, markdowns, or commissions, and do
not necessarily represent actual transactions. The Company's fiscal year ends on
December 31. Shares of the Company Class B common stock are traded on the
over-the-counter market. Under the Company Articles, its Class B common stock is
readily convertible into Company Class A common stock.
<TABLE>
High and Low Sale Prices for
General Communication, Inc. Class A Common Stock
March 14 - September 28, 1996
<CAPTION>
High Low
<S> <C> <C>
March 14, 1996....................................$ 5 1/8 4 7/8
March 15, 1996..................................... 5 1/8 4 3/4
Week ended 03/23/96................................ 6 7/8 5 7/8
Week ended 03/30/96................................ 6 1/4 5 7/8
Week ended 04/06/96................................ 6 1/2 6
Week ended 04/13/96................................ 6 5/8 6 3/8
Week ended 04/20/96................................ 8 1/2 7 3/4
Week ended 04/27/96................................ 8 1/4 7 7/8
Week ended 05/04/96................................ 8 1/4 7 7/8
Week ended 05/11/96................................ 8 3/4 7 7/8
Week ended 05/18/96................................ 9 1/4 8 7/8
Week ended 05/25/96................................ 9 8 5/8
Week ended 06/01/96................................ 8 1/2 8 1/4
Week ended 06/08/96................................ 8 1/8 7
Week ended 06/15/96................................ 7 5/8 7 1/8
Week ended 06/22/96................................ 7 1/2 7
Week ended 06/29/96................................ 8 7 3/8
Week ended 07/06/96................................ 8 3/8 7 3/4
Week ended 07/13/96................................ 8 3/8 6 3/8
Week ended 07/20/96................................ 7 1/8 5 3/4
Week ended 07/27/96................................ 6 3/4 5 3/4
Week ended 08/03/96................................ 6 3/8 6
Week ended 08/10/96................................ 7 3/4 6 1/4
Week ended 08/17/96................................ 7 5/8 7 1/4
Week ended 08/24/96................................ 7 3/8 6 3/8
Week ended 08/31/96................................ 7 1/4 6 3/4
Week ended 09/07/96................................ 7 6 3/8
Week ended 09/14/96................................ 6 3/4 6 3/8
Week ended 09/21/96................................ 6 3/4 6 3/8
Week ended 09/28/96................................ 6 1/2 5 3/4
</TABLE>
The high and low sale prices for Company Class A common stock as of
March 14, 1996 (the day preceding the public announcement of the Proposed
Transactions) were $5 1/8 per share and $4 7/8 per
REGISTRATION STATEMENT
Page 13
<PAGE>
share, respectively. The Company Class B common stock is not actively traded. It
is commonly converted into Company Class A common stock to facilitate trading.
Accordingly, the Company Class A common stock price approximates the price of
the Company Class B common stock. On October 3, 1996, the last trading day
before the date of this Proxy Statement/Prospectus, the last reported sale price
on the Nasdaq Stock Market for Company Class A common stock was $5.875 per
share.
During the six-month period ended June 30, 1996, the top 5 market
makers (in terms of number of trades) out of the approximately 18 market makers
in the Company Class A common stock were as follows: (1) PaineWebber, Inc.; (2)
Mayer & Schweitzer, Inc.; (3) Herzog, Heine, Geduld, Inc.; (4) Troster Singer
Corp; and (5) John G. Kinnard & Co., Inc.
Cable Companies. All of the Cable Companies are privately held. There
are no established public trading markets for their securities. As of the Record
Date there had been no purchases or sales of the securities of Alaskan Cable or
Prime since and including March 14, 1996.
Holders
Company. As of the Record Date, there were the following number of
security holders of record in each class of equity of the Company: (1) for Class
A common stock - approximately 1,820 shareholders; (2) for Class B common stock
- - approximately 720 shareholders; and (3) for preferred stock - none issued.
Cable Companies. As of the Record Date, there were the following number
of securities holders of each of Prime and Alaskan Cable: (1) Prime--three
limited partners holding all of the limited partner interests, one general
partner holding no limited partner interests and three holders of equity
participation interests with no partnership voting rights; and (2) Alaskan
Cable-- one shareholder in each of the three corporations comprising Alaskan
Cable.
Dividends
Company. The Company has never paid a cash dividend on its common
stock, and, as of the Record Date, there was no expectation that it would do so
in the future. The Company is prohibited, under its existing Credit Agreement
with its Senior Lender, from payment of cash dividends. Payments of cash
dividends by the Company in the future, if any, will be determined by the
Company Board in light of the Company's earnings, financial condition, credit
agreements, and other relevant considerations. As of the Record Date, the
Company was not in default in principal or interest with respect to any of its
securities. See "RISK FACTORS: Dividends."
Cable Companies. Alaskan Cable has paid cash dividends for each of the
years ended December 31, 1995, 1994, and 1993, however, no cash dividends were
paid during the six-month period ended June 30, 1996. Prime paid no cash
dividends and made no cash distributions to limited partners during those
periods. Alaska Cablevision paid cash dividends to its shareholders during those
periods. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Market Price
of and Dividends of Cable Companies -- Dividends." and "INDEX TO FINANCIAL
STATEMENTS: Historical Financial Statements."
REGISTRATION STATEMENT
Page 14
<PAGE>
Selected Historical Financial and Pro Forma Data and Certain Comparative Per
Share Data
Company. The table below sets forth the following: (1) selected
historical consolidated financial data for the Company and subsidiaries; (2)
selected pro forma financial data for the Company giving effect to consummation
of the Acquisition Plan; and (3) certain comparative per share data on the
Company.
The selected historical consolidated financial data are (1) as of June
30, 1996 and as of December 31 for each of the years in the five-year period
ended December 31, 1995, (2) for the six-month period ended June 30, 1996 and
(3) for each of the years in the five-year period ended December 31, 1995. These
data, insofar as they relate to each of the years 1991 through 1995, are subject
in their entirety to, and should be read in conjunction with, the consolidated
financial statements and notes to them of the Company, incorporated by reference
into this Proxy Statement/Prospectus. The data pertaining to the Company,
insofar as they relate to the six-month period ended June 30, 1996, have been
derived from the unaudited financial statements filed with the Commission in the
form of Form 10-Q for the respective periods, and are subject in their entirety
to, and should be read in conjunction with, the corresponding Forms 10-Q,
incorporated by reference into this Proxy Statement/Prospectus. The unaudited
financial statements, in the opinion of management of the Company, include all
adjustments, consisting only of normal recurring adjustments necessary for the
fair statement of the results for unaudited periods. See, "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" "INDEX TO FINANCIAL STATEMENTS: Pro Forma
Financial Information -- Company"; and "ANNUAL REPORT."
The following table sets forth for and as of the periods and dates
indicated, in comparative columnar form, historical balance sheet data,
historical operating data, pro forma balance sheet data, pro forma operating
data, historical per share data, and pro forma per-share data for the Company.
Per share data, where applicable, is provided for the following items: (1) book
value per share; (2) cash dividends declared per share; and (3) earnings (loss)
per share from continuing operations. The pro forma information shown is derived
from the pro forma financial statements presented elsewhere in this Proxy
Statement/Prospectus, which give effect to the Acquisition Plan as if it had
occurred as of June 30, 1996 with respect to the pro forma balance sheet data.
The pro forma operating data give effect to the Acquisition Plan as if it had
occurred as of the beginning of the period presented. The pro forma financial
data are unaudited and are not necessarily indicative of the financial position
or results of operations of the Company that would have occurred had the
Acquisition Plan been completed as of the dates indicated or of the future
results of operations of the Company. The information shown below should be read
in conjunction with the consolidated historical financial statements and notes
to them for the Company (which are incorporated by reference into this Proxy
Statement/Prospectus) and the Cable Companies (included in this Proxy
Statement/Prospectus to the extent material), the accompanying historical
financial statements of the Cable Companies and notes to them, and the
accompanying pro forma financial statements and notes to them for the Company.
See, "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS." The Company has followed a policy of not paying cash dividends
throughout the periods in question. Certain of the Cable Companies did pay cash
dividends on their common stock or made distributions to the holders of limited
partner interests during that period. See, "CERTAIN INFORMATION REGARDING THE
CABLE COMPANIES: Market Price and Dividends of Cable Companies--Dividends."
REGISTRATION STATEMENT
Page 15
<PAGE>
<TABLE>
General Communication, Inc.
($ in thousands, except per share data)
<CAPTION>
Pro Forma Historical
---------------- -------------------------------------------------------------------------
June 30, June 30, December 31,
-----------------------------------------------------------
1996 (1) 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment,
net $ 113,036 63,661 50,454 47,513 43,288 44,233 45,116
Total assets 387,943 109,643 84,765 74,249 71,610 72,351 70,167
Long-term debt and
obligations under capital
leases, including current
portion 188,793 31,143 11,027 13,851 22,345 38,955 35,825
Convertible notes 10,000 --- --- --- --- --- ---
Total stockholders' equity 147,201 47,493 43,016 35,093 27,210 14,870 13,554
Book value per common
share (2) 3.63 2.00 1.81 1.48 1.18 0.97 0.90
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Historical
-------------------------------- -----------------------------------------------------------------
Six Months
Six Months Year Ended Ended
Ended June 30, December 31, June 30, Year Ended December 31,
1996 (3) 1995 (3) 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of
Operations Data:
Revenues $ 104,894 182,308 77,169 129,279 116,981 102,213 96,499 75,522
Operating income
14,896 26,468 7,918 13,504 12,997 8,804 5,269 1,557
Earnings (loss)
before income
tax expense 7,799 12,823 7,290 12,601 11,681 6,715 1,524 (1,422)
Net earnings
(loss) 3,857 6,199 4,288 7,502 7,134 3,951 890 (1,092)
Net earnings
(loss) per
common and
common
equivalent share (4) 0.09 0.15 0.17 0.31 0.30 0.17 0.02 (0.12)
Cash dividends
declared per
common and
common
equivalent share (5)
--- --- --- --- --- --- --- ---
REGISTRATION STATEMENT
Page 16
<PAGE>
<FN>
- ------------
1 Reflects the effects of the transactions as if they occurred as of such
date.
2 Represents total stockholders' equity divided by the number of shares
outstanding at the end of the period. Historical book value per common
share amounts as of December 31, 1991 through 1995 and June 30, 1996
are computed using the historical number of common shares outstanding
at the end of each period without giving effect to the transactions.
Equivalent pro forma book value per common share as of June 30, 1996 is
computed using the historical number of common shares outstanding at
June 30, 1996 after giving effect to the transactions (includes an
additional 16,723,077 shares).
3 Reflects the effects of the transactions as if they occurred as of the
beginning of the period presented.
4 Historical net earnings (loss) per common and common equivalent share
for the years ended December 31, 1991 through 1995 and for the
six-month period ended June 30, 1996 are computed using the historical
weighted average number of common and common equivalent shares
outstanding each period without giving effect to the transactions. Pro
forma net earnings per equivalent common share for June 30, 1996 and
December 31, 1995 are computed using the historical weighted average
number of common and common equivalent shares outstanding each period
after giving effect to the transactions (includes an additional
16,723,077 shares).
5 The Company no cash dividends on its common stock during the periods
presented.
- ------------
</FN>
</TABLE>
Prime, Alaskan Cable, and Alaska Cablevision. The following tables set
forth selected historical financial data separately for Prime, Alaskan Cable and
Alaska Cablevision (1) as of June 30, 1996 and as of December 31 for each of the
years in the five-year period ended December 31, 1995, and (2) for the six-month
period ended June 30, 1996 and for each of the years in the five-year period
ended December 31, 1995. The data for the six-month period ended June 30, 1996
have been derived from the unaudited financial statements also appearing
elsewhere in this Proxy Statement/Prospectus. The unaudited financial
statements, in the opinion of management of the respective Cable Company,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the results for the unaudited periods. The
following information is qualified in its entirety by, and should be read in
conjunction with, the accompanying financial statements and notes to them for
the corresponding Cable Company and the Company. See, "INDEX TO FINANCIAL
STATEMENTS." Certain of the Cable Companies did pay dividends on their common
stock during that period. See, "CERTAIN INFORMATION REGARDING THE CABLE
COMPANIES: Market Price and Dividends of Cable Companies--Dividends."
REGISTRATION STATEMENT
Page 17
<PAGE>
<TABLE>
Prime Cable of Alaska, L.P. (1)
($ in thousands, except per share data)
<CAPTION>
December 31,
June 30, -------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary Balance
Sheet Data:
Property, plant and
equipment, net $ 27,628 29,175 31,866 34,984 39,183 43,416
Total assets 61,224 74,141 85,303 98,322 111,179 120,397
Term and
subordinated debt 107,320 116,606 111,754 114,282 116,090 112,680
Partners' capital
surplus
(deficiency) (53,793) (48,474) (32,147) (20,420) (9,169) 3,189
Book value per
equivalent common
share (2) (4.56) (4.11) n/a n/a n/a n/a
Pro forma book value
per equivalent
common share (3) 5.89 n/a n/a n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Data:
Revenues $ 17,276 32,594 30,599 29,101 27,677 25,951
Operating loss (726) (1,831) (2,962) (3,514) (3,696) (3,920)
Net loss (5,319) (16,327) (11,727) (11,251) (12,358) (15,071)
Net loss per
equivalent common (0.45) (1.38) (0.99) (0.95) (1.05) (1.28)
share (4)
Pro forma net income
(loss) per equivalent
common share (5) (0.05) (0.13) n/a n/a n/a n/a
Cash dividends
declared per
equivalent common
share (6) n/a n/a n/a n/a n/a n/a
<FN>
- ------------
1 In this table, "n/a" means not applicable.
REGISTRATION STATEMENT
Page 18
<PAGE>
2 Prime is organized as a partnership. As such, historical book value per
equivalent common share is not applicable. For this presentation,
partners' capital surplus (deficiency) as of June 30, 1996 and December
31, 1995 are divided by the number of shares to be issued pursuant to
the Prime Proposed Transaction (11,800,000 shares).
3 Represents pro forma partners' capital surplus at June 30, 1996 divided
by the number of shares outstanding at the end of the period giving
effect to the Prime Proposed Transaction at that date (11,800,000
shares).
4 Prime is organized as a partnership. As such, historical net loss per
common share is not applicable. For this presentation, net loss for
each period ended December 13, 1991 through 1995 and June 30, 1996 is
divided by the number of shares to be issued pursuant to the Prime
Proposed Transaction (11,800,000 shares in each period).
5 Represents pro forma net loss for the year ended December 31, 1995 and
the six-month period ended June 30, 1996 divided by the number of
shares to be issued pursuant to the Prime Proposed Transaction
(11,800,000 additional shares in each period).
6 Prime is organized as a partnership and has paid no dividends. As such, historical and pro forma cash dividends
declared per common share is not applicable.
- ------------
</FN>
</TABLE>
<TABLE>
Alaskan Cable Companies (1)
($ in thousands, except per share data)
<CAPTION>
December 31,
June 30, ------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 10,909 12,144 14,161 15,901 15,624 17,003
Total assets 19,209 24,494 33,380 33,115 35,167 38,242
Debt 3,000 8,000 --- --- --- 54,500
Total shareholders' equity
(deficit) 13,442 13,498 30,036 29,407 31,793 (19,763)
Book value per common share (2) 4,571 4,590 10,215 10,001 10,812 (6,721)
Pro forma book value per
equivalent common share (3) 5.89 n/a n/a n/a n/a n/a
</TABLE>
REGISTRATION STATEMENT
Page 19
<PAGE>
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended June 30, ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenues $ 7,442 14,515 13,883 14,142 13,914 13,761
Operating income 329 632 516 367 (99) 540
Earnings (loss) before income
tax expense (51) 712 751 (2,274) (2,200) (4,266)
Net earnings (loss) before
cumulative effect (36) 920 742 (1,652) (2,200) (4,266)
Cumulative effect of change in
accounting principle --- --- --- (622) --- ---
Net earnings (loss) (36) 920 742 (2,274) (2,200) (4,266)
Net earnings (loss) per common
share (4) (12) 313 252 (773) (748) (1,451)
Pro forma net income (loss) per
equivalent common share (5) (0.01) (0.03) n/a n/a n/a n/a
Cash dividends declared per
common share (6) --- 6,188 --- 38 --- ---
Pro forma cash dividends
declared per common equivalent
share (7) --- 6.22 n/a n/a n/a n/a
<FN>
- ---------------
1 Combined for Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan
Cable/Ketchikan. In this table, "n/a" means not applicable.
2 Represents historical total stockholders' equity (deficit) divided by
the aggregate number of shares outstanding for Alaskan Cable/Fairbanks,
Alaskan Cable/Juneau and Alaskan Cable/Ketchikan combined of 2,940.5
shares at the end of each period without giving effect to the Alaskan
Cable Proposed Transaction.
3 Represents total Alaskan Cable pro forma stockholders' equity at June
30, 1996 divided by the number of shares outstanding at the end of the
period giving effect to the Alaskan Cable Proposed Transaction at that
date (includes the Alaskan Cable Company Shares, i.e., 2,923,077
shares).
4 Historical net earnings (loss) per common share for the years ended
December 31, 1991 through 1995 and for the six-month period ended June
30, 1996 are computed using the historical weighted average number of
common and common equivalent shares outstanding each period without
giving effect to the Alaskan Cable Proposed Transaction.
5 Represents Alaskan Cable pro forma net earnings (loss) for the year
ended December 31, 1995 and the six-month period ended June 30, 1996
divided by the weighted average number of shares outstanding giving
effect to the Alaskan Cable Proposed Transaction as of the beginning of
the period presented (2,923,077 shares in each period).
6 Represents cash dividends declared per common share divided by the
historical weighted average number of common and common equivalent
shares outstanding during the period without giving effect to the
Alaskan Cable Proposed Transaction. No dividends were paid during the
six-month period ended June 30, 1996.
REGISTRATION STATEMENT
Page 20
<PAGE>
7 Represents cash dividends declared per common share divided by the
number of equivalent common shares outstanding during the period giving
effect to the Alaskan Cable Proposed Transaction (2,923,077 shares in
each period).
- ---------------
</FN>
</TABLE>
<TABLE>
Alaska Cablevision, Inc. (1)
($ in thousands, except per share data)
<CAPTION>
December 31,
June 30, ------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 2,497 2,494 2,139 1,365 1,473 1,502
Total assets 3,446 3,306 2,663 2,211 2,076 2,212
Debt 5,559 5,668 5,602 5,747 6,184 7,371
Total stockholders' deficit (2,591) (2,864) (3,375) (3,917) (4,499) (5,469)
Book value per common share (2) (392.58) (409.14) (482.14) (559.57) (642.71) (781.29)
Pro forma book value per
equivalent common share (3) n/a n/a n/a n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended June 30, ------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations Data:
Revenues $ 3,007 5,920 5,709 5,660 5,626 5,488
Operating income 1,072 2,163 2,216 2,382 2,586 2,411
Earnings before income tax 646 1,206 1,192 1,318 1,462 1,188
expense
Net earnings 646 1,206 1,192 1,318 1,462 1,188
Net earnings per common share (4) 97.86 172.24 170.29 188.29 208.86 169.71
Pro forma net earnings per n/a n/a n/a n/a n/a n/a
equivalent common share (5)
Cash dividends declared per 31.74 99.15 92.98 105.16 70.21 86.72
common share (6)
Pro forma cash dividends
declared per common equivalent
share (7) n/a n/a n/a n/a n/a n/a
<FN>
- --------------
1 In this table, "n/a" means not applicable.
REGISTRATION STATEMENT
Page 21
<PAGE>
2 Represents historical total stockholders' deficit divided by the number
of shares outstanding at the end of each period without giving effect
to the Alaska Cablevision Proposed Transaction.
3 The Alaska Cablevision Proposed Transaction does not involve the direct
issuance of the Company's common stock. Accordingly, pro forma book
value per equivalent common share is not applicable.
4 Historical net earnings per common share for the years ended December
31, 1991 through 1995 and for the six-month period ended June 30, 1996
are computed using the historical weighted average number of common and
common equivalent shares outstanding each period without giving effect
to the Alaska Cablevision Proposed Transaction.
5 The Alaska Cablevision Proposed Transaction does not involve the direct
issuance of the Company's common stock. Accordingly, pro forma net
earnings per equivalent common share is not applicable.
6 Represents cash dividends declared per common share divided by the
historical weighted average number of common and common equivalent
shares outstanding during the period without giving effect to the
Alaska Cablevision Proposed Transaction. Dividends totalling $373,588
per share were paid during the six-month period ended June 30, 1996.
7 The Alaska Cablevision Proposed Transaction does not involve the direct
issuance of the Company's common stock. Accordingly, pro forma cash
dividends declared per common equivalent share is not applicable.
</FN>
</TABLE>
Capitalization Table
The following table sets forth the unaudited debt and capitalization of
the Company as of June 30, 1996 and as adjusted to give effect to the exchange
or sale of the Company Stock and the MCI Company Stock and the application of
the net proceeds from those Proposed Transactions. This table should be read in
conjunction with the Company's audited financial statements and the selected
financial data and notes to them appearing elsewhere in this Proxy
Statement/Prospectus. See, "PROPOSED TRANSACTIONS"; "SUMMARY: Selected
Historical Financial and Pro Forma Data and Certain Comparative Per Share Data";
"ANNUAL REPORT"; and "INDEX TO FINANCIAL STATEMENTS."
REGISTRATION STATEMENT
Page 22
<PAGE>
<TABLE>
CAPITALIZATION TABLE
FOR GENERAL COMMUNICATION, INC.
($ in thousands)
<CAPTION>
June 30, 1996
-----------------------------------------------
Actual As Adjusted
--------------------- --------------------
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt $ 23,890 23,890
Current portion of obligations under capital leases 198 198
------ ------
Total short-term debt: 24,088 24,088
------ ------
Long-term Debt:
Long-term debt, excluding current maturities 6,343 6,343
Long-term debt, required for acquisitions - 54,650 (1)
Assumed debt - 103,000 (2)
Obligations under capital leases, excluding 3 3
current maturities
Subordinated, convertible notes issued - 10,000
Obligations under capital leases due to related parties, 709 709
------- -------
excluding current maturities
Total long-term debt: 7,055 174,705
------- -------
Stockholders' equity:
Class A -- authorized 50,000,000 shares; issued and 14,015 113,723
outstanding 19,768,150 shares; 36,491,227 as adjusted
Class B -- authorized 10,000,000 shares; issued and 3,432 3,432
outstanding 4,159,657 shares
Less cost of 122,611 Class A common shares held in treasury (389) (389)
Paid-in capital 4,127 4,127
Retained earnings 26,308 26,308
------ ------
Total stockholders' equity 47,493 147,201
------ -------
Total capitalization $ 78,636 345,994
====== =======
</TABLE>
<TABLE>
<CAPTION>
Shares Dollars
Class A Class B Class A Class B
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share roll forward:
Class A outstanding 19,768,150 --- $ 14,015 $ ---
Class B outstanding --- 4,159,657 --- 3,432
Issued to Prime 11,800,000 --- 69,493 ---
Issued to Alaskan Cable 2,923,077 --- 17,215 ---
Issued to MCI (3) 2,000,000 --- 13,000 ---
--------- --------- --------- ---------
Total 36,491,227 4,159,657 $ 113,723 $ 3,432
========== ========= ========= =========
Total shares sold under
Acquisition Plan (4) 14,723,077
==========
<FN>
- ---------------
1 Debt required equivalent to cash payments to Cable Companies net of MCI
equity of $13 million.
2 As part of the Proposed Transactions, the Company has agreed to assume
balances owing pursuant to Prime's existing bank loan agreement as
further described in the accompanying financial statements and notes
thereto for Prime. See, "INDEX TO FINANCIAL STATEMENTS."
3 To be issued to MCI pursuant to a private offering separate from this
Proxy Statement/Prospectus. See. "PROPOSED TRANSACTIONS: MCI PURCHASE
AGREEMENT."
REGISTRATION STATEMENT
Page 23
<PAGE>
4 Does not include Cablevision Company Notes which may be converted into
as many as 1,538,462 shares of Company Class A common stock and does
not include MCI Company Stock (2 million shares of Company Class A
common stock) to be issued to MCI, thus making the maximum issuance
under the Acquisition Plan 18,261,539 shares of Company Class A common
stock.
- ---------------
</FN>
</TABLE>
Material Contacts with Cable Companies
Except as disclosed in this Proxy Statement/Prospectus, and reports,
filings, and other documents incorporated by reference in it, there have been no
material contracts, arrangements, understandings, relationships, negotiations or
transactions between the Company and any of the Cable Companies. See,
"ACQUISITION PLAN: Recommendation of the Company Board and Its Reasons for the
Acquisition Plan" and "ANNUAL REPORT."
RISK FACTORS
The following factors, among others, should be considered carefully by
shareholders of the Company and separately by the Prime Sellers and the sole
shareholder of each corporation comprising Alaskan Cable in considering whether
to vote in favor or otherwise consent to and approve the Acquisition Plan as it
pertains to their respective companies or partnerships.
Risks and Effects of the Proposed Transactions
Uncertainties in the Method of Determining Offering Price. Management
of Prime used an operating cash flow valuation method to determine its value
representing a multiple of 10.7 times the net operating cash flow for the first
calendar quarter of 1996 (annualized), less indebtedness of $109.4 million,
resulting in a net equity value of $76.7 million. Prime management used an
assumed value of $6.50 per share for the Company Stock for purposes of
determining the fixed number of shares of Company Stock to be issued and
delivered in connection with the Prime Proposed Transaction. The $6.50 per share
valuation is equal to approximately 7.7 times annualized budgeted operating cash
flow of the Company for the first calendar quarter of 1996, based upon budgets
prepared by the Company. The only other recent acquisition of a comparable long
distance company of similar size was consummated on the basis of a multiple of
6.7 times operating cash flow. That 6.7 multiple when applied to the Company for
the year ended December 31, 1995 and projected for the year ending December 31,
1996, would result in $4.97 per share and $4.25 per share valuations,
respectively. No assurance can be given that this valuation method results in a
purchase price that is in the best interests of the Prime Group. See,
"ACQUISITION PLAN: Determination of Value." Similarly, the value placed upon the
assets of Alaskan Cable were determined by the board of directors of the
respective corporations comprising Alaskan Cable. The actual value, if any, a
Prime Group member may realize from its interests in Prime through the exchange
for Company Stock will depend upon the excess of the market price of that stock
over the price paid for those interests in Prime by that holder. The actual
value, if any, a shareholder of Alaskan Cable may realize in acquiring Company
Stock as partial consideration for Alaskan Cable's sale of assets to the Company
will depend upon the excess of the market price of that stock over the portion
of the price paid for those assets allocated to the partial consideration in the
form of Company Stock.
There are many uncertainties inherent in estimating Cable Company
assets and the present value attributed to such assets and therefore indirectly
the value of the interests of the Cable Companies. The value assigned to the
assets by management of each of these entities during the process leading up to
the execution of the letters of intent as the bases for the Proposed
Transactions may be less than that which these entities could have obtained
through independent third parties. In that event, the use of these valuation
methodologies would have resulted in an under valuation of the assets and
securities of those Cable Companies and otherwise the security interests of the
Prime Group members and the security
REGISTRATION STATEMENT
Page 24
<PAGE>
interests held in the three corporations comprising Alaskan Cable. See,
"ACQUISITION PLAN: Recommendations of the Cable Company Boards and their Reasons
for the Acquisition Plan."
Potential Decline in Market Price of Company Stock. Access to an active
trading market by the Prime Group members and the sole shareholder of each of
the three corporations comprising Alaskan Cable may result in a relatively large
number of shares of Class A common stock being offered for sale within a
reasonable time after the closing on the Prime Purchase Agreement and the
Alaskan Cable Purchase Agreement. This activity may tend to lower the market
price for the Company Class A common stock in general including the Company
Stock. Future market conditions in the telecommunications industry in general or
the effect of those conditions on the Company in particular could adversely
affect the market price of the Company Stock. There can be no assurance
regarding the potential appreciation in the market price of the Company Stock,
if any. Any decline in that market price could reduce an investor's original
investment or increase the loss on that investor's original investment. See,
"PROPOSED TRANSACTIONS: Cable Company Purchase Agreements--Consideration To Be
Received" and "DISTRIBUTION OF COMPANY STOCK."
Conditions on Distribution of Company Stock, Restrictions on
Transferability. Under the Acquisition Plan both the Prime Sellers and the sole
shareholder of each of the three corporations comprising Alaskan Cable will, at
closing on the respective Purchase Agreements, be required to hold back and
deposit into separate escrows by Cable Company (Prime Escrow Holdback in the
case of the Prime Sellers) a significant portion of their respective portions of
the Company Stock or assets of comparable value to secure each respective
party's indemnification for breaches of representations, warranties and
covenants under those agreements. Under those agreements, the Company will place
a similar number of shares or assets of comparable value into escrow to secure
its indemnification for breaches of representations, warranties and covenants
under those agreements. In addition, the Prime Sellers are subject to a separate
escrow agreement with PIIM whereby any Prime Seller shares released from the
Prime Escrow Holdback will be held in separate escrow with PIIM as escrow agent
for one year and ten days from the Closing Date for the Prime Purchase
Agreement. Distributions of shares of Company Stock to the shareholders of ACI
(including PVII) and PCLP (the sole shareholder of Prime General Partner) will
be subject to transfer limitations imposed by the ACI shareholder and PCLP.
These transfer limitations will be designed to preserve the "continuity of
interest" requirement so that the Prime Purchase Agreement, as it applies to the
owners of ACI and Prime General Partner, will be federal income-tax free
reorganizations in the form of statutory mergers with GCI Cable. The owners of
ACI will be required to deposit into a corporate escrow as a group 50% of the
aggregate number of shares of the Company Stock receivable by them in connection
with the ACI Merger (less the number of shares placed in the Prime Escrow
Holdback). Shares deposited in this escrow will be released to the shareholders
of ACI on that date which is one year and five days from the Closing Date on the
Prime Purchase Agreement. PCLP intends to hold 50% of the Prime Company Shares
receivable by PCLP in connection with the PCFI Merger and not distribute such
shares, for a period of at least two years from the Closing Date on the Prime
Purchase Agreement. See, "CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN: Certain
Federal Income Tax Consequences--Prime Escrow and Holdback Agreements" and
"PROPOSED TRANSACTIONS: Cable Company Purchase Agreements--Escrow and Holdback
Agreements."
Certain of the Prime Group members may be deemed to be affiliates of
the Company with consummation of the Acquisition Plan and as such any resale of
a portion or all of their shares of Company Stock will be subject to volume of
sale restrictions and other restrictions applicable to affiliates as set forth
in Rule 144 adopted pursuant to the Securities Act. Should a security holder of
Prime or Alaskan Cable not be the person to whom the offer of the Company Stock
is made directly, resales of that stock may require new registrations under the
Securities Act and Blue Sky law, all of which may delay that holder's ability to
accomplish such resales. See, "DISTRIBUTION OF COMPANY STOCK."
REGISTRATION STATEMENT
Page 25
<PAGE>
Lack of Independent Representations for Non-Affiliated Offerees, No
Fairness Opinion. No independent representative was selected or hired to
represent the interests of Prime Group members who are not affiliates of Prime
in the negotiation of the terms of the Prime Proposed Transaction. The value of
Prime, for purposes of the Prime Proposed Transaction, was determined by Prime
management and management for the Company as a result of arms' length
negotiations. Neither the Company nor Prime retained an independent third party
to render an opinion regarding the fairness of the terms of the Prime Proposed
Transaction. While Prime management believes that the terms of the Prime
Proposed Transaction are fair and in the best interest of the Prime Group
involved, their conclusions were made without benefit of independent third
parties. No assurance can be given that the consideration to be received by the
Prime Group members is in fact fair to them and in their best interests. The
value assigned to Prime during the negotiating process with the Company may be
less than that which could have been obtained through another buyer. See,
"ACQUISITION PLAN: Determination of Value."
The sole shareholder in case of each of the three corporations
comprising Alaskan Cable is an affiliate of the corresponding corporation.
However, no independent representative was selected or hired by Alaskan Cable to
represent the interests of those shareholders in negotiating the terms of the
Alaskan Cable Proposed Transaction. Neither the Company, nor any of the three
corporations comprising Alaskan Cable retained an independent third party to
render an opinion regarding the fairness of the terms of the Alaskan Cable
Proposed Transaction. While the officers and directors of each of the three
corporations comprising Alaskan Cable believe that the terms of the Alaskan
Cable Proposed Transaction are fair and in the best interest of those
shareholders for the reasons set forth elsewhere in this Proxy
Statement/Prospectus (see, "ACQUISITION PLAN: Recommendations of Cable Company
Boards and Their Reasons for the Acquisition Plan"), these conclusions were made
without benefit of independent third parties. No assurance can be given that the
consideration to be received by those shareholders is in fact fair to them and
in their best interests. See, "ACQUISITION PLAN: Recommendations of Cable
Company Boards and their Reasons for the Acquisition Plan."
Potential Benefits of Alternatives to the Proposed Transactions. The
alternatives to the Prime Proposed Transaction are the continuation of Prime and
the entities associated with it, the sale of the assets of the security
interests for cash, or the liquidation of the assets of those entities and
distribution of the liquidation proceeds to the corresponding investors. Either
alternative to the Prime Proposed Transaction could potentially be more
beneficial to the Prime Group members than that transaction by avoiding the
risks associated with ownership of Company Stock and, in the case of a
liquidation, by providing an immediate cash return to the Prime Sellers.
Similarly, the alternatives to the Alaskan Cable Proposed Transaction are the
continuation of the three corporations comprising Alaskan Cable or the
liquidation of the assets of those corporations and distribution of the
liquidation proceeds to the sole shareholder in the corresponding corporation.
Either alternative to the Alaskan Cable Proposed Transaction could potentially
be more beneficial to those shareholders than that transaction by avoiding the
risks associated with ownership of Company Stock and, in the case of a
liquidation, by providing an immediate cash return to those shareholders. See,
"ACQUISITION PLAN: Recommendations of the Cable Company Boards and their Reasons
for the Acquisition Plan."
No Appraisal Rights. Neither the Prime Group members nor the sole
shareholder of each of the corporations comprising Alaskan Cable will have any
dissenter's appraisal rights should they dissent from approval of the
corresponding Proposed Transaction put before them. See, "APPRAISAL RIGHTS."
Conflicts of Interest. The determination of the value of Prime was
arrived at through the significant involvement of PIIM, which will on the
Closing Date for the Prime Purchase Agreement enter into the Prime Management
Agreement and thereby have the right to earn substantial management fees over a
term of at least two and as much as nine years. See, "ACQUISITION PLAN:
Interests of Certain Persons in the Acquisition Plan"; "ACQUISITION PLAN:
Recommendations of the Cable Company Boards
REGISTRATION STATEMENT
Page 26
<PAGE>
and Their Reasons for the Acquisition Plan" and "PROPOSED TRANSACTIONS: Prime
Management Agreement."
In the case of each corporation comprising Alaskan Cable, the
corresponding persons determining the value of the assets to be sold from the
three corporations were executive officers and directors of more than one of the
three corporations and had inherent conflicts of interest. While the exact
allocation of value of assets between the three corporations had not as of the
Record Date been determined, Jack Kent Cooke, one of the officers of these
corporations, may ultimately receive directly or indirectly a portion of the
Company Stock under the Alaskan Cable Proposed Transaction. A person, as an
officer of one or more of these corporations, owes a fiduciary duty to the
shareholders of each of those corporations. While the officers and directors of
these corporations believe that they have fulfilled these obligations in their
determination of the corresponding portion of the Alaskan Cable Proposed
Transaction, they did not obtain independent valuations of the assets of the
corresponding corporations. No degree of objectivity or professional competence
can eliminate this inherent conflict of interest. See, "ACQUISITION PLAN:
Interests of Certain Persons in the Acquisition Plan" and "ACQUISITION PLAN:
Recommendations of the Cable Company Boards and Their Reasons for the
Acquisition Plan."
Company Dividend Policy. The Company's policy has been to retain its
earnings to support the growth of its business. The Company has never paid cash
dividends on its common stock, and, as of the Record Date, there was no
expectation that it would do so in the future. Payment of cash dividends in the
future, if any, will be determined by the Company Board in light of the
Company's earnings, financial condition, credit agreements, and other relevant
considerations. The Company's existing Credit Agreement with its Senior Lenders
prohibits payment of dividends, other than stock dividends. It may therefore
take a considerable length of time before a holder of Company common stock will
realize a return on investment, if any. Upon consummation of the respective
Proposed Transactions, Prime Group members and shareholders of Alaskan Cable
will no longer, to the extent they had, receive cash distributions, and it is
unlikely that cash dividends will be paid to them as shareholders of the Company
at any time in the foreseeable future. See, "ANNUAL REPORT" and "AVAILABLE
INFORMATION."
No Fractional Shares. Fractional shares of Company Stock will not be
issued pursuant to the Prime Proposed Transaction and the Alaskan Cable Proposed
Transaction. Prime Group members and shareholders of Alaskan Cable otherwise
entitled to fractional shares of Company Stock will be paid cash in an
appropriate amount based upon the value of Class A common stock used in these
Proposed Transactions, i.e., $6.50 per share. See, "PROPOSED TRANSACTIONS: Cable
Company Purchase Agreements--Fractional Shares."
Change in Control, Interconnection of Proposed Transactions. As a
result of the consummation of the Prime Proposed Transaction, the Company will
acquire all security interests and equity participation interests in Prime held
by the Prime Sellers, will assume direct control of the Prime Alaska Systems,
and will operate those systems through the management of PIIM. ACI and Prime
General Partners will be merged into GCI Cable. As a result of the consummation
of the Alaskan Cable Proposed Transaction and the other Proposed Transactions of
the Acquisition Plan, the Company will take possession of the assets acquired in
those transactions and reorganize them with the Prime Alaska System to establish
the Company Cable Systems in Alaska.
The closing and consummation of one Proposed Transaction is not
dependent upon the closing and consummation of one or more of the other Proposed
Transactions, with the exception that the Prime Purchase Agreement and the MCI
Proposed Transaction are each contingent upon the closing of the other. The
Company is prepared, subject to its shareholders' approval and other conditions
as set forth in the Proposed Transactions to close on one or more or all of the
Purchase Agreements. No assurance
REGISTRATION STATEMENT
Page 27
<PAGE>
can be given, should the Company close on one but not all of the Proposed
Transaction, that the resulting Alaska Cable Systems will prove economically
viable. See, "PROPOSED TRANSACTIONS."
Needed Acquisition Plan Financing. The Acquisition Plan will require
approximately $162 million in bank financing, which the Company will seek
through modification or assumption of an existing or negotiation of a new bank
credit facility with its Senior Lenders or others. While, as of the Record Date,
the Company had held discussions with its Senior Lenders and others regarding
such a facility, no agreement existed concerning the amounts or terms of such a
facility. See, "ACQUISITION PLAN."
Alaskan Cable Tax Issues. Alaskan Cable experienced income (loss)
before income taxes and cumulative effect of change in accounting principle of
$712,000, $715,000 and ($2,274,000) for the years ended December 31, 1995, 1994,
and 1993, respectively. Although Alaskan Cable has experienced pretax profits in
the past two years, Alaskan Cable had a loss in 1993 as well as in the past.
These losses have resulted, as of December 31, 1995, in unused net operating
loss carryforwards for federal and state income tax purposes of approximately
$4,500,000 and $5,900,000, respectively.
In light of Alaskan Cable's history of losses prior to 1994, the
potential negative impact of recent deregulation in the cable television
industry, and the ability of other Jack Kent Cooke Incorporated entities to
utilize Alaskan Cable's net operating loss carryforwards, management currently
believes it is more likely than not that Alaskan Cable will be unable to realize
its deferred tax assets in the amount of $2,661,000 million as of December 31,
1995, prior to the expiration of the net operating loss carryforwards.
Accordingly, a valuation allowance for $2,661,000 was reflected in Alaskan
Cable's December 31, 1995 financial statements. Alaskan Cable will continue to
assess the need for a valuation allowance based upon future operating results
and facts and circumstances at the time. See, "INDEX TO FINANCIAL STATEMENTS:
Historical Financial Statements" and "CERTAIN INFORMATION REGARDING THE CABLE
COMPANY: Management's Discussion and Analysis of Financial Condition and Results
of Operation for Certain Cable Companies--Alaskan Cable."
Risks of the Businesses in Which the Company Will Be Engaged
Lack of Management Experience in Cable Television. Through the
Acquisition Plan, the Company will acquire a substantial portion of the existing
cable television distribution systems in Alaska and gain entry into the cable
television business, for which it presently has little experience to operate.
The Company will, upon closing on the Prime Proposed Transaction, enter into the
Prime Management Agreement with PIIM to manage the Alaska Cable Systems
including the Prime Cable Systems. The Acquisition Plan envisions the Company
utilizing the experience of some of the persons presently managing the Cable
Companies. However, as of the Record Date the Company had not entered into nor
made commitments to, subsequent to the Closing Date on the Proposed
Transactions, enter into employment agreements or promised employment to any of
the executive officers, directors, or personnel of the Cable Companies, with one
exception. However, as of the Record Date, the Company did not contemplate that
that individual would join the Company as an executive officer of the Company or
a subsidiary of it. No assurance can be given that the Company will be
successful in its efforts to reorganize and manage the Cable Company businesses
which will be acquired through the Acquisition Plan. See, "CERTAIN INFORMATION
REGARDING THE CABLE COMPANIES" and "CERTAIN CONSEQUENCES OF THE ACQUISITION
PLAN: Company Cable Systems."
Factors Affecting Future Performance. Future operating results of the
Company with or without the consummation of the Acquisition Plan will depend
upon many factors and will be subject to various risks and uncertainties,
including those set forth in this section. The information contained in the
Proxy Statement/Prospectus includes forward looking statements regarding the
Company and the Cable Companies' future performance. In particular, the Proxy
Statement/Prospectus contains pro forma data
REGISTRATION STATEMENT
Page 28
<PAGE>
and comparative per share data and pro forma financial statements (unaudited)
giving effect to the consummation of the Acquisition Plan. This pro forma
information is based upon numerous assumptions including but not limited to the
assumption that the Company can commence operations and be successful in a new
industry segment in which it has no prior experience. Some or all of these
assumptions may prove to be inaccurate, the results of the Company's operation
in the cable television industry may vary from those pro forma statements, and
the Company's operation in the cable industry, as a result of the consummation
of the Acquisition Plan, may materially and adversely affect the Company's
operating results. See, "SUMMARY: Selected Historical Financial and Pro Forma
Data and Certain Comparative Per Share Data"; "ACQUISITION PLAN"; "PROPOSED
TRANSACTIONS"; "ANNUAL REPORT"; and "INDEX TO FINANCIAL STATEMENTS."
Emergence of New Services. The Company in providing telecommunication
and cable services will be expanding into markets where the emergence of new
services (especially digital cellular radio, PCS, interactive television, and
video dial tone) has created opportunities for significant growth in local
services areas such as Alaska. The confluence of new technology and consumer
response is forcing competition among telephone, computer, and entertainment
industries just as each industry converges on similar digital technologies. As
opportunities for new wireless and video services arise and competitors expand
beyond their traditional markets, competition between existing telephone
companies and these major industries will likely intensify. To survive in this
competitive environment, the Company must respond to this technologically driven
change with services that its customers demand. No assurance can be given that
the Company will be successful in its use of these new technologies to remain
competitive and to provide services to its customers. See, "CERTAIN INFORMATION
CONCERNING THE COMPANY" and "ANNUAL REPORT."
Regulation. The telecommunication and cable television industries in
Alaska are subject to federal and state government regulation, and state
franchise requirements. Substantial changes in the federal regulation of
telecommunications and the cable industries were accomplished through the 1996
Telecom Act. This act will result in substantial changes in the marketplace for
cable communications, telephone and other telecommunication services. Other
existing federal regulation and copyright licensing are currently the subject of
judicial proceedings, legislative hearings, and administrative proposals which
could change, in varying degrees, the manner in which cable communication
systems operate. Neither the outcome of these proceedings nor their impact upon
the cable communication industry in general nor the Company's entry into that
industry in its operations of cable television systems acquired or controlled
through the Acquisition Plan can be predicted at this time. See, "CERTAIN
INFORMATION REGARDING CABLE COMPANIES: Regulatory Developments, Competition and
Legislation/Regulation."
Economic Risks
Expansion of Services. The combined growth of the Company's revenues
will depend to a significant degree upon its ability to make use of new
technologies to provide quality service to its existing customers and to expand
into new service areas, while at the same time to maintain control of operating
costs. One new technology being considered by the Company is PCS. PCS systems
are expected to make an individual carrying a pocket-sized phone available at
the same number, whether at home, at work, or traveling. The Company began
developing plans for PCS deployment in 1995 and expects to incur up to
$2,000,000 during the fourth quarter of 1996 and the first quarter of 1997 in
equipment and installation costs associated with a limited technology trial in
the Anchorage, Alaska area. Service is expected to be offered as early as late
1997 or 1998. While the entry of the Company into PCS will be important to its
ability to compete in a highly competitive telecommunications industry, no
assurance can be given that its technology service trial will be successful nor
that its PCS will prove profitable in the future. As a part of the Acquisition
Plan, the Company believes the Company will, in order to be competitive in the
cable television industry, have to implement a plan to upgrade or convert plant
and
REGISTRATION STATEMENT
Page 29
<PAGE>
equipment of the distribution systems of the Company Cable Systems from the
present analog to digital systems enabling the Company, among other things, to
provide new high-bandwidth services such as cable modems for high-speed
telecommunication services over enhanced cable networks. These services are not
within the capabilities of the present Cable Company cables systems in Alaska.
The Company expects to incur in excess of $20 million in this upgrade and
conversion process over the next five years. Estimates of the costs for further
development of the Company Cable Systems beyond that point had not, as of the
Record Date, been made. See, "ACQUISITION PLAN: Recommendation of Company Board
and Its Reasons for the Acquisition Plan"; "CERTAIN INFORMATION CONCERNING THE
COMPANY: Products and Services"; "ANNUAL REPORT"; and "AVAILABLE INFORMATION."
Competition. There is a high level of risk inherent in the highly
competitive telecommunications industry both because of rapidly changing
technology and because of other competitors in the market place. The Company's
business is highly dependent on telecommunications technology, and the
introduction of new technology by one of the Company's competitors could have a
materially adverse effect on the Company.
The Company's principal competitor, AT&T Alascom, Inc., has
substantially greater resources than the Company. That competitor's interstate
rates are integrated with those of a nationwide communications firm, AT&T Corp.,
which rates are regulated by the FCC. While the Company initially competed based
upon offering substantial discounts, those discounts have been eroded in recent
years due to lowering of prices by its principal competitor. To the extent that
a competitor lowers its rates, in order to remain competitive, the Company would
of necessity likely reduce its rates. Such action by the Company could have a
materially adverse effect on the Company.
The application filed by Anchorage Telephone Utility (the local
telephone exchange serving the Anchorage area, "ATU") in May, 1996 with the APUC
to provide telecommunication services as a reseller throughout the state of
Alaska, was acted upon favorably in September, 1996 and will place ATU in direct
competition with the Company in seeking to provide those services. As of
December 31, 1995, the Company provided approximately 48% and 42% of
telecommunication services to customers in the Anchorage area and throughout the
state (other than the Anchorage area), respectively, with its existing
competitors providing the balance of those services. ATU has announced that its
new telecommunication services are to be offered to the public by the fall of
1996. The Company believes its approach to developing, pricing, and providing
telecommunication services in Alaska and elsewhere will continue to allow it to
be competitive in providing those services. However, there can be no assurance
that the Company will be able to stand the test of additional competition from a
public utility owned by a municipality with the largest population base of any
local government in the state.
Management of the Company has no control over the possible future entry
into the market place of other potential competitors, all of whom may be much
larger than the Company and have much larger capital bases from which to develop
and compete with the Company. Aggressive competition for customers in
communities served by the Company could also result in increased marketing
expenditures by the Company. Such reductions in customer base and rates and
increases in costs by the Company could have a materially adverse effect on the
Company. Because of the high level of competition and the inability of the
Company to control certain of its costs, the Company's ability to expand its
operations and increase market share is uncertain. Therefore, while the Company
anticipates growth in certain markets and growth in revenues, no assurance can
be given that this growth will be achieved or that the Company will not lose
market share due to competitive pricing, greater resources of its competitors or
other factors. See, "ANNUAL REPORT" and "ACQUISITION PLAN: Recommendations of
Company Board and Its Reasons for the Acquisition Plan."
REGISTRATION STATEMENT
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Distribution Costs. The amounts of originating and terminating access
costs charged to the Company, which constitute a substantial portion of the
costs of the Company in providing telephone services to the public, are fixed by
government regulation and are beyond the direct control of the Company to adjust
except through petition to government agencies including the FCC. Furthermore,
the rates that the Company may charge for services provided to the public are
subject to competition from other providers of similar services. There can be no
assurance that, should the provider of originating and terminating access
services be successful in obtaining governmental agency approval of an increase
in the charges for these services, the Company will thereby be able to pass on a
portion or all of that cost increase to its customers and remain competitive in
offering telephone services to the public. Should the Company not be able to
pass on a portion or all of that cost, its profit margin will decrease. See,
"ANNUAL REPORT."
Customer Base. For approximately the past seven years the Company has
provided services to MCI Telecommunications Corporation and to U.S. Sprint, two
common carrier companies, providing substantial revenues to the Company varying
from approximately 11% to 27% of total revenues per year for the Company during
that period. These two common carriers and other customers of the Company are
free to seek out long distance communication services from companies other than
Company. Loss of one or both of these common carrier companies or a considerable
number of other direct customers of the Company would have a detrimental effect
on the revenues and gross profits of the Company. See "ANNUAL REPORT."
Geographic Concentration and Alaska Economy. The Company offers a broad
spectrum of telecommunication services to residential, commercial and
governmental 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. The volume of oil transported by the TransAlaska
Oil Pipeline System over the past 20 years has been as high as 2.1 million
barrels per day in 1988. Over the past several years, it has begun to decline
and is expected to average approximately 1.4 million barrels per day in 1996.
The volume of oil transported by that pipeline is expected to decrease to 1.0
million barrels per day within a few years, based upon present developed oil
fields using the pipeline for transport. The trend of continued decline is
inevitable, short of new recovery techniques and discovery and development of
other oil fields with access to the present pipeline. The probability of
discovery of such oil reserves sufficient to maintain oil production at
present-day levels will be challenging at best. No assurance can be given that
such production levels can be maintained. With the decline of oil production,
all segments of the Alaska economy will be affected. The Company has, since its
entry into the telecommunication marketplace aggressively marketed its services
to seek a larger share of the available market. However, with a small population
of approximately 600,000 people, one-half of whom are located in the Anchorage
area and the rest of whom are spread out over the vast reaches of Alaska, the
customer base in Alaska is limited. No assurance can be given that the driving
forces in the Alaska economy, and in particular, oil production, will continue
at levels to provide an environment for expanded economic activity, let alone a
stable economy and demand for telecommunication services. See, "ANNUAL REPORT."
Company Common Stock Inherent Factors
Concentration of Stock Ownership. As of the Record Date, executive
officers and directors of the Company and their affiliates owned approximately
50.3% of the outstanding Class A and approximately 65.6% of the outstanding
Class B common stock of the Company. As a result, these persons effectively have
the ability to direct the Company's business and affairs and to control matters
requiring the consent
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of shareholders, including the election of the Company Board. This concentration
of ownership may have the effect of delaying or preventing a change of control
of the Company. Two of the directors of the Company are officers of MCI, another
corporation offering telecommunication services, which as of the Record Date
held approximately 31.2% of the outstanding Class A and 31.5% of the outstanding
Class B common stock of the Company. See, "OWNERSHIP OF THE COMPANY."
The Voting Agreement provides, in part, that the voting stock of its
signatories will be voted at shareholder meetings as a block in favor of no more
than two nominees by MCI for no more than two positions on the Company Board at
any one time. The Voting Agreement similarly commits MCI and the other three
parties to vote their shares for four board nominees proposed by and allocated
between the other parties. As of the Record Date, the shares subject to the
Voting Agreement constituted approximately 38.1% of the outstanding Class A and
approximately 58.8% of the outstanding Class B common stock of the Company. As
of the Record Date the voting power subject to the Voting Agreement was
approximately 52.2% of the effective voting power (one vote per share of Class A
and ten votes per share of Class B common stock) of the combined outstanding
Class A and Class B common stock of the Company. Therefore, the parties to the
Voting Agreement hold sufficient voting power to control the Company. See,
"OWNERSHIP OF THE COMPANY: Changes in Control -- Voting Agreement."
If the Company Stock and MCI Company Stock had been issued under the
Acquisition Plan as of the Record Date, the percentage ownership of the
aggregate outstanding Company Class A and Class B common stock would have become
as follows: (1) Prime Sellers (prior to any distributions to their securities
holders, including other Prime Group members) - 29%; (2) MCI - 23% (down from
approximately 31% immediately prior to the closing on the Proposed
Transactions); (3) the Company's employees and management combined - 10%; (down
from approximately 17% immediately prior to the closing on the Proposed
Transactions); (4) Alaskan Cable - 7%; and (5) others - 31%. Under these same
assumptions but applied to the Company Class A common stock above, the
percentage ownership of Company Class A common stock would be as follows: (1)
Prime Sellers (prior to any distributions to their securities holders, including
other Prime Group members) -- 32%; (2) MCI -- 23%; (3) the Company's employees
and management combined -- 9%; (4) Alaskan Cable -- 8%; and (5) others -- 28%.
See "OWNERSHIP OF THE COMPANY: Changes in Control--Acquisition Plan."
As a part of the Prime Proposed Transaction, the parties to the Voting
Agreement will allow the Prime Sellers (and their distributees, including other
Prime Group members, who agree in writing to be bound thereby) through PIIM as
their designated agent, to become a party to and participate in the agreement
under terms as described elsewhere in this Proxy Statement/Prospectus. The
proposed New Voting Agreement will supersede and replace the Voting Agreement,
provided the Prime Purchase Agreement and the MCI Purchase Agreement are
consummated. Should the New Voting Agreement have been effective and the Company
Stock and MCI Company Stock have been issued as of the Record Date,
approximately 58.7% of the Company Class A and 58.8% of the Company Class B
common stock would have been subject to the New Voting Agreement. As of the
Record Date and assuming the Company Stock and the MCI Company Stock were issued
and outstanding on that date, the voting power subject to the New Voting
Agreement would be approximately 58.7% of the effective voting power of the
combined outstanding Class A and Class B common stock of the Company. The
parties to the New Voting Agreement would then have the voting power to control
the Company. See, "PROPOSED TRANSACTIONS: New Voting Agreement."
Thinly Traded Stock. The Class A common stock of the Company is
designated as a national market system stock on the Nasdaq Stock Market and is
traded on that market. With approximately 1,820 holders of Class A common stock
of record as of the Record Date, the stock was experiencing moderate levels of
trading. There were as of that date eighteen market makers in the stock, only
five of whom on the average had trading volumes in excess of 108,000 shares per
month during the six-month period
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ended June 30, 1996. As of the Record Date the previous six month average level
of trades in that stock was approximately 1,100,000 shares per month, and the
previous one year average level of trades in that stock was approximately
845,000 shares per month. There can be no assurance that a broader based market
will develop. Even if the market in that stock were to expand, there can be no
assurance that the market price at some point in the future, when a holder of
shares of that stock might wish to sell a portion or all of it, will be equal or
greater than the initial purchase price paid by that holder. The Class B common
stock of the Company is traded in the over-the-counter market on a more limited
basis than the Class A common stock. As of the Record Date, there were
approximately 720 shareholders of record in that Class B common stock.
Prospective investors in the Company Stock should be aware that any future
market for the sale of that stock will develop, if at all, based upon a limited
number of trades over a period of time. See, "SUMMARY: Comparative Market Price
Data"; "AVAILABLE INFORMATION" and "ANNUAL REPORT."
Pledges of Securities. In 1990, the Company transferred all of its
operating assets to its wholly owned subsidiary GCC. The Company's present
Credit Agreement with its Senior Lenders requires that all of the outstanding
capital stock of GCC be pledged to the Senior Lenders with the pledge remaining
in place so long as the Credit Agreement remains in effect. Should the Company
default on its obligations under the Credit Agreement, the Senior Lenders may
exercise those pledge of stock provisions and thereby gain direct control of the
essential operating assets through which the Company and its subsidiaries
provide telecommunication services. See, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS: Certain Transactions with Management and Others -- Credit
Agreement" and "ANNUAL REPORT."
Under loan agreements between Prime and its senior lenders, certain
interests in Prime have been pledged to the lenders as follows: all of Prime's
assets and all of Prime General Partner's interests in Prime. In addition, under
those agreements, PIIM has pledged all of its rights under the management
agreement under which it managed the Prime Alaska Systems as of the Record Date.
As of the Record Date, the Company expected the Prime security interests, which
the Company would receive under the Prime Purchase Agreement, would continue to
be subject to those pledge agreements previously entered into by Prime, Prime
General Partner and PIIM.
Restrictions Imposed by Lenders. The Company's present Credit Agreement
with its Senior Lenders (see, "Pledges of Stock" within this section) imposes
upon the Company certain financial and operating covenants including, among
other things, requirements that the Company maintain certain financial ratios,
and satisfy certain financial tests, limitations on capital expenditures, and
restrictions on the ability of the Company to incur indebtedness, pay dividends,
or take certain other corporate actions, all of which may restrict the Company's
ability to expand or to pursue its business strategies. Changes in economic or
business conditions, results of operations or other factors could in the future
cause a violation of one or more covenants in the Credit Agreement. See,
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Certain Transactions with
Management and Others -- Credit Agreement" and "ANNUAL REPORT."
COMPANY ANNUAL MEETING
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of the Company's Class A and Class B
common stock for use at the 1996 annual meeting of shareholders ("Annual
Meeting"). The Proxy Statement/Prospectus, the letter to shareholders, Notice of
Meeting and the accompanying Company Proxy are first being sent or delivered to
shareholders of the Company on or about October 7, 1996. A copy of the Company's
Annual Report in the form of a Form
REGISTRATION STATEMENT
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10-K, as amended by a Form 10-K/A, for the year ended December 31, 1995, and a
copy of the Company's unaudited quarterly report for the quarter ended June 30,
1996 accompany this Proxy Statement/Prospectus. See, "ANNUAL REPORT."
Time and Place
The Annual Meeting will be held in the Denali Ballroom of the Regal
Alaskan Hotel at 4800 Spenard Road, Anchorage, Alaska at 6 p.m. (Alaska Time) on
October 17, 1996. A reception for shareholders will commence at 5 p.m. at that
location.
Purpose
As indicated in the Notice of Annual Meeting, the following matters
will be considered and voted upon at the Annual Meeting:
(1) Election of three directors in Class I of the classified
Company Board, each for three year terms;
(2) Approval of the Acquisition Plan, i.e, a plan of acquisition
whereby the Company will acquire all of the assets or
securities of seven companies offering cable television
services in Alaska, will expand the Company Board by two
positions and in addition increase its capital by issuing and
selling the MCI Company Stock; and
(3) Transaction of such other business as may properly come before
the Annual Meeting and any adjournment or adjournments of that
meeting ("Other Business").
Approval by the shareholders of the Acquisition Plan will constitute
approval of the issuance of (1) the Company Stock to the security holders of
Prime Cable of Alaska, L.P. and the three corporations comprising the Alaskan
Cable companies and (2) the MCI Company Stock to MCI.
Outstanding Voting Securities
The holders of common stock of the Company as of the close of business
on August 19, 1996 ("Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting. As of the Record Date and under the Company Articles,
the common stock of the Company was divided into two classes: (1) Class A common
stock for which the holder of a share is entitled to one vote; and (2) Class B
common stock, for which the holder of a share is entitled to ten votes. On the
Record Date, there were 19,648,382 shares of Class A common stock and 4,085,461
shares of Class B common stock outstanding and entitled to be voted at the
Annual Meeting.
Voting Rights, Votes Required for Approval
Except as otherwise provided by applicable law or the Company Articles,
at any meeting of the shareholders, a simple majority of the issued and
outstanding common stock of the Company entitled to be voted as of the Record
Date will constitute a quorum. As an example, since there were a total of
19,648,382 shares of Class A and 4,085,461 shares of Class B common stock issued
and outstanding and entitled to be voted as of the Record Date, a quorum would
be established by the presence, in person or by proxy, of at least 7,781,461
shares of Class A common stock and all 4,085,461 shares of Class B common stock.
Because of the ten-for-one voting power of the Class B common stock, shares of
that stock have a more substantial impact on the voting power for purposes of
taking votes on matters
REGISTRATION STATEMENT
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addressed at the Annual Meeting. The total number of votes to which Class A
common stock and Class B common stock were entitled as of the Record Date were
19,648,382 and 40,854,610, respectively.
Adoption of the Annual Meeting agenda items pertaining to the election
of directors and adoption of the Acquisition Plan will each require an
affirmative vote of the holders of at least a simple majority of voting power of
the issued and outstanding Class A common stock and Class B common stock of the
Company entitled to be voted as of the Record Date. The Company Articles
expressly provide for non-cumulative voting in the election of directors.
As of the Record Date, the number and percentage of outstanding shares
entitled to vote held by directors and executive officers of the Company and
their affiliates were 9,984,702 shares constituting approximately 50.3% of the
outstanding Class A common stock and 2,679,499 shares constituting approximately
65.6% of the outstanding Class B common stock. As of the Record Date, 7,562,430
shares constituting approximately 38.1% of the outstanding Class A and 4,085,461
shares constituting approximately 58.8% of the outstanding Class B common stock
of the Company, were subject to the Voting Agreement. Also as of the Record Date
the voting power of the common stock of the Company subject to the Voting
Agreement was approximately 52.2% of the effective voting power of the combined
outstanding Class A and Class B common stock of the Company. The shares subject
to the Voting Agreement when voted in concert in accordance with its terms are
sufficient to assure the approval of management's slate and of the Acquisition
Plan. When combined, the voting power held by management of the Company and the
parties to the Voting Agreement constituted approximately 60.8% of the
outstanding voting power of Class A and Class B common stock of the Company as
of the Record Date.
The parties to that Voting Agreement and management of the Company have
indicated their intent to vote for the Acquisition Plan and management's slate
of nominees for the Company Board. Should these shares be so voted, management's
slate of directors for the Company Board and the Acquisition Plan would be
approved and adopted at the Annual Meeting and the issuance of the MCI Company
Stock and the Company Stock would be assured, irrespective of the vote of any
other shareholder of the Company. See, "OWNERSHIP OF THE COMPANY: Management."
Proxies
The accompanying form of Company Proxy is being solicited on behalf of
the Company Board for use at the Annual Meeting.
Subject to the conditions described in this section, the shares
represented by each Company Proxy executed in the accompanying form of Company
Proxy will be voted at the Annual Meeting in accordance with the instructions in
that Company Proxy. The Company Proxy will be voted for management's nominees
for directors as a classified board and as otherwise specified in the Company
Proxy, unless a contrary choice is specified.
All votes cast by holders of common stock of the Company as of the
Record Date, in person or by Company Proxy completed and executed in accordance
with the instructions on the Company Proxy, will be counted at the Annual
Meeting. A Company Proxy having one or more clearly marked abstentions or having
no indication of vote on one or more of the proposals to be addressed at the
Annual Meeting will be honored as an abstention or non-vote, respectively.
However, such a Company Proxy will be counted for purposes of establishing a
quorum at the Annual Meeting.
A Company Proxy executed in the form enclosed may be revoked by the
person signing the Company Proxy at any time before the authority thereby
granted is exercised by giving written notice to the Secretary of the Company
Board delivered to 2550 Denali Street, Suite 1000, Anchorage, Alaska or
REGISTRATION STATEMENT
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at the Annual Meeting. Thereafter the person signing the Company Proxy may vote
in person or by other proxy as provided by Company Bylaws. The person signing
the Company Proxy may also revoke that proxy by a duly executed proxy bearing a
later date.
The expenses of this Company Proxy solicitation made by the Company
Board for the Annual Meeting, including the cost of preparing, assembling and
mailing the Notice of Meeting, Company Proxy, Proxy Statement/Prospectus, and
return envelopes, the handling and tabulation of proxies received, and charges
of brokerage houses and other institutions, nominees or fiduciaries for
forwarding such documents to beneficial owners, will be paid by the Company. In
addition to the mailing of these proxy materials, solicitation may be made in
person or by telephone, telecopy, or telegraph by officers, directors, or
regular employees of the Company, none of whom will receive additional
compensation for that effort.
Recommendations of Company Board
Company Board Nominees. Management and the Company Board recommend to
the shareholders of the Company a vote "FOR" the slate of three directors for
the three positions up for election at the Annual Meeting, i.e., a vote for item
number 1 on the Company Proxy: for Class I-John W. Gerdelman, Carter F. Page,
and Robert M. Walp. Background and other information on each of the nominees is
provided elsewhere in this Proxy Statement/Prospectus. See, "MANAGEMENT OF THE
COMPANY."
Acquisition Plan. Management and the Company Board recommend to the
shareholders of the Company a vote "FOR" approval of the Acquisition Plan, i.e.,
a vote for item number 2 on the Company Proxy. Further information and reasons
for this recommendation are provided elsewhere in this Proxy
Statement/Prospectus. See, "ACQUISITION PLAN" and "PROPOSED TRANSACTIONS."
CABLE COMPANY SECURITY HOLDER CONSENTS
Purpose
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of consents and approvals for the respective Proposed Transactions
("Consents") separately for the security holders of Prime and Alaskan Cable. The
Consents are being solicited in lieu of formal meetings of the respective
security holders of Prime and Alaskan Cable. The Proxy Statement/Prospectus and
the accompanying separate Consents for each of these Cable Companies are first
being sent or delivered to those security holders on or about October 7, 1996. A
copy of the Company's Annual Report, as amended, for the year ended December 31,
1995 and a copy of its quarterly report for the three- and six-month periods
ended June 30, 1996 accompany this Proxy Statement/Prospectus. See, "ANNUAL
REPORT." Financial Statements for Prime, Alaskan Cable, and Alaska Cablevision
also accompany this Proxy Statement/Prospectus. See, "INDEX TO FINANCIAL
STATEMENTS."
Time and Place
The Consents are to be executed and returned by security holders of the
companies in favor of the corresponding Proposed Transaction by no later than
12:00 midnight (Alaska Time) October 28, 1996 ("Consent Deadline") as follows:
(1) Prime Group members--delivered to Prime at One American Center, 600 Congress
Avenue, Suite 3000, Austin, Texas 78701; and (2) Alaskan Cable--delivered to the
board of directors of the corresponding corporation of Alaskan Cable at Kent
Farms, Middleburg, Virginia 22117.
REGISTRATION STATEMENT
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Outstanding Voting Securities
The holders of voting securities of Prime (and the holders of voting
securities of the Prime entities from which Consents are to be sought, i.e.,
Prime General Partner, PCLP, ACI (including PVII, one of ACI's shareholders),
Prime Growth, and Prime Holdings), and of Alaskan Cable as of the close of
business on the Record Date will be asked to sign and return such Consents not
later than the Consent Deadline. As of the Record Date, the voting securities of
each of these Cable Companies outstanding was as follows: (1) Prime-- all of the
limited partner interests based upon capital contributions of the partners and
no partner voting rights in the equity participation interests (however, consent
of such holders is required for distributions by Prime); and (2) Alaskan Cable
- -- (a) for Alaskan Cable/Fairbanks -- 1,000 shares of common stock; (b) for
Alaskan Cable/Juneau -- 540.5 shares of common stock; and (c) for Alaskan
Cable/Ketchikan -- 1,000 shares of common stock.
Voting Rights, Votes Required for Approval and Consents
Alaskan Cable. With the exception of Alaskan Cable/Ketchikan, under
articles of incorporation or bylaws of Alaskan Cable, at a meeting of the
securities holders of the company, a simple majority of the issued and
outstanding securities of the company entitled to vote will constitute a quorum.
The articles of incorporation for Alaskan Cable/Ketchikan provide that one-third
of the shares entitled to vote constitutes a quorum for all meetings of
shareholders.
The Bylaws of each of the three corporations comprising Alaskan Cable
provide that each share is to have one vote on matters addressed to the
shareholders at a meeting. Those Bylaws also provide that any action required by
law to be taken at a shareholder meeting or which may be taken at such a meeting
may be taken without a meeting if a consent in lieu of meeting in writing
setting forth the action so taken is signed by all of the shareholders entitled
to vote with respect to the subject matter in question. Such consent is to have
the same force and effect as a unanimous vote of shareholders. The boards of
directors of the corporations comprising Alaskan Cable intend to seek 100%
consent of the shareholders of the respective corporations.
The written consents of the shareholders of the corporations comprising
Alaskan Cable are being sought by delivering to each such shareholder a copy of
the Proxy Statement/Prospectus along with a form Consent for that person to
date, sign, and return to the corresponding corporation of Alaskan Cable.
Prime. The Prime Partnership Agreement provides that a quorum for a
meeting of limited partners consists of limited partners owning at least a
majority of the outstanding limited partner interests in the partnership. In the
case of Prime, the consent of all the limited partners is required in order to
approve the Prime Proposed Transaction.
The Prime Partnership Agreement provides that any consent, ratification
or approval required or permitted to be given by the limited partners pursuant
to the agreement may be given without a meeting of the partners. Such consent,
ratification, and approval must be in writing setting forth the matters as to
which such action is requested and signed by the limited partners that would be
entitled to take the action at a meeting of partners called for that purpose
representing the necessary percentage of outstanding limited partner interests.
The agreement further provides that the general partner must give prompt notice
of any action to be taken pursuant to the written consent of less than all the
partners, to each partner that did not give such consent, ratification, or
approval. The limited partnership agreements of the other Prime limited
partnership entities that are Prime Sellers or other members of the Prime Group
also permit taking action without a meeting. The approval of the Prime Proposed
Transaction will require the consent of Prime General Partner and each of
Prime's limited partners.
REGISTRATION STATEMENT
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As part of the Prime Proposed Transaction, PCLP will exchange all the
outstanding capital stock of Prime General Partner for shares of Prime Company
Shares in the PCFI Merger, i.e., a merger of Prime General Partner into GCI
Cable. In order to effect the PCFI Merger, the consent of limited partners of
PCLP owning at least 66-2/3% of the outstanding limited partner interests of
PCLP is required. Also as a part of the Prime Proposed Transaction, the
shareholders of ACI will exchange all of their stock in ACI for shares of Prime
Company Shares in the ACI Merger, i.e., a merger of ACI into GCI Cable. In order
to effect the ACI Merger, the approval of all of the shareholders of ACI is
required, subject to waiver of the requirement by the Company, in which case
approval of holders of 66-2/3% of ACI's voting stock will be required in order
to effect the ACI Merger. The determination as to whether or not to waive such
requirement is in the sole discretion of the board of directors of GCI Cable.
As part of the Prime Proposed Transaction, Prime Growth and Prime
Holdings (the other two of the three limited partners of Prime), will sell to
the Company the limited partner interests in Prime held by them. The consent of
the limited partners of Prime Growth, who own at least 80% of the outstanding
limited partner interests of Prime Growth is required in order for Prime Growth
to effect that sale, excluding for purposes of calculating the 80%, interests
held by PVI (a general partner of Prime Growth) and its affiliates. The consent
of limited partners of Prime Holdings who own at least two-thirds of the
outstanding limited partner interests in Prime Holdings is required in order for
Prime Holdings to effect that sale. Also as a part of the Prime Proposed
Transaction, PVII will exchange the capital stock of ACI held by PVII for shares
of Prime Company Shares in the ACI Merger. In order to effect that exchange, the
consent of limited partners of PVII owning at least two-thirds of the
outstanding limited partner interests of PVII will be required.
The written consents of the limited partners of Prime and of the
security holders of those limited partners and the equity participation interest
holders in Prime are being sought by delivering to each such person a copy of
the Proxy Statement/Prospectus along with an appropriate form of Consent for
that party to date, sign, and return to Prime.
Expenses
The expenses of solicitation of the Consents made by the board of
directors or other governing bodies of Alaskan Cable and Prime, including the
cost of preparing, assembling and mailing the Consents, Proxy
Statement/Prospectus, and return envelopes, will be paid by the Company. Charges
for handling and tabulation of Consents received will be paid by the
corresponding Cable Company. In addition to the mailing of these Consent
materials, solicitation may be made in person or by telephone, telecopy, or
telegraph by officers, directors, or regular employees of the corresponding
Cable Company, none of whom will receive additional compensation for that
effort.
SECURITY HOLDERS OF PRIME SHOULD NOT SEND IN ANY STOCK OR OTHER SECURITY
CERTIFICATE WITH THEIR CABLE COMPANY CONSENTS.
ACQUISITION PLAN
Background
On March 14, 1996 the Company entered into four non-binding letters of
intent to acquire the securities of Prime and all of the assets of Alaskan
Cable, Alaska Cablevision, McCaw/Rock Homer and McCaw/Rock Seward (the seven
companies collectively, "Cable Companies"). Those companies have cable
distribution systems passing approximately 74% of households throughout Alaska.
As of June 30, 1996, those systems had more than 105,000 basic subscribers in
the state. As a part of this intention and to assist the Company in its
capitalization needs, the Company also entered into a letter of intent with MCI
REGISTRATION STATEMENT
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for MCI to purchase additional Company common stock. These letters of intent
form the basis for the Acquisition Plan, i.e., the plan to acquire the assets or
securities of the Cable Companies and to recapitalize the Company. These events
were reported to the Commission on a Form 8-K dated March 28, 1996, as amended
by an amendment dated May 20, 1996.
The letters of intent provided that the parties would seek to reduce
their intents to written agreements. In April-May, 1996 the Company entered into
Purchase Agreements with the Cable Companies. As of the Record Date, the Company
and MCI were in the process of reducing the letter of intent, as it pertains to
the purchase of the MCI Company Stock, to a formal agreement. These Purchase
Agreements and related agreements are described further elsewhere in this Proxy
Statement/Prospectus. See, "PROPOSED TRANSACTIONS."
On April 12, 1996 the Company Board held a meeting at which the terms
of the Acquisition Plan, as well as the substantive provisions of the Proposed
Transactions were fully discussed. At the conclusion of the review, the Company
Board unanimously approved the Acquisition Plan as embodied in the Proposed
Transactions. Over a short period of time following the meeting, the Company and
the corresponding other parties executed the Purchase Agreements.
In making the decision to enter into the Prime Proposed Transaction,
neither the signatories nor Prime sought or relied upon a financial advisor for
a determination or opinion on fairness of consideration for the securities to be
exchanged in the transaction. Jack Kent Cooke, the president of each of the
three corporations comprising Alaskan Cable and, indirectly, the controlling
shareholder of them, has directed Alaskan Cable to adopt the Alaskan Cable
Proposed Transaction. In making the decision to enter into the Alaskan Cable
Proposed Transaction, neither Mr. Cooke nor Alaskan Cable nor the Company sought
or relied upon a financial advisor for a determination or opinion on fairness of
consideration for the securities or assets exchanged in the transaction.
Recommendation of Company Board and Its Reasons for the Acquisition Plan
Decision-Making Process. In early 1995, the Company through Mr. Duncan,
its president, initiated discussions with Prime proposing a joint use of cable
plant of the Prime Alaska Systems by the Company and Prime to enhance the
services provided by the Company. In July, 1995, representatives of Prime met
with Mr. Duncan and other executive officers of the Company to discuss facility
sharing as well as a Prime proposal for the Company to acquire Prime rather than
enter into a joint use agreement. The proposal included an analysis of the
Company's acquisition of Prime as well as the acquisition of the cable systems
of Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward.
During the period from July-December, 1995, Prime and the Company engaged in
several discussions as to the method and valuation of their respective companies
culminating with the Company making a tentative proposal to acquire Prime. In
January, 1996, representatives of Prime attended a meeting of the Company Board,
to negotiate further the price and structure of the proposed acquisition. After
full discussion of the issues, the Company Board concluded the acquisition of
Prime was preferable to a joint use of cable plant agreement. During the time
period January-March, 1996, the Company and Prime negotiated the terms of a
letter of intent whereby the Company would acquire all of the security interests
in Prime from the Prime Sellers. In February, 1996, the Company made contact
with representatives of Alaskan Cable and separately with representatives of
Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward to acquire the
assets of those Cable Companies. These negotiations were coordinated through
Prime and resulted in a formal offer of acquisition by the Company to Alaskan
Cable on February 16, 1996 and to Alaska Cablevision, McCaw/Rock Homer, and
McCaw Rock/Seward on February 19, 1996. The negotiation process involving all of
the Cable Companies was formalized with the execution on March 14, 1996 of
letters of intent between the Company and the Cable Companies as further
described elsewhere in this Proxy Statement/Prospectus. See, within this
section, "Background."
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Recommendation. The Company Board has unanimously approved the
Acquisition Plan, has determined unanimously that the Acquisition Plan is
advisable and fair to and in the best interests of the Company and its
shareholders, taken as a whole, and has unanimously recommended that holders of
shares of Class A and Class B common stock of the Company vote "FOR" approval of
the Acquisition Plan.
The Company Board believes the once distinct lines drawn between
telephone and cable services are beginning to merge. The Acquisition Plan allows
the Company to integrate cable services to bring more information not only to
more customers but in a manner that is expected to be quicker, more efficient
and more cost effective than before. The Company Board further believes the
Acquisition Plan will allow consolidation of operations of cable television
services in the state and offer a platform for developing new customer products
and services for the Company over the next several years.
The Company Board believes that the Acquisition Plan represents an
attractive opportunity for the Company to acquire substantial cable television
assets and securities of cable operations that have historically generated
positive cash flow from operating activities. While the proposal will require a
substantial dilution in percentage ownership represented by existing holdings of
shareholders, a substantial increase in debt of the Company through bank
financing, and use of a portion of the Company's cash reserves, the Company
Board believes that the Proposed Transactions will allow the Company to
diversify into another market which compliments its long-term involvement in
telecommunications and long distance carrier services. The Company Board has
concluded that the Acquisition Plan will benefit the Company because the board
believes that the Cable Companies have consistent records of growth of revenues
and cash provided by operations. The Company Board further believes that the
acquisition of the Cable Companies will provide the Company with the opportunity
to realize operational efficiencies and strategic opportunities to enter new
product markets where the Cable Companies' cable systems, all located in Alaska,
are located in close proximity to other operations of the Company.
In reaching these conclusions and its decision to approve the
Acquisition Plan and to recommend that the Company's shareholders vote to
approve the Acquisition Plan as outlined through the Proposed Transactions, the
Company Board considered several factors. These factors included among other
things, the terms and conditions of the Proposed Transactions, the strategic fit
of all the cable infra-structure in the Company's future plans, information with
respect to the financial condition, business, operations, and prospects of the
Cable Companies and the Company on both a historical and prospective basis,
including certain information reflecting the Company and the Cable Companies on
a pro forma combined basis and the Cable Companies' historical cash provided by
operations, and the view and opinions of the management of the Company.
Specifically, the key decision factors used by the Company Board in
reaching the conclusion to approve the Acquisition Plan were as follows:
Industry Trends. The Company Board believes that the telecommunications
industry is entering a period of consolidation across industry segments. All
participants (local telephone, broad band entertainment, interexchange, wireless
and information service providers) will be competing with each other.
Technological change is blurring the distinctions in how services are provided,
and consumers are increasingly looking to single providers to meet their
communication needs. The Company Board believes the Acquisition Plan along with
the Company's ownership of PCS wireless frequencies will provide the Company
with a firm technical platform to expand from an interexchange carrier to a
full-service telecommunications provider.
Diversified Sources of Revenue and Cash Flow. The Company Board
believes the Acquisition Plan will reduce the Company's reliance on its cash
flows from the existing long distance business by
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spreading its revenues and gross margin over a broader range of customers and
services. This action will reduce the impact on the Company of adverse events in
a single line of business. The increased stability in the Company's consolidated
cash flows will allow the Company to support higher levels of debt without undue
increases in risk. However, the Company, in taking on higher levels of debt,
will increase its obligation to repay that debt from its finite sources of cash
flow.
Capital and Operational Synergies. The Company Board believes the
combining of the Cable Companies into a single operational unit will increase
the efficiency of the cable operations. Additionally, the Company Board believes
the capital upgrades necessary to make the Cable Companies more competitive will
provide facilities that will be useful to the Company in its other lines of
business. The Company Board believes this action will reduce the overall capital
requirements of the consolidated business. However, see within this section
"--Financing"; "--Operational Challenges" and "--Competitive Risk."
Increased Equity. The Company Board believes the issuance of a
substantial amount of stock as part of the consideration in the Prime Proposed
Transaction and as a part of the consideration in the Alaskan Cable Proposed
Transaction will substantially increase the Company's equity and correspondingly
will broaden its financial base. To accomplish this end, existing shareholders
of the Company will have their shareholdings in the Company diluted, and Prime
and Alaskan Cable will acquire significant voting power of the outstanding
common stock of the Company should the Prime Company Shares, the Alaskan Cable
Company Shares, and the MCI Company Stock be issued on that date. See,
"DISTRIBUTION OF COMPANY STOCK" and "RISK FACTORS: Company Common Stock Inherent
Factors--Concentration of Stock Ownership."
Financing. Financing of the Proposed Transactions was a key
consideration of the Company Board. The Company Board believes there are banks
willing to lend the amounts required to close the Proposed Transactions.
However, while the Company has had discussions with its Senior Lenders regarding
the financing of the Proposed Transaction, those lenders had not as of the
Record Date agreed to provide that financing. The use of a substantial equity
component in the consideration should increase the Company's available leverage
capacity. The Company Board believes this additional capacity will enhance the
Company's ability to raise the substantial additional debt that it will require
to meet its large capital budget for integration of the Cable Company operations
into those of the Company.
Competitive Risk. The Company Board believes both the Company's
existing business and the businesses it is to acquire through the Acquisition
Plan will face increasing competitive pressures. In this context, the Company
Board considered the likelihood of potential new entrants into the cable
television market, including direct broadcast services, that may reduce market
share subsequent to consummation of the Acquisition Plan, as well as the
likelihood of ATU, i.e., Anchorage Telephone Utility providing cable television
services. ATU is a public utility owned by the Municipality of Anchorage and is
the only telephone exchange servicing the Anchorage, Alaska area. While the
former would be new entrants into the Alaska marketplace, the latter, through
its established telephone line distribution system, services a substantial
majority of the residents in the Anchorage area, and could prove to be a
formidable competitor in the cable television services area should it seek to
provide such service. The Company Board also took into consideration the action
by ATU in May, 1996 to file an application with the APUC to provide
telecommunication services as a reseller throughout the state of Alaska. As of
December 31, 1995, ATU had a base of approximately 137,000 individual and
business access lines and total revenues and total assets of approximately
$123.6 million and $289.9 million, respectively. With its entry into the
intra-state telecommunications service area, ATU will be in direct competition
with the Company to provide such services to existing customers of the Company
in the Anchorage area (who already subscribe to local exchange services from
ATU) and elsewhere in the state. As of December 31, 1995 the Company provided
telecommunication services to approximately 48% and 42% of the customers in the
Anchorage
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area and throughout the state (other than the Anchorage area), respectively,
with its existing competitors providing the balance of the services. ATU has
announced that its new telecommunication services are to be offered to the
public by the fall of 1996. The Company Board concluded that the Company's
approach to developing, pricing, and providing telecommunication services in
Alaska and elsewhere will continue to allow it to be competitive in providing
those services. The Company Board also concluded that the consummation of the
Acquisition Plan will allow the Company to expand its customer base to include
cable television customers. The Company Board believes that the consolidated
operations of the Company subsequent to the consummation of the Acquisition Plan
will create a more effective competitor to respond to the increasing competitive
challenges in the communication industry. No assurance can be given that the
view will prove correct, and no assurance can be given that the Company will be
able to stand the test of additional competition from a public utility owned by
a municipality with the largest population base of any local government in the
state. See, "RISK FACTORS: Economic Risks--Competition."
Operational Challenges. The Company Board believes the Company will
face significant operational issues in consolidating its current operations with
those of the Cable Companies and in managing the growth in both revenue and
personnel that the board believes will result from the consummation of the
Proposed Transactions. The Company Board considered that, through the
Acquisition Plan, the Company will acquire a substantial portion of the existing
cable television distribution systems in the state of Alaska and gain entry into
the cable television business, an entirely new industry segment for the Company,
for which it has no prior experience to operate. The Company Board considered
the plan which includes the Company entering into the Prime Management Agreement
with PIIM to manage the resulting combination of the seven cable television
systems acquired from the Cable Companies. The Company Board considered the
possibility of retaining some portion of the persons presently managing and
working with the Cable Companies. The Company Board did not authorize employment
of any specific officer, director, or employee of the Cable Companies, with one
exception, however, as of the Record Date the Company Board did not contemplate
that that individual would join the Company as an executive officer of the
Company or a subsidiary of it. The Company Board considered the high cost of
required plant and equipment upgrade and conversion of the distribution systems
of the Company Cable Systems from present analog to digital systems enabling,
among other things, the Company to provide new high-bandwidth services such as
cable modems for high-speed telecommunication services over enhanced cable
networks. These services are not within the capabilities of the present Cable
Company cable systems in Alaska. However, the Company Board believes the
Company, in remaining competitive in the cable industry, will have to be able to
provide such services within the next few years. The Company Board considered
the need to expend more than $20 million over the next five years for the
Company to be in a position to provide such services. The Company Board
considered the difficulties in combining the plant, equipment, and operations of
the Alaska cable systems of the seven Cable Companies, a business of significant
size compared to the Company based upon total revenues for the year ended
December 31, 1995, and one which is to have business operations in widely
dispersed locations over a large geographic area of the state. In addition, the
Company Board considered the effect on the Alaska Cable Systems of competition
from providers of services making use of new technologies, such as
satellite-based direct television signal to customers having separate satellite
signal receivers and other similar direct broadcast services. These competing
services may reduce market share subsequent to the consummation of the
Acquisition Plan. No assurance can be given that this initial plan adopted by
the Company Board for the transition, reorganization, management, operation, and
development of the Company Cable Systems will prove successful. See, "RISK
FACTORS: Risks of the Businesses in Which the Company Will Be Engaged" and
"CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN: Company Cable Systems."
Pricing and Valuation. The Company Board spent considerable time
evaluating the relative valuations of the Company and the proposed acquisitions
of the Cable Companies to assure that the
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Proposed Transactions are fair to the shareholders of the Company. The Company
Board has relied heavily on the expertise of its directors, many of whom are
senior executives in national companies in the interexchange and cable
industries. The stock to be issued by the Company was valued at a 30% premium to
its pre-acquisition price. The valuation of the Cable Companies was based upon
the directors' assessment of the Cable Companies' value as independent cable
companies. The Company Board determined that the proposed price and structure of
the Acquisition Plan represented fair prices for all parties and created
opportunities for growth in the future value of the equity. However, no
assurance can be given as to the growth in future value of the Company Class A
common stock in that it will depend on a number of factors including the
performance of the Company with its newly acquired Cable Companies and the
perception of investors in equity as to the Company's performance and future
performance. See within this section, "--Determination of Value."
The foregoing discussion is believed by the Company Board to include
all material factors considered by the board. In reaching the determination to
approve the Acquisition Plan, the Company Board did not assign any relative or
specific weight to the foregoing factors which were considered. Individual
directors may have given differing weights to different factors. In making its
final determination on the Acquisition Plan, the Company Board did not receive
any independent valuations or opinions as to the fairness of the consideration
to be paid in connection with any of the Proposed Transactions.
For a discussion of the ownership interests in the Company, the members
of the Company Board and the Named Executive Officers, see, "OWNERSHIP OF THE
COMPANY."
Recommendations of the Cable Company Boards and Their Reasons for the
Acquisition Plan
General. Each of the boards of directors (in the case of each of the
three corporations comprising Alaskan Cable) and the board of directors of the
Prime General Partner (in the case of Prime) has unanimously approved the
Acquisition Plan as it pertains to their corresponding companies, has determined
unanimously that the Acquisition Plan is advisable and fair to and in the best
interests of their respective companies and their respective securities holders
(and in the case of Prime General Partner, the Prime Group), taken as a whole,
for each respective company. Each of these governing bodies has unanimously
recommended to security holders of their respective companies a vote "FOR"
approval of the Acquisition Plan. In reaching its decision to approve the
Acquisition Plan and to recommend that its company's securities holders (and in
the case of Prime General Partner, the Prime Group), vote to approve or
otherwise consent and approve the Acquisition Plan, each such governing body of
these Cable Companies independently considered the following factors.
Industry, Economic and Market Conditions. Each board of directors of
Alaskan Cable and the board of directors of the general partner of Prime
considered the present and anticipated technological and regulatory changes
affecting the telecommunications industry in general and concluded that such
changes could significantly affect the competitive pressures in the cable
industry. Each such governing body concluded that these changes include advances
in technology and changes in regulation that could permit telephone companies to
offer broad-based entertainment programming on telephone networks and could
permit cable companies to offer telephone services on cable networks. In
addition, these governing bodies concluded services such as direct broadcast
satellites and personal communications services could increase competition to
both cable companies and telephone companies. The governing bodies concluded
that, based upon their knowledge of the business, operations, properties,
assets, financial condition, operating results and future prospects of their
respective Cable Companies, in order to meet these competitive challenges the
companies would require access to greater financial, managerial and
technological resources than they individually possessed or anticipated being
able to possess. The Company is a diversified company that these governing
bodies believe has the resources, with the acquisition envisioned through the
Acquisition Plan, and access to capital markets that will enable the
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Company to compete in the changing environment of the cable and
telecommunications marketplaces in Alaska.
Decision-Making Process. Management of Prime and management of Alaskan
Cable separately arrived at their respective decisions to enter into separate
Proposed Transactions with the Company as follows.
Prime. The management for Prime neither sought nor received any offers
from third parties to acquire the securities or assets of Prime during the time
period of its consideration of the Company's proposal as previously described.
Management for Prime has extensive experience in and knowledge of the cable
communications industry and believes that it is generally familiar with
transactions involving the purchase and sale of cable communications systems of
comparable size to the Prime Alaska Systems. Based upon that experience and
knowledge, Prime management concluded that the terms of the transaction as
negotiated with the Company were at least as favorable as could have been
obtained from any such party. In reaching such conclusion, management for Prime
believes that the transaction with the Company offers to the partners of Prime
(and to the shareholders of ACI and Prime General Partner) and to the equity
participation interest holders of Prime the opportunity to diversify their
investment in a cable communications business into a business that offers a
broad range of telecommunication services to residential, commercial and
governmental customers in Alaska and to capitalize on the combination of that
business with a cable communications business in that state. See, within this
section "--Determination of Value." Furthermore, Prime management negotiated
terms with the Company that provide the shareholders of ACI and Prime General
Partner with such diversification in a tax-free transaction to them. However, in
the event the Prime Company Shares are distributed to the partners of PCLP or to
the partners of any one or more of the limited partnerships that are
shareholders of ACI, such distributions may be taxable to such partners to the
extent that the fair value of such shares distributed exceeded their adjusted
basis in the distributing partnership, although a proposed Treasury Regulation
would treat such distributions as not taxable. See, "CERTAIN CONSEQUENCES OF THE
ACQUISITION PLAN: Certain Federal Income Tax Consequences."
In early 1995, the Company initiated discussions with Prime proposing a
joint use of cable plant, and subsequent discussions resulted in the Company and
Prime agreeing to consider an acquisition of Prime by the Company. See,
"ACQUISITION PLAN--Recommendation of Company Board and Its Reasons for the
Acquisition Plan."
In 1995, Prime management concluded that developments in
telecommunications technology, the anticipated deregulation of the
telecommunications and the cable television industries, and the anticipated
consolidation of the telecommunications and communications entertainment
industries, made it advisable either to sell the Prime Alaska Systems or to
combine the Prime Alaska Systems with a telecommunications company providing
service in the same market that Prime serves. Prime management believes that
continuing Prime as a separate, stand alone business would place the Prime
Alaska Systems at a competitive disadvantage with telecommunications companies
which plan to provide video entertainment to the same markets. After considering
the possibility of a sale of all the Prime Alaska Systems or a sale of the
systems piecemeal in a liquidation, Prime management concluded that the
investors in Prime would achieve a better return on their investment if they
were part of a larger telecommunications organization. Prime management also
believed that the number of buyers that might be interested in Prime was
limited, due to the fact that the Prime Alaska Systems were geographically
remote.
The combination of the Prime Alaska Systems with the other Company
Cable Systems proposed to be acquired has the potential of achieving economies
of scale in management, employee benefits, billing, customer service and
regulatory matters. Economies of scale also may be achieved from the
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combination of the Company and Prime in connection with the proposed
construction and use of a fibre optic network being considered by Prime
management for the Prime Alaska Systems for a proposed PCS system. The
combination also offers the Company and Prime the opportunity to fully integrate
video, high-speed data and long distance services which may increase the ability
to attract and retain new customers. The combination of the Company and Prime
would also achieve a diversification of sources of revenues. Because of the
several benefits that a combination would offer to the Company, Prime management
concluded that Prime had more value to the Company than as a stand-alone
acquisition opportunity for other potential buyers. In the course of the
discussions with the Company, Prime management concluded that a cash transaction
was not available on any acceptable terms and the decision was made to enter
into an agreement for the acquisition by the Company, directly and indirectly,
of all the partnership interests in Prime.
Prime management did not solicit any offers to acquire Prime. The cable
television market for systems the size of the Prime Alaska Systems is relatively
small, and Prime management is confident that if there had been another
prospective buyer for Prime on terms that would have been comparable to that
negotiated with the Company, such a buyer would have approached Prime
management. Prime management is unaware of any offers which have been made for
an acquisition, tender offer, change of control, merger, consolidation, or
combination of any of such partnerships or of Prime or a material amount of any
of their assets.
In the negotiation of the transactions leading up to the Prime Purchase
Agreement, representatives of Prime, including Prime General Partner, agreed
with the Company upon an aggregate value for all of the equity ownership
interests and equity participation interests in Prime of $76.7 million. The
Prime Company Shares was based upon that $76.7 million equity value of Prime and
a negotiated price per share of Company Stock of $6.50 per share. The allocation
of the Prime Company Shares among the Prime Sellers was determined by
representatives of the various Prime Sellers based upon the following: (1) a
value of the equity participation interests of Prime as negotiated and agreed
upon by representatives of the Prime Sellers (including Prime General Partner)
and the Company of $76.7 million; (2) a value per share of Company Stock as
negotiated and agreed upon by representatives of the Prime Sellers (including
Prime General Partner) and the Company of $6.50 per share; (3) a deemed
liquidation and dissolution of Prime; and (4) a deemed distribution in
liquidation of the Prime Company Shares in accordance with the Prime Partnership
Agreement, after taking into consideration the contractual rights of the holders
of the outstanding profit participation interests in Prime in accordance with
the terms of the agreements pursuant to which the Prime equity participation
interests were created and issued. The number of the Prime Company Shares were
allocated as among the Prime Sellers based upon what each partner in Prime and
each Prime equity participation interest holder would receive in connection with
such deemed liquidation for its respective interest in Prime pursuant to the
terms of the Prime Partnership Agreement and the terms of the agreements
pursuant to which the Prime equity participation interests were created and
issued by Prime. In this manner, the number of shares of the Prime Company
Shares which a given limited partner of Prime will receive upon the consummation
of the Prime Proposed Transaction was calculated by determining that number of
the Prime Company Shares that such limited partner of Prime would have received
in respect of its limited partner interest in Prime in such deemed liquidation
and dissolution of Prime (based upon the agreed per share value of Company Stock
of $6.50).
Alaskan Cable. The management for each of the three corporations
comprising Alaskan Cable neither sought nor received any offers from third
parties to acquire the assets of any of the corporations during the time period
of its consideration of the Company's proposal as previously described.
Management for each of these corporations has extensive experience in and
knowledge of the cable communications industry and believes that it is generally
familiar with transactions involving the purchase and sale of cable
communications systems of comparable size to the cable systems which are the
subject of the Alaskan Cable Purchase Agreement. Based upon that experience and
knowledge, management
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for each of these corporations concluded that the terms of the transaction as
negotiated with the Company were at least as favorable as could have been
obtained from any such party. In reaching this conclusion, management for each
of these corporations believes that the transaction with the Company offers to
the shareholder of the respective corporation the opportunity to diversify its
investment in cable communications business to include a business that offers a
broad range of telecommunication services to residential, commercial and
governmental customers in Alaska, and to capitalize on the combination of that
business with a cable communications business in Alaska.
Terms of the Acquisition Plan. The governing body of each of Alaskan
Cable and Prime considered the terms of the Proposed Transaction as it pertained
to that body's company, including the representations, warranties, covenants,
and conditions of the parties contained in that Proposed Transaction and the
consideration to be received pursuant to that Proposed Transaction. The
consideration to be paid for the company or its assets is clearly fixed in the
corresponding Purchase Agreement without hinderance by contingency adjustments
prior to closing. Prime believes that it is not likely that the company would
receive any unsolicited offer that would be more favorable to the company's
security holders than the Prime Purchase Agreement. Each governing body
independently noted that its decision to limit the solicitation of further
offers was subject to the fiduciary duties of that body.
Diversification of the Company. Each of the Cable Companies is
privately-held and, therefore, there has been no public market for their
securities. If the Acquisition Plan is consummated, the securities holders of
Prime and Alaskan Cable will receive Class A common stock of the Company, which
is currently traded on the Nasdaq Stock Market. See "PROPOSED TRANSACTIONS:
Cable Company Purchase Agreements--Consideration to be Received." The governing
body of each of Alaskan Cable and Prime has concluded that the liquidity of
Company Class A common stock, as well as the diversification of the Company's
operations, will enable the securities holders of that Cable Company to realize
greater value for their securities holdings than they would if they continued to
invest in their privately held company.
In view of the variety of factors considered in connection with its
evaluation of the Acquisition Plan, each of the governing bodies of the Cable
Companies did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination.
Determination of Value
Company. Company management considered several alternative methods to
value its stock to be issued pursuant to the Proposed Transactions, including
multiples of net sales, return on equity and multiples of operating cash flow. A
range of multiples and corresponding values were derived and evaluated. For
example, the Company gathered information on six similar transactions closing
during the period from January, 1993 through December, 1995. The Company
calculated a range of net sales multiples for those companies from 0.62 to 3.38.
The mean multiple was 1.77 times net sales which, if used for the Company, would
result in a stock price of approximately $8.08 per share for the year ended
December 31, 1995. In general, smaller companies in those transactions received
lower multiples, and each of the companies included in the analysis generated
revenues in excess of those of the Company. Valuations vary based upon a number
of factors including the size of the company studied, its equity structure and
the nature of its products and services.
A value of $6.50 per share was agreed upon as a fair value for the
Company Stock after considering several factors, including the following: (1)
management's evaluation of other transactions in the telecommunications
industry; (2) management's consideration of the value it would likely receive in
a sale of equity in the public markets; (3) management's broad knowledge and
experience in the telecommunications industry; and (4) arms-length negotiations
between the parties to the Proposed
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Transactions. This price represents a 30% premium to its pre-acquisition price,
which was approximately $5.00 per share prior to March, 1996.
The Company's valuation of the Cable Companies was based upon the
Company Directors' assessment of the Cable Companies' value as independent cable
companies, using cash flow multiples that the Company Board believes are less
than other recent acquisitions in the cable industry. The Company Board
determined that the proposed price and structure of the Acquisition Plan
represents fair prices for all parties and creates opportunities for growth in
the future value of the equity. In making its final determination on the
Acquisition Plan, the Company Board did not seek and did not receive any
independent valuations or opinions from financial advisors as to fairness of the
consideration to be paid in connection with any of the Proposed Transactions.
See, within this section, "--Recommendation of Company Board and Its Reasons for
the Acquisition Plan-Recommendation-Pricing and Valuation."
Prime and Alaskan Cable. Cable television companies have traditionally
been valued on the basis of a multiple of historical or projected operating cash
flow. The particular multiple varies depending upon general market and economic
conditions, the regulatory climate for the cable television industry, and other
factors.
Prime. Prime management considered a range of multiples of twelve-month
historical or projected operating cash flow, less indebtedness owed by the Cable
Company. In determining operating cash flow, Prime used "earnings before
interest, taxes, depreciation and amortization." Using the operating cash flow
valuation method, Prime was valued by Prime management and the Company at $186.1
million, representing a multiple of 10.7 times the net operating cash flow for
the first calendar quarter of 1996 (annualized), less indebtedness of $109.4
million, resulting in a net equity value of $76.7 million.
Prime management used an assumed value of $6.50 per share for the
Company Stock for purposes of determining the fixed number of shares of Company
Stock to be issued and delivered in connection with the Prime Proposed
Transaction. The $6.50 per share valuation is equal to approximately 7.7 times
annualized budgeted operating cash flow of the Company for the first calendar
quarter of 1996, based upon budgets prepared by the Company.
The $6.50 per share value for the Company was agreed upon after
considering several valuations methods, including return on equity, a multiple
of revenues and a multiple of operating cash flow. In addition to the
information referred to in the preceding paragraph, Prime management also
gathered information regarding recent acquisitions involving telecommunications
companies, although some of the acquisitions were between long distance
companies and might have involved a synergy that might not exist in the Prime
Proposed Transaction. One group of acquired companies with annual revenues below
$500 million (Link, Enhanced, WCT, and American Sharecom) were valued at an
average multiple of 1.26 times gross revenue. Using this same multiple, the
Company would be valued at $6.28 per share at the end of calendar 1995 and a
$5.80 per share value at the end of 1996. The decline in such per share
valuation at the end of 1996 is due primarily to the planned capital
expenditures for 1996 which will require the Company to incur additional
indebtedness at a rate that exceeds the increase in gross asset value based on
revenues.
Alaskan Cable. Management for each of the corporations comprising
Alaskan Cable has extensive experience in and knowledge of the cable
communications industry and believes that it is generally familiar with
transactions involving the purchase and sale of cable communications systems of
comparable size to the cable systems which are the subject of the Alaskan Cable
Purchase Agreement. Based upon that experience and knowledge, management for
each corporation concluded that the terms of the Alaskan Cable Purchase
Agreement as negotiated with the Company were at least as favorable as could
have been obtained from any third party.
REGISTRATION STATEMENT
Page 47
<PAGE>
Interests of Certain Persons in the Acquisition Plan
General. In considering the recommendations of the governing bodies of
Alaskan Cable and Prime regarding their corresponding Proposed Transaction,
security holders of those companies should be aware that certain members of
management and the governing bodies of those companies have certain interests in
the Proposed Transactions that are in addition to or different from the
interests of securities holders of those companies generally. Each governing
body was aware of these interests as pertains to its Cable Company and
considered them, among other matters, in approving the corresponding Proposed
Transaction.
Registration of Company Class A Common Stock. The registration rights
in the Company Stock to be acquired by the Prime Sellers (and their
distributees, including other Prime Group members) and by the shareholders of
Alaskan Cable are essentially the same. The registration rights in the Company
Class A common stock to be issued and distributed to shareholders of Alaska
Cablevision upon exercise of conversion rights under the Cablevision Company
Notes are similar to those registration rights of the Prime Sellers and the
shareholders of Alaskan Cable. See, "PROPOSED TRANSACTIONS: Registration Rights
Agreements."
Alaskan Cable Security Ownership and Officer/Director Relationships.
The three corporations comprising Alaskan Cable are controlled, directly or
indirectly, through one or more intermediaries by Jack Kent Cooke, the president
of each of the three corporations. Each corporation has a sole corporate
shareholder as follows, which in turn is controlled directly or indirectly by
Mr. Cooke: (1) Alaskan Cable/Fairbanks--sole shareholder is Alaskan Cable
Network, Inc.; (2) Alaskan Cable/Juneau--sole shareholder is Alaskan Cable
Network/Juneau Holdings, Inc.; and (3) Alaskan Cable/Ketchikan-Sitka--sole
shareholder is Jack Kent Cooke, Inc. No other officer or director of the three
corporations comprising Alaskan Cable holds any of the stock of or beneficial
interest in the stock of those corporations.
Prime Security Ownership and Officer/Director Relationships. Certain of
the officers, directors and principal shareholders of Prime II Management, Inc.
("PMI") are also officers and directors of the following entities: (1) Prime
General Partner; (2) Prime Cable GP, Inc., a Delaware corporation and the
general partner of PCLP ("PGP"); (3) ACI; and (4) the two general partners
(Prime Venture I, Inc., a Delaware corporation ("PVI") and Prime II Management
Group, Inc., a Delaware corporation ("PMG")) of Prime Holdings. PVI is also
general partner of Prime Growth. PMI is the general partner of Prime II
Management, L.P., a Delaware limited partnership ("PIIM"). PIIM is a limited
partner of Prime Holdings and sole general partner of the general partner of
Prime Venture II, L.P., a Delaware limited partnership and shareholder of ACI
("PVII"). PVII has as its general partner Prime Investors, L.P., a Delaware
limited partnership ("PI") and is a shareholder of ACI. As of the Record Date,
PIIM managed the Prime Alaska Systems under a management agreement with Prime.
Following the consummation of the Prime Proposed Transaction, PIIM will manage
the Company Cable Systems (including the Prime Alaska Systems) under the Prime
Management Agreement. See "PROPOSED TRANSACTIONS: Prime Management Agreement."
None of the general partners of any of the Prime Sellers receives any
fees or other compensation from such partnerships other than as represented by
their partnership interests. However, PIIM may be deemed to be an "affiliate" of
each of the Prime Sellers, within the meaning of the rules and regulations of
the Securities and Exchange Commission. PIIM is currently managing the Prime
Alaska Systems but none of the other Company Cable Systems.
PIIM is entitled to management fees equal to 5% of the total revenues
of the Prime Alaska Systems for managing those systems. The following table
presents information as to the actual amounts
REGISTRATION STATEMENT
Page 48
<PAGE>
of management fees paid to PIIM or accrued by Prime for managing the Prime
Alaska Systems for the past three fiscal years, and for the seven months ended
July 31, 1996.
Calendar Year Management Fees (1)
------------- -------------------
1993 $ 1,455,060
1994 1,529,955
1995 1,629,691
Seven months ended 7/31/96 1,003,404 (2)
- ------------
1 PIIM pays to a wholly-owned subsidiary of PVI an amount equal to 20% of
such management fees when they are received, in consideration of PVI's
agreement to refer to PIIM opportunities to manage cable television
systems.
2 This amount has been accrued and payment deferred pursuant to Prime's
bank line of credit. PIIM is entitled to interest at the rate of
17-1/2% per annum on the accrued and unpaid fees.
- ------------
See "PROPOSED TRANSACTIONS: Prime Management Agreement" for a
description of the management fees that will be paid to PIIM for managing the
Company Cable Systems following the closing of the Prime Proposed Transaction.
Such fees will be a fixed amount per annum, rather than based on a percentage of
revenues, and assuming no significant reduction in revenues, such fees will be
less than what PIIM would receive if such fees were based on 5% of the revenues
of the Prime Alaska Systems. Such fees will also be considerably less than they
would be if they were based on 5% of the total revenues of all Company Cable
Systems, assuming all of them are acquired by the Company. The net annualized
fees to be paid to PIIM by the Company for managing the Company Cable Systems
will be $1,000,000 for the first year, $750,000 for the second year and $500,000
for each year thereafter that the Prime Management Agreement is in effect.
The several following tables identify as of the Record Date the
directors, executive officers and principal shareholders of PMI and the
relationship of such persons to the identified entities:
REGISTRATION STATEMENT
Page 49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Name of Entity Relationship of Entity to Prime and its Partners
- -------------- ------------------------------------------------
Prime Cable Fund I, Inc. (PCFI) ...................................... General Partner of Prime
Prime Venture I, Inc. (PVI) .......................................... General Partner of Prime Growth and Prime Holdings
(limited partners of Prime)
Prime II Management Group, Inc. (PMG) ................................ General Partner of Prime Holdings
Prime Cable GP, Inc. (PGP) .......................................... General Partner of Prime Cable Limited Partnership (PCLP),
the sole stockholder of PCFI
Alaska Cable, Inc. (ACI) ............................................ Limited partner of Prime
Prime II Management, Inc. (PMI) ...................................... General Partner of PIIM, which is the sole General Partner
of the sole general partner of PVII, and which is a limited
partner of Prime Holdings
</TABLE>
<TABLE>
====================================================================================================================
EXECUTIVE OFFICERS AND DIRECTORS AND PRINCIPAL SHAREHOLDERS
OF PMI
<CAPTION>
Position % of Ownership
Name with PMI (1) Interest in PMI (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert W. Hughes Chairman of the Board,
Director 31.02%
Paul-Henri Denuit Director *
Brian Greenspun Director *
Gregory S. Marchbanks (3),(4) Director, Chief Executive Officer 22.75%
Michael Sherwin Director *
William P. Glasgow President 11.03%
Jerry D. Lindauer (4) Sr. Vice President 8.27%
Allan Barnes (4) Sr. Vice President and Chief *
Operating Officer
Daniel Pike Sr. Vice President-Science
and Technology 9.09%
Duncan Butler Vice President *
Mark Greenberg Vice President 9.09%
====================================================================================================================
<FN>
- ------------------
1 The executive officers of PMI shown in this table occupy the same
executive officer positions with ACI and Prime General Partner, except
that ACI does not have a chief operating officer and Daniel Pike,
Duncan Butler, and Mark Greenberg are not officers of ACI. In addition,
Mr. Butler is not an officer of Prime General Partner.
2 An asterisk (*) means the individual owns less than 5% of the
outstanding common stock of PMI.
3 Sole director of ACI.
4 Director of Prime General Partner.
- ------------------
</FN>
</TABLE>
REGISTRATION STATEMENT
Page 50
<PAGE>
PMI owns 55% of the equity of PIIM through its interest as the sole
general partner of PIIM. PIIM is the sole general partner of Prime Investors,
L.P., which is the sole general partner of PVII, i.e., Prime Venture II, L.P., a
shareholder of ACI. PIIM also manages other cable television systems in which
Prime's limited partner has ownership interests.
Certain of the officers and directors of PMI are also officers and
directors of PVI. The following table sets forth as of the Record Date the
respective directorships and offices and the beneficial owners of 5% or more of
the common stock of PVI held by the executive officers, directors and principal
(5%) shareholders of PMI.
<TABLE>
================================================================================================================
RELATIONSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
OF PMI WITH PVI
<CAPTION>
Name and Position with PMI Position with PVI
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Robert W. Hughes, Chairman of the Board and Chairman of the Board and Director
Director
Paul Henri Denuit, Director Director
Brian Greenspun, Director Director
Michael Sherwin, Director Director
Gregory S. Marchbanks, Director and Chief Executive Officer Chief Executive Officer
William P. Glasgow, President President
Jerry D. Lindauer, Sr. Vice President Sr. Vice President
Allan Barnes, Sr. Vice President and Sr. Vice President & Chief Operating
Chief Operating Officer Officer-Cable
Daniel Pike, Sr. Vice President-Science and Sr. Vice President-Science & Technology
Technology
================================================================================================================
</TABLE>
PVI is a subsidiary of Prime South Diversified, Inc., a Delaware
corporation ("PSD"). The holders of a class of preferred stock of PSD will
ultimately receive shares of Company Stock from the Prime Proposed Transaction.
Some of the persons named in the above table beneficially own shares of such
class of PSD preferred stock. Based on the Company Class A common stock
outstanding as of the Record Date, and assuming the Prime Company Shares, the
Alaskan Cable Company Shares and the MCI Company Stock had been outstanding on
that date, all of the holders of such class of PSD preferred stock as a group
would have owned less than 5% of the Company Class A common stock. By
contractual arrangement, the board of directors of PVI has complete discretion
regarding the investment decisions for Prime Growth and Prime Holdings.
Certain of the officers and directors of PMI are also officers,
directors and shareholders of Prime II Management Group, Inc., a Texas
corporation ("PMG"). The following table sets forth as of the Record Date the
directorships and offices and the beneficial owners of 5% or more of the common
stock of PMG held by officers, directors and shareholders of PMI.
REGISTRATION STATEMENT
Page 51
<PAGE>
<TABLE>
====================================================================================================================
RELATIONSHIP OF EXECUTIVE OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS OF PMI
WITH PMG
<CAPTION>
Position % of Ownership
Name and Position with PMI with PMG Interest in PMG (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert W. Hughes, Chairman of the Board, Director -- 23.7%
Gregory S. Marchbanks, Director and Chief Executive Director and Chief Executive 17.9%
Officer Officer
Allan Barnes, Sr. Vice President and Chief Director, Sr. Vice President *
Operating Officer
Jerry D. Lindauer, Sr. Vice President Director, Sr. Vice President 12.5%
William P. Glasgow, President President *
Daniel Pike, Sr. Vice President-Science and Technology Sr. Vice President 5.53%
====================================================================================================================
<FN>
- ----------------
1 An asterisk (*) means the individual owns less than 5% of the
outstanding common stock of PMG.
- ----------------
</FN>
</TABLE>
PVI and PMG are the general partners of Prime Holdings. PVI and Prime
Holdings are the general partners of Prime Growth.
Additionally, certain of the officers and directors of PMI are also
officers, directors and shareholders of Prime Cable GP, Inc., a Delaware
corporation ("PGP"). The following table sets forth as of the Record Date the
directorships and offices and the beneficial owners of 5% or more of the common
stock of PGP held by officers, directors, and shareholders of PMI.
REGISTRATION STATEMENT
Page 52
<PAGE>
<TABLE>
====================================================================================================================
RELATIONSHIP OF EXECUTIVE OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS OF PMI
WITH PGP
<CAPTION>
% of
Ownership
Interest
Position in PGP (1)
Name and Position with PMI with PGP
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert W. Hughes, Chairman of the Board and Chairman of the Board and Director 19.5% (2)
Director
Michael Sherwin, Director Director -0-
Gregory S. Marchbanks, Director and Chief Executive Chief Executive Officer 17.0%
Officer
William P. Glasgow, President President *
Jerry D. Lindauer, Sr. Vice President Sr. Vice President-Corporate Development 11.9%
Allan Barnes, Sr. Vice President and Chief Sr. Vice President & Chief Operating -0-
Operating Officer Officer-Cable
Daniel Pike, Sr. Vice President-Science and Sr. Vice President-Science & Technology 5.0%
Technology
====================================================================================================================
<FN>
- ----------------
1 An asterisk (*) means the individual owns less than 5% of the
outstanding common stock of PGP.
2 In addition, Mr. Hughes may be deemed to beneficially own 2% of the
outstanding common stock of PGP held of record by two trusts for the
benefit of his children for which he is trustee. Mr. Hughes disclaims
beneficial ownership of such shares.
- ----------------
</FN>
</TABLE>
PGP is the sole general partner of PCLP, which is the sole shareholder
of Prime General Partner. Taken together as a group, as of the Record Date the
officers and directors of Prime General Partner beneficially own the following:
(1) 85.0% of the common stock of PMI; (2) 67.0% of the common stock of PMG; and
(3) 58.6% of the common stock of PGP (excluding the 2% which Mr. Hughes may be
deemed to beneficially own as described in footnote 2 of the immediately
preceding table).
Prime Equity Participation Interests Holders. Three entities
(BancBoston Capital, Inc., First Chicago Investment Corporation and Madison
Dearborn Partners V) hold profit participation contractual rights ("equity
participation interests") to share in the appreciation of the value of the
equity of Prime. The equity participation interests were granted by Prime to the
holders thereof in connection with Prime's original financing of its acquisition
of the Prime Alaska Systems in June, 1989. Under the terms of the contract
creating the equity participation interests, the equity participation interests
permit the holders thereof to receive in the aggregate 13.6284% of the increase
in the value of the equity of Prime over its June, 1989 value. In the Prime
Proposed Transaction, the holders (all such holders are institutional investors)
of all of the equity participation interests have agreed to sell all of such
equity participation interests to the Company in exchange for an aggregate of
664,646 Company Shares. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Prime-Organizational Structure" and
"DISTRIBUTION OF COMPANY STOCK: Principal Security Holders."
REGISTRATION STATEMENT
Page 53
<PAGE>
CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN
General
Upon the consummation of the Acquisition Plan the following will occur:
(1) the Company will own and hold all limited and general partnership interests
and all equity participation interests in Prime; (2) all of the assets of
Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward will
become assets of and be owned by the Company; (3) the Prime Sellers (and their
distributees, including other members of the Prime Group) and shareholders of
Alaskan Cable will acquire their respective portions of the Company Stock; (4)
Alaska Cablevision will acquire the Cablevision Company Notes; (5) the
securities holders of Alaska Cablevision and Alaskan Cable will receive cash as
part of the payment to them of their respective purchase prices; and (6) the
joint venturers of McCaw/Rock Homer and McCaw/Rock Seward will receive cash, as
full payment to them of their respective purchase prices. As described elsewhere
in the Proxy Statement/Prospectus (see, "APPRAISAL RIGHTS"), neither the Prime
Sellers nor the sole shareholder of each of the corporations comprising Alaskan
Cable will have appraisal rights in lieu of receiving shares of the Prime
Company Shares and other consideration. The Prime Sellers (and their
distributees, including other members of the Prime Group) and the shareholders
of Alaskan Cable who receive Company Class A common stock pursuant to the
Acquisition Plan will become shareholders of an Alaska corporation. See,
"COMPARISON OF SECURITY HOLDER RIGHTS IN THE COMPANY AND CERTAIN CABLE
COMPANIES."
Subsequent to the consummation of the Acquisition Plan, Prime will
distribute the Prime Company Shares to the limited partners of Prime who will in
turn distribute their portions of those shares to their security holders, i.e.,
the shareholders of ACI (including PVII), the limited partners of Prime Growth
and the limited partners of Prime Holdings, and the sole shareholder of Prime
General Partner for distribution to its security holders (the limited partners
of PCLP). Subsequent to the consummation of the Acquisition Plan, Prime Growth,
Prime Holdings, PVII and PCLP will continue to manage their respective other
assets with the same set of respective limited partners as before the
consummation of the Acquisition Plan, and ACI and Prime General Partner will
merge into GCI Cable with GCI Cable being the surviving corporation.
Security Holder Investment Changes
Prime. Upon closing on the Prime Proposed Transaction, certain of the
Prime Sellers will exchange all of their partnership interests in Prime for the
Prime Company Shares. The voting rights of limited partners under the Prime
Partnership Agreement are extremely limited (and nonexistent for holders of
equity participation interests in the partnership except for limited rights to
consent to distributions) as compared to the voting rights of holders of Class A
common stock of the Company as further described elsewhere in this Proxy
Statement/Prospectus. See, "COMPARISON OF SECURITY HOLDERS' RIGHTS IN THE
COMPANY AND CERTAIN CABLE COMPANIES."
The term of existence of Prime under the Prime Partnership Agreement is
30 years. However, the agreement further provides that the general partner in
its sole discretion may sell the partnership at any time during that term.
Therefore, the general partner of Prime has almost total control over the
existence of the partnership, and the limited partners have for all intents and
purposes no control or influence over that term of existence. The term of
existence of the Company is perpetual, subject to limited exception. That is,
under the Alaska Corporations Code to which the Company is subject, the
existence of the Company is subject to reorganization, in the form of merger,
consolidation, share exchange, or sale of assets not in the ordinary course of
business. Such reorganization requires approval of the shareholders, in which
case statutory appraisal rights are provided for those dissenting from such
proposed action. The Prime Sellers have no appraisal rights under the present
Prime Partnership Agreement, as further described elsewhere in the Proxy
Statement/Prospectus. See "APPRAISAL
REGISTRATION STATEMENT
Page 54
<PAGE>
RIGHTS." The existence of the Company may also be terminated through statutory
dissolution under the Alaska Corporations Code either involuntarily by
administrative action of the Alaska Department of Commerce and Economic
Development for failure to file reports and pay corporation taxes as specified
in that code or by suit of the shareholders or directors but only upon specific
conditions of failure of corporate governance. The existence of the Company may
be terminated voluntarily, but only through a vote of shareholders holding at
least two-thirds of the outstanding shares entitled to vote, or written consent
of those shareholders taken without a meeting. On the other hand, as
shareholders of the Company, the Prime Sellers (and their distributees,
including other members of the Prime Group) will along with other shareholders
have the exclusive right to amend the Articles of Incorporation of the Company
to provide for a period of existence different from that of the present articles
and the almost exclusive right to terminate the existence of the Company by
court action. The perpetual existence of the Company coupled with a
substantially larger security holder base (approximately six times larger than
that of Prime) in a publicly traded security (Company Class A common stock) as
compared to the privately held security interests in Prime of the Prime Sellers
with no public market for sale of those interests, connotes a more stable
security base with opportunity to sell or acquire more securities of the
Company.
Under the Prime Partnership Agreement, management compensation is
determined exclusively by the general partners without recourse by the Prime
Sellers. Under the Company Articles, the affairs of the Company are directed by
a board of directors which in turn retains senior management and determines or
approves its compensation. As shareholders of the Company (a reporting company
under the Exchange Act), the Prime Sellers (and their distributees, including
other members of the Prime Group) will be entitled to receive periodic reports
from management including annual reports on management compensation as a part of
management's proxy statement for annual meetings of shareholders. See, for
example for the Annual Meeting, "MANAGEMENT OF THE COMPANY: Remuneration of
Directors and Executive Officers." The shareholders elect persons to the Company
Board and can voice their displeasure with actions by or the compensation of
management by casting their votes for board members who reflect the views of
those shareholders.
The investment objectives of the Prime Group members, many of whom are
limited partners in various Prime entities, are as pertains to the Prime Alaska
Systems to seek a return on invested capital, primarily in the form of
appreciation in value of such systems. The Company has never paid a cash
dividend but has retained net profits for further development of the business of
the Company. While this policy may change by action of the Company Board (see,
"CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Market Price and Dividends
of Cable Companies--Dividends"), a Prime Seller (and its distributees, including
other members of the Prime Group) who exchanges its direct or indirect
investment interests in Prime for shares of Prime Company Shares would then have
as an investment objective for the foreseeable future the appreciation in value
of that stock.
In summary, the Company Board believes that the Acquisition Plan as it
pertains to the Prime Sellers (and their distributees, including other members
of the Prime Group) will not subject them to significant adverse changes with
respect to voting rights, the terms of existence of the entities, management
compensation or investment objectives.
Alaskan Cable. Upon closing on the Alaskan Cable Proposed Transaction,
each of the three corporations comprising Alaskan Cable will receive a portion
of, for later distribution to its sole shareholder as partial consideration for
the transfer of substantially all of the assets to the Company, the Alaskan
Cable Company Shares. There will be no loss of voting rights by the shareholders
of Alaskan Cable in that they will not be giving up any shares in Alaskan Cable.
However, they will gain voting rights in the Company which in large part are
similar to those in Alaskan Cable in that both the Company and the three
corporations comprising Alaskan Cable are Alaska corporations. The voting rights
of shareholders in all of these corporations are further compared elsewhere in
this Proxy Statement/Prospectus. See,
REGISTRATION STATEMENT
Page 55
<PAGE>
"COMPARISON OF SECURITY HOLDER RIGHTS IN THE COMPANY AND CERTAIN CABLE
COMPANIES."
The terms of existence of the Company and of each of the corporations
comprising Alaskan Cable are perpetual. The restrictions on these terms for all
of these corporations, being Alaska corporations, are the same and are as
described elsewhere in this Proxy Statement/Prospectus. See, within this section
"--Security Holder Investment Changes-Prime."
Under the respective articles of incorporation and the provisions of
the Alaska Corporations Code to which the Company and the corporations
comprising Alaskan Cable are all subject, the affairs of the respective
corporations are directed by the respective boards of directors which in turn
retain senior management and determine or approve its compensation. The
shareholders of each corporation generally have the same rights to elect the
respective boards of directors and therefore similar influences over the
compensation of management as described for the Company elsewhere in this Proxy
Statement/Prospectus. See, elsewhere in this section "--Security Holder
Investment Changes-Prime."
The Company has never paid a cash dividend but has retained net profits
for further development of the business of the Company. While this policy may
change by action of the Company Board (see, "SUMMARY: Dividends"), a shareholder
of Alaskan Cable who acquires Alaskan Cable Company Shares should expect that a
return on that investment, if any, will be in the form of the appreciation in
value of the stock rather than a shorter term cash return on investment through
dividends.
In summary, the Acquisition Plan, as it pertains to the shareholders of
the three corporations comprising Alaskan Cable, should not subject them to
significant adverse changes with respect to voting rights, the terms of
existence of the entities, management compensation, or investment objectives.
Company Cable Systems
Business. Upon consummation of the Purchase Agreements, the Company
will, for the immediate future, through one or more subsidiaries (including GCI
Cable) continue to operate the Prime Alaska Systems and the cable systems of the
other six Cable Companies in Alaska as the Company cable systems ("Company Cable
Systems"). Over a longer period of time, the Company intends to integrate the
cable operations of the Company Cable Systems into the Company's
telecommunication activities as a part of the Company's overall business
development.
Management and Personnel. The operation of the Company Cable Systems
will be managed by PIIM through the Prime Management Agreement described
elsewhere in this Proxy Statement/Prospectus. See, "PROPOSED TRANSACTIONS: Prime
Management Agreement." With the acquisition of all of the assets of Alaskan
Cable, the Company does not envision any of the executive officers of the
corporations comprising Alaskan Cable joining the Company or assisting in the
development of the new line of cable services to be provided by the Company. As
of the Record Date, the Company envisioned that an employee of Prime,
responsible for managing portions of the Prime Alaska Systems, might, with the
consummation of the Prime Purchase Agreement, become an employee of the Company
or a subsidiary of the Company and might be involved with managing one of the
regions of the Alaska Cable Systems. As of the Record Date, the Company
envisioned that an executive officer of Alaska Cablevision might, with the
consummation of the Alaska Cablevision Purchase Agreement, become an employee of
the Company or a subsidiary of it. However, as of the Record Date, the Company
did not envision that that individual would immediately become an executive
officer of the Company or a subsidiary of it.
REGISTRATION STATEMENT
Page 56
<PAGE>
The Company anticipates, with the closing on the Purchase Agreements,
there will be realignments of the personnel structure. The Company plans to
interview employees of the Cable Companies and others, and to select the best
qualified applicant for each available position. The Company has made no
commitment to retain any personnel of the Cable Companies other than as
described in the previous paragraph.
Certain Federal Income Tax Consequences
The following is a general description of the material federal income
tax consequences of the Acquisition Plan to the Prime Sellers who exchange their
interests and, in the case of three institutional investors, their equity
participation interests, in Prime for a portion of the Prime Company Shares, and
to Alaskan Cable and the shareholders of the three corporations comprising
Alaskan Cable who acquire the Alaskan Cable Company Shares, under their
respective Proposed Transactions, and to the Company. This discussion is not
meant to be and is not to be construed as tax advice by any prospective
purchaser of the Prime Company Shares or the Alaskan Cable Company Shares. This
discussion does not address the application and effect of foreign, state, local
or other tax laws on the Proposed Transactions. A prospective purchaser of the
Prime Company Shares or the Alaskan Cable Company Shares is urged to seek
private tax counsel advice as to how the Proposed Transactions will affect that
person's tax situation, including the applicability and effect of foreign,
state, local and other laws.
General. Neither the Company nor the Cable Companies are requesting a
ruling from the Internal Revenue Service in connection with the Acquisition
Plan. No special federal income tax treatment is anticipated upon the closing on
the sale of assets by Alaskan Cable, Alaska Cablevision, McCaw/Rock Homer or
McCaw/Rock Seward. However, the ACI Merger and the PCFI Merger are intended to
qualify as federal income tax-free reorganizations under the Internal Revenue
Code of 1986, as amended ("Code"). Prime's special tax counsel, that will
address the federal income tax consequences of the ACI Merger and the PCFI
Merger on the shareholders of ACI and Prime General Partner, is Jenkens &
Gilchrist, A Professional Corporation, having offices in Austin, Texas. The
following discussions of all material federal income tax consequences as they
pertain to the shareholders of ACI and Prime General Partner are based upon the
tax opinion of that law firm.
The following discussions do not address all aspects of federal income
taxation that may be important to particular securities holders and may not be
relevant or applicable to securities holders who are subject to special tax
rules, including shareholders who will acquire a portion of the Prime Company
Shares or any other consideration pursuant to the exercise or termination of
employee stock options or otherwise as compensation or who are not citizens or
residents of the United States or are subject to the alternative minimum tax. It
does not address the federal income tax consequences to security holders who
exercise and perfect appraisal rights, if any, with respect to the Acquisition
Plan. This discussion is based upon laws, regulations and rulings and judicial
authorities now in effect, all of which are subject to change, and assumes the
correctness of certain factual representations of the Company and the Cable
Companies.
Prime.
ACI and PCFI Security Holders. The following discussion specifically
addresses the proposed ACI Merger (a statutory merger of ACI with GCI Cable) and
the proposed PCFI Merger (a statutory merger of PCFI with GCI Cable). These
mergers are collectively referred to in this section as "Mergers" and are a part
of the Prime Proposed Transaction.
For purposes of this discussion, ACI and PCFI are sometimes referred to
as targets in the Merger ("Targets"), and the shareholders of these corporations
are sometimes referred to as target shareholders
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("Target Shareholders"). The distribution of a portion of the Prime Company
Shares allocated to the Prime Proposed Transaction is subject to Escrow Holdback
conditions as described elsewhere in this Proxy Statement/Prospectus (see,
"PROPOSED TRANSACTIONS: Cable Company Purchase Agreements--Escrow and Holdback
Agreements-Prime"). This discussion assumes that cash may be received in lieu of
fractional shares. The discussion assumes there will be no dissenter's rights
that will be exercised pursuant to the Mergers. It further assumes that the
general partners of any of the partnerships which are ACI or PCFI shareholders
and which are to receive a portion of the Prime Company Shares are to have such
stock distributed to their partners and are to make representations that they
have no knowledge of a partner's intent to sell or otherwise dispose of that
stock. Based upon these assumptions, the discussion summarizes in general terms
the material federal income tax consequences of the Mergers to the Target
Shareholders based upon the opinions of Jenkens & Gilchrist, the legal counsel
of ACI and PCFI, that each Merger will qualify as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Code.
Subject to the limitations, qualifications, and exceptions described in
this section, and assuming each Merger qualifies as a reorganization under
Section 368(a) of the Code, the following federal income tax consequences
generally should result.
A Target Shareholder, who, pursuant to the Mergers, exchanges ACI or
PCFI stock, as the case may be, for a portion of the Prime Company Shares will
not recognize any gain or loss on such exchange (except with respect to cash
received in lieu of a fractional interest as discussed below). The aggregate
adjusted tax basis for those Prime Company Shares (including a fractional share
and shares allocable to each such Target Shareholder that are retained in escrow
as part of the Prime Escrow Holdback) received by each such Target Shareholder
in such exchange will equal each such Target Shareholder's aggregate adjusted
tax basis in the ACI or PCFI stock surrendered in that exchange. The holding
period of such Prime Company Shares will include the holding period of the ACI
or PCFI stock surrendered.
An ACI or PCFI shareholder, who, pursuant to the Merger, receives cash
in lieu of a fractional share of a Prime Company Share in accordance with the
procedures set forth in the Prime Proposed Transaction will recognize gain or
loss equal to the difference between the cash received in lieu of such
fractional share and the adjusted basis of such fractional share. Such gain or
loss generally will be capital gain or loss and will be long-term capital gain
or loss if the holding period for such shareholder's ACI or PCFI stock exceeds
one year as of the date the Merger agreement is executed by the parties ("Merger
Effective Date").
The parties do not intend to request a ruling from the Internal Revenue
Service regarding the federal income tax consequences of the Mergers and, in
fact, the Internal Revenue Service has suspended its prior practice of giving
advance rulings in connection with reorganizations involving statutory mergers.
The Company will receive an opinion from Jenkens & Gilchrist to the effect that
each Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code. This opinion ("Tax Opinion") will neither bind the Internal
Revenue Service nor preclude the Internal Revenue Service from successfully
asserting a contrary position. In addition, the Tax Opinion will be subject to
the following assumptions: (1) prior to the Mergers, the Company will be in
control of GCI Cable within the meaning of Section 368(c) of the Code; (2)
following the transaction, GCI Cable will not issue additional shares of its
stock that would result in the Company losing control of GCI Cable within the
meaning of Section 368(c) of the Code; (3) the Company has no plan or intention
to reacquire any of the Prime Company Shares issued in the Merger except for
those reacquired by the Company pursuant to the Prime Escrow Holdback; (4) the
Company has no plan or intention to liquidate GCI Cable, merge GCI Cable with
and into another corporation, sell or otherwise dispose of the GCI Cable stock,
or cause GCI Cable to sell or otherwise dispose of any of the assets of the
Targets acquired in the Mergers (except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the Code;
(5) following the Mergers, GCI Cable will continue the historic business of the
Targets or use a significant part of the Target's historic business
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assets in a business; (6) neither the Targets, the Company, nor GCI Cable is an
investment company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the
Code; (7) neither the Company nor GCI Cable own, nor has it owned during the
past five years, any shares of the stock of the Targets; (8) the Mergers will be
carried out strictly in accordance with the terms of the Prime Proposed
Transaction; (9) the Prime Company Shares exchanged by GCI Cable in the Mergers
will be received by GCI Cable immediately prior to and in connection with the
Merger; (10) there are no other agreements, arrangements, or understandings
among any of the Targets, the Target Shareholders, the Company, and GCI Cable
other than those described or referenced in the Prime Proposed Transaction; (11)
the Mergers will constitute statutory mergers under the applicable laws of the
State of Alaska and the State of Delaware; and (12) neither the Target
Shareholders nor their partners will dispose of the Prime Company Shares
received in the Mergers to such extent as to cause the Mergers to not satisfy
the continuity of proprietary interest requirement of Treasury Regulation
Section 1.368-1(b).
The tax opinion will also be based on the truth and accuracy of the
following representations made by ACI, Prime General Partner, and the Target
Shareholders: (1) the fair value of the Prime Company Shares and other
consideration receivable by each Target Shareholder will be approximately equal
to the fair value of the Target stock to be surrendered in the exchange; (2)
there is no plan or intention by any of the Target Shareholders or their
partners to sell, exchange or otherwise dispose (except for distributions by a
Target Shareholder to its partners) of a number of shares of Prime Company
Shares to be received in the Mergers that would reduce the aggregate ownership
of Prime Company Shares by the shareholders of ACI and their partners, in the
case of the ACI Merger, and the shareholder of Prime General Partner and its
partners, in the case of the PCFI Merger, to a number of shares having a value,
as of the date of the Merger, of less than 50% of the value of all of the
formerly outstanding stock of the Targets as of the date of the Mergers; (3) GCI
Cable will acquire at least 90% of the fair value of the net assets and at least
70% of the fair value of the gross assets held by the Targets immediately prior
to the Mergers; (4) the liabilities of the Targets assumed by GCI Cable and the
liabilities to which the transferred assets of the Targets are subject were
incurred by the Targets in the ordinary course of business; (5) neither the
Company nor GCI Cable will pay the expenses of the Targets or the Target
Shareholders incurred in connection with the Mergers; (6) there is no
intercorporate indebtedness existing between the Company and the Targets or
between GCI Cable and the Targets that was issued, acquired, or will be settled
at a discount; (7) the Targets are not under the jurisdiction of a court in a
title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
(8) the fair value of the assets of the Targets transferred to GCI Cable will
equal or exceed the sum of the liabilities assumed by GCI Cable, plus the amount
of liabilities, if any, to which the transferred assets are subject; (9) no
stock of GCI Cable will be issued in the Mergers; (10) there is a valid business
reason for establishing the Prime Escrow Holdback; (11) the Prime Escrow
Holdback Shares will appear as issued and outstanding on the balance sheet of
the Company and such stock is legally outstanding under applicable state law;
(12) all dividends paid on the Prime Escrow Holdback Shares during the 180-day
period of the Prime Escrow Holdback will be distributed to the Target
Shareholders upon the expiration of such period to the extent that the Prime
Escrow Holdback Shares are then distributed to the Target Shareholders; (13) all
voting rights of the Prime Escrow Holdback Shares are exercisable by or on
behalf of the Target Shareholders or their authorized agent; (14) no shares of
the Prime Escrow Holdback Shares are subject to restrictions requiring their
return to the Company because of death, failure to continue employment, or
similar restrictions; (15) the return of the Prime Escrow Holdback Shares will
not be triggered by an event the occurrence or nonoccurrence of which is within
the control of the Target Shareholders; (16) the return of the Prime Escrow
Holdback Shares will not be triggered by the payment of additional tax or
reduction in tax paid as a result of an Internal Revenue Service audit of the
Target Shareholders or the Targets with respect to the Mergers; (17) the
mechanism for the calculation of the number of shares of the Prime Escrow
Holdback Shares to be returned is objective and readily ascertainable; and (18)
at least 50% of the number of shares of Prime Company Shares issued initially to
the Target Shareholders in the Mergers is not subject to any escrow
arrangements.
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Of particular importance are the assumptions and representations
relating to the requirement that the Target Shareholders retain, through
ownership of shares of the Company Stock, a significant equity interest in ACI's
and PCFI's respective business enterprises after the Mergers (hereinafter
referred to as the "continuity of interest" requirement as discussed further
below). In order for the continuity of interest requirement to be met,
shareholders of ACI or Prime General Partner must not, pursuant to a plan or
intent existing at or prior to the Merger Effective Date dispose of an amount of
the Prime Company Shares to be received in the Mergers (including, under certain
circumstances, pre-merger dispositions of ACI or PCFI stock) such that the
Target Shareholders do not retain a meaningful continuing equity ownership in
the Company. Generally, so long as holders of ACI or PCFI stock do not plan to
dispose of in excess of 50% of the portion of the shares of the Prime Company
Shares to be received as described above ("50% Test"), such requirement will be
satisfied. Certain Target Shareholders are partnerships that have indicated that
they may intend to distribute their shares of the Prime Company Shares to their
partners. Although there is no direct legal precedent which addresses the
matter, Jenkens & Gilchrist does not believe, based upon analogous authority,
that the distribution by the partnerships to their partners will erode the
continuity of interest requirement provided the distributee partners have no
plan or intention to dispose of Prime Company Shares distributed to them. To the
extent they do have such plan or intent, the Prime Company Shares received by
them will adversely affect satisfaction of the continuity of interest
requirement. Management of ACI, PCFI and the Company have no knowledge of a plan
or intention that would result in the 50% Test not being satisfied.
A successful Internal Revenue Service challenge to the reorganization
status of a Merger (in consequence of a failure to satisfy the "continuity of
interest" requirement or otherwise) would result in each Target Shareholder
recognizing gain or loss with respect to each share of common stock equal to the
difference between the shareholder's basis in such share and the aggregate
amount of consideration (including the fair value of the Prime Company Shares
and cash) received in exchange therefor. A Target Shareholder's aggregate basis
in the Prime Company Shares so received would equal its fair market value, and
the Target Shareholder's holding period for such stock would begin the day after
the Merger.
Prime Growth and Prime Holdings Security Holders. The receipt of Prime
Company Shares by Prime Growth and Prime Holdings in exchange for their limited
partner interests in Prime, will result in gain or loss measured by the
difference between the basis of Prime Growth or Prime Holdings in the limited
partner interest exchanged and the fair value of the Prime Company Shares
received. Such gain or loss will be capital gain or loss to Prime Growth or
Prime Holdings, provided that the limited partner interests exchanged were
capital assets in the hands of Prime Growth or Prime Holdings, and will be
long-term capital gain or loss if the holding period for Prime Growth's or Prime
Holdings' limited partner interests exceeds one year as of the effective date of
the closing on the Prime Proposed Transaction. The aggregate adjusted tax basis
of the Prime Company Shares received by Prime Growth or Prime Holdings will
equal the aggregate adjusted tax basis of the limited partner interests
exchanged, increased and decreased by any gain or loss recognized, as the case
may be. The holding period for the Prime Company Shares will begin on the day
after the date that the Prime Company Shares are received. If either Prime
Growth or Prime Holdings receives cash in lieu of a fractional share of a Prime
Company Share in accordance with the procedures set forth in the Prime Proposed
Transaction, it will recognize gain or loss equal to the difference between the
cash received in lieu of such fractional share and the adjusted basis of such
fractional share. Such gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss if the holding period for Prime Growth's
or Prime Holding's partnership interests in Prime exceeds one year as of the
date the Prime Proposed Transaction is executed by the parties. It is uncertain
whether Prime Growth and Prime Holdings may defer the portion of the gain
attributable to their Prime Escrow Holdback Shares under the installment sale
method set forth in Section 453 of the Code. Prime Growth and Prime Holdings are
urged to seek private tax counsel advice on the applicability of the installment
sale method to their receipt of Prime Company Shares in exchange for their
limited partnership interests in Prime.
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Other Portions of the Prime Proposed Transaction. PCLP, as the sole
shareholder of Prime General Partner, and certain partnerships that are the
shareholders of ACI (collectively, "ACI Partnerships") have indicated that they
may distribute their shares of the Prime Company Shares to their partners. If
PCLP and the ACI Partnerships do not distribute their shares, then there shall
be no tax event with respect to their respective partners until PCLP or any of
the ACI Partnerships, as the case may be, disposes of its shares. If PCLP or any
of the ACI Partnerships does distribute its shares to its distributee partners
("Distributee Partners"), then such shares may be "marketable securities" under
Section 731(c) of the Code. Section 731(c) provides that the distribution by a
partnership of marketable securities shall be treated in the same manner as a
cash distribution, in which case the Distributee Partners would recognize gain
to the extent that the fair value of the marketable securities received exceeded
their adjusted basis in the partnership. However, Proposed Treasury Regulation
Section 1.731-2(d)(2) provides that marketable securities will not be treated in
the same manner as cash to the extent that (1) the security was acquired in a
nonrecognition transaction in exchange for property other than money or
marketable securities, (2) the distributed security is actively traded as of the
date of the distribution, and (3) the security is distributed within five years
of either the date on which the security was acquired by the partnership or, if
later, the date on which the security became actively traded. This Proposed
Treasury Regulation applies to distributions of marketable securities made after
December 3, 1995 and is subject to change and is not binding before being
adopted either as a Temporary or Final Treasury Regulation, and technically will
not be effective until the date specified in the Temporary or Final Treasury
Regulation. Accordingly, it is not certain that the treatment provided in
Proposed Treasury Section 1.731-2(d)(2) will be appropriate or available unless
and until a Temporary or Final Treasury Regulation becomes effective. Assuming
that a Temporary or Final Regulation is issued adopting Proposed Treasury
Regulation Section 1.731-2(d)(2), and its terms are otherwise complied with, a
distribution of the Prime Company Shares to the Distributee Partners after the
effective date of such Temporary or Final Treasury Regulation and within five
years of the Prime Proposed Transaction would not be treated as a distribution
of money under Section 731(c) of the Code. Thus, the Distributee Partners would
not recognize gain upon such distribution, and their basis in the Prime Company
Shares would be equal to (1) if a non-liquidating distribution, PCLP's or the
ACI Partnerships' basis in the Prime Company Shares immediately before the
distribution, as the case may be, or (2) if a liquidating distribution, the
Distributee Partners' adjusted basis in PCLP or the ACI Partnerships, as the
case may be, reduced by any money received in liquidation and any basis
allocated to other property received in liquidation. The Distributee Partners
would recognize gain or loss on a subsequent taxable disposition of the Prime
Company Shares.
Alaskan Cable. In the Alaskan Cable Purchase Agreement each of the
three corporations comprising Alaskan Cable is to receive cash and its
respective allocable portion of the Alaskan Cable Company Shares as payment for
the transfer of its respective assets subject to liabilities to the Company.
Each of these corporations will recognize gain or loss based upon the difference
between the cash and fair market value of their respective portions of the
Alaskan Cable Company Shares over or under the tax basis in the respective
assets transferred from the respective corporations.
Company. The Company will recognize no gain or loss on the issuance of
the Company Stock and the MCI Company Stock. Section 1032 of the Code provides
that no gain or loss is recognized by a corporation upon the receipt of money or
other property in exchange for stock. The Company will acquire a tax basis in
the property received under the Acquisition Plan from the reorganization
entities equal to the tax basis of the transferors and increased by any gain
recognized to the transferors upon those transfers. The Company will receive a
tax basis in the property received under the Acquisition Plan from the taxable
transactions equal to the fair market value of the shares issued in the
transaction increased by any liabilities assumed. For assets acquired by cash
and the subordinated notes, the Company will receive a tax basis equal to the
cash and notes increased by any liabilities assumed.
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Accounting Treatment
The Acquisition Plan will be accounted for using the purchase method
for accounting and financial reporting purposes. See, "INDEX TO FINANCIAL
STATEMENTS: Pro Forma Financial Information."
APPRAISAL RIGHTS
The following summary is qualified in its entirety by reference to the
Alaska Corporations Code, the Delaware Partnership Act and the Delaware General
Corporation Law regarding appraisal rights of security holders in organizations
involving an exchange of stock or a sale of assets. See, "AVAILABLE
INFORMATION."
Prime
All members of the Prime Group whose consents are being sought are
security holders of entities that are Delaware corporations or limited
partnerships. The Delaware Partnership Act provides that a limited partnership
agreement may provide for contract appraisal rights. However, the Prime
Partnership Agreement is silent as to appraisal rights or other rights of
limited partners who dissent from a determination by the general partner or the
necessary affirmative vote by the limited partners to approve the exchange of
all of the limited partnership interests (and equity participation interests, if
any) in the partnership for the securities of another company acquiring those
partnership and participation interests. As a consequence, the limited partners
of Prime do not have appraisal rights under the Prime Partnership Agreement.
Agreements of merger relating to the ACI Merger and the PCFI Merger
provide that approval by the holders of all of the outstanding voting common
stock of the respective corporation will be required in order for the Prime
Proposed Transaction to close. That is, should one shareholder dissent, the
Prime Proposed Transaction would not go forward, and there would be no
dissenter's appraisal rights. However, the merger agreements involving ACI and a
subsidiary of the Company (as the surviving entity) as part of the Prime
Proposed Transaction, give the Company in its sole discretion the right to waive
the unanimous approval requirement and accept less than 100% of the outstanding
shares of ACI. Should one or more shareholders of ACI dissent, and should the
Company choose to waive the unanimous approval of the outstanding voting common
stock of that corporation, the dissenting shareholders would under the Delaware
General Corporation Law have no appraisal rights, in this instance, in that
Section 262(b)(2) expressly prohibits such rights where the stock to be received
by the shareholder in the merger is a national market system security traded on
the Nasdaq Stock Market, as is the Company Stock to be issued in the Prime
Proposal Transaction. Since Prime General Partner has only one shareholder,
PCLP, which must vote in favor of the PCFI Merger in order for the merger to
occur, there will be no situation where appraisal rights will be exercisable.
Alaskan Cable
The shareholders of each of the three corporations comprising Alaskan
Cable are shareholders in Alaska corporations. Under the Alaska Corporations
Code, a security holder who dissents from a proposed reorganization of its
corporation involving a sale of all or substantially all that corporation's
assets not in the ordinary course of business for cash and securities of an
acquiring company, e.g., the sale of substantially all of the assets of Alaskan
Cable for cash and shares of Company Stock, has certain statutory appraisal
rights. While the Alaskan Cable Proposed Transaction contemplates such sales,
the boards of directors of each of the corporations comprising Alaskan Cable
have independently resolved that 100% approval of the outstanding voting common
stock of the respective corporation will be required in order for that
corporation to close on the Alaskan Cable Proposed Transaction. Since in the
case of each
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of these three corporations all of the outstanding shares are held by one
shareholder and are indirectly beneficially owned by one entity, effectively
there are no dissenter's rights to appraisal of shares.
PROPOSED TRANSACTIONS
The following description of the Proposed Transactions is qualified in
its entirety by reference to the complete text of the individual proposed
agreements encompassing them which are incorporated by reference in this Proxy
Statement/Prospectus or which are otherwise available from the Company. See,
"AVAILABLE INFORMATION."
General
The transactions and agreements which are the bases of the Acquisition
Plan consist of the following ("Proposed Transactions"): (1) Prime Securities
Purchase and Sale Agreement; (2) Alaskan Cable Purchase Agreement (agreement
with three corporations comprising Alaskan Cable, treated as one joint
agreement); (3) Alaska Cablevision Asset Purchase Agreement; (4) McCaw/Rock
Homer Asset Purchase Agreement; (5) McCaw/Rock Seward Asset Purchase Agreement;
(6) MCI Stock Purchase Agreement (as of the Record Date, being prepared by the
parties); (7) Agreement and Plan of Merger of ACI with and into GCI Cable; (8)
Agreement and Plan of Merger of PCFI with and into GCI Cable; and (9) MCI
Purchase Agreement. The purchase agreements included in the previous items (1) -
(6) and (9) are collectively referred to as "Purchase Agreements," and the
merger agreements included in the previous items (7) - (8) are collectively
referred to as "Merger Agreements." The Prime Proposed Transaction includes
other agreements to be entered into or otherwise implemented in conjunction with
the Prime Purchase Agreement including the Prime Management Agreement, the
Merger Agreements, the Prime Registration Rights Agreement and the New Voting
Agreement, all of which are described in this section. The Alaskan Cable
Proposed Transaction includes other agreements to be entered into or otherwise
implemented in conjunction with the Alaskan Cable Purchase Agreement including
the Alaskan Cable Registration Rights Agreement. The Alaska Cablevision Proposed
Transaction includes other agreements to be entered into or otherwise
implemented in conjunction with the Alaska Cablevision Purchase Agreement
including the Cablevision Company Notes and the Alaska Cablevision Registration
Rights Agreement. The MCI Proposed Transaction includes the MCI Purchase
Agreement and other agreements to be entered into or otherwise implemented in
conjunction with the MCI Purchase Agreement including the MCI Registration
Rights Agreement and New Voting Agreement.
Cable Company Purchase Agreements
General, Closing Date. The Purchase Agreements involving the Cable
Companies provide for the acquisition by the Company of securities of Prime and
assets of each of the other Cable Companies in exchange for cash, Cablevision
Company Notes, and Company Stock. The total purchase price for the securities of
Prime and assets of the other Cable Companies is approximately $280,700,000 and
will be paid by the Company through the issuance of 14,723,077 shares of Company
Class A common stock ("Company Stock") valued at $95,700,000, bank financing of
approximately $162,000,000 (including assumption of approximately $103,000,000
of existing Prime debt and new financing of approximately $59,000,000), sale of
the MCI Company Stock for $13,000,000 and sale of the Cablevision Company Notes
for $10,000,000. The Company Stock is to be divided between the following Cable
Companies for further distribution to their respective security holders and
subject to share holdback: (1) Prime--11,800,000 shares ("Prime Company
Shares"); and (2) Alaskan Cable Companies--2,923,077 shares ("Alaskan Cable
Company Shares"). See, "INDEX TO FINANCIAL STATEMENTS: Pro Forma Combined
Condensed Financial Statements (Unaudited)."
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Each Purchase Agreement will close upon receipt of the requisite
consents and approvals of the Prime Group members and the sole shareholders each
of the three corporations comprising Alaskan Cable and the exchange of
consideration as further described in this section. The Purchase Agreements
provide for a closing as of October 31, 1996 unless consent to the transactions
has not at that point been received from the APUC ("Closing Date"). In that case
the Purchase Agreements provide for a final closing not later than December 31,
1996 unless agreed by the parties. Provided all conditions have been met, the
parties to the Purchase Agreements contemplate closings on all of the
transactions to occur on or before October 31, 1996.
The closing and consummation of one Purchase Agreement is not dependent
upon the closing and consummation of one or more of the other Purchase
Agreements, with one exception. The Prime Purchase Agreement and the MCI
Purchase Agreement are each contingent upon the closing of the other. The
Company is prepared, subject to its shareholders' approval and other conditions
in the Proposed Transactions as described in this Proxy Statement/Prospectus, to
close on one or more or all of the Proposed Transactions.
Consideration To Be Received. The consideration to be exchanged differs
by Purchase Agreement.
Prime. The Prime Purchase Agreement centers on the Company's offer to
acquire (directly or indirectly) all of the limited and general partner
interests and all of the equity participation interests in Prime from the Prime
Sellers (who are the limited partners of Prime, Prime General Partner, and the
holders of the equity participation interests in Prime) for subsequent
distribution to the other Prime Group members. Some of the Prime Group members
are entities affiliated with PIIM, which presently manages the Prime Alaska
Systems. Following closing on the Prime Purchase Agreement, PIIM will manage the
Company Cable Systems pursuant to the Prime Management Agreement described
elsewhere in this section. See, within this section "-- Prime Management
Agreement" and "CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN: Company Cable
Systems." In the Prime Purchase Agreement, at closing the Company will deliver
the Prime Company Shares (subject to holdback escrow) for subsequent
distribution in exchange for which the Company will acquire, directly or
indirectly, all of the partnership and equity participation interests in Prime.
The parties valued the Prime Company Shares for purposes of this transaction at
$6.50 per share. See, within this section "--Escrow and Holdback
Agreements-Prime."
As a result of the Prime Purchase Agreement, the Company will become
the owner, directly or indirectly through wholly-owned subsidiaries, of all of
the general partner and limited partner interests of Prime. In addition to
limited partners, three parties own equity participation interests in Prime and
are included in the group of Prime Sellers. These parties hold contract rights
to receive a portion of distributions made by Prime, and they have agreed to
sell those rights to the Company for a fixed number of shares of the Company
Stock.
The Company, subsequent to closing on the Prime Purchase Agreement,
intends to use the Prime retransmission consent and programming agreements and
other agreements (which Prime has with its vendors and through which Prime
provides cable services in the Prime Alaska Systems) as the basis for providing
cable services throughout the Company Cable Systems. Should such an agreement
require the vendor's consent to a transfer of control of Prime, that consent
will be sought by the Company and Prime prior to closing on the Prime Purchase
Agreement. Should such consent not be obtained by then, the Company will seek it
immediately after closing. The use of those agreements as the basis for the
Company to provide cable services to areas within and outside of the Prime
Alaska Systems may require the Company to renegotiate the terms of those
agreements with those vendors. There can be no assurance that the resulting
renegotiated terms will not include charges for services which are based upon
REGISTRATION STATEMENT
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rates greater than present rates under those agreements or will not include
levels of service that are less than those provided to Prime under those
agreements.
Alaskan Cable. The Alaskan Cable Purchase Agreement centers on the
Company's offer to purchase substantially all of the assets (subject to
adjustment at closing) of the three corporations comprising Alaskan Cable, i.e.,
Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan Cable/Ketchikan.
Under the Alaskan Cable Proposed Agreement, at closing the Company is to deliver
to Alaskan Cable, for allocation among the three corporations comprising Alaskan
Cable in amounts to be agreed to by those three corporations and the Company,
for subsequent distribution to the shareholders of those three corporations
comprising Alaskan Cable and as payment for the Alaskan Cable assets
$70,000,000, payable as follows: (1) $51,000,000 in cash; and (2) issuance of
the Alaskan Cable Company Shares, subject to share holdback. The parties have
valued the shares at $6.50 per share. See, within this section "--Escrow and
Holdback Agreements-Alaskan Cable."
The exclusions from assets in the Alaskan Cable Purchase Agreement
consist of retransmission consent agreements, insurance policies and rights and
claims under them, bonds, letters of credit, surety instruments and other
similar items, cash and cash equivalents, the companies' trademarks and similar
proprietary rights, the companies' rights under any agreement governing or
evidencing an obligation of the companies for borrowed money, the companies'
rights under any contract, license, authorization, agreement or commitment other
than those creating or evidencing assumed liabilities, and specifically
identified items of office equipment, computers, and supplies.
Alaska Cablevision. The Alaska Cablevision Purchase Agreement centers
on the Company's offer to purchase substantially all of the assets (with certain
identified exclusions) of Alaska Cablevision. Under the Alaska Cablevision
Purchase Agreement, at closing the Company is to deliver to Alaska Cablevision
for distribution to its shareholders as payment for the Alaska Cablevision
assets $26,650,000 payable as follows: (1) $16,650,000 payable in cash, subject
to adjustment at closing; and (2) $10,000,000 in subordinated convertible notes
of the Company ("Cablevision Company Notes"), subject to note holdback. The
Cablevision Company Notes are convertible into as many as 1,538,462 shares of
Company Class A common stock. See, within this section "--Escrow and Holdback
Agreements-Alaska Cablevision."
The adjustments to the purchase price at closing consist of a decrease
by the amount of assumed liabilities as defined in the agreement (certain
business obligations of the Cable Company from its business prior to closing and
certain obligations accruing and relating to periods after closing under
government permits and contracts of the Cable Company) and increased by current
assets of the Cable Company (other than cash assets) as defined in the agreement
(prepaid expenses of the Cable Company related to goods and services that are to
be received by the Company after closing and in respect of which the Company
would receive a benefit, and accounts receivable).
The exclusions from assets identified in the Alaska Cablevision
Purchase Agreement consist of assets related to the operation of the Cable
Company cable system including certain non-cable assets (equipment, furnishings,
leases, and other assets related to the principal offices of the Cable Company)
certain management and programming agreements.
The Cablevision Company Notes are to bear simple, non compounding
interest at the lowest allowable rate of the Internal Revenue Service under
imputed interest rules in effect at closing. The notes are convertible into
shares of Company Class A common stock during a 15 day period each year for a
period of ten years with any indebtedness on the notes not previously converted
into those shares being due and payable in full in a single, lump sum payment on
the tenth anniversary of their initial date of issuance. The conversion price
for the notes is initially to be $6.50 per share, and the conversion price
REGISTRATION STATEMENT
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for each subsequent conversion period is to be an amount equal to $6.50 plus an
amount per share equal to the accrued interest on each $6.50 principal amount of
the note being converted on a non-compounded basis. The first conversion period
is to commence on the issuance date, and the second through the tenth conversion
periods are to commence on each anniversary of that issuance date and are to
conclude 15 days thereafter, respectively.
The Cablevision Company Notes are transferable or assignable only to
shareholders of the Cable Company and their family members, heirs and assigns.
The notes are not subject to prepayment in full or in part except with the
consent of the note holder and the Company. The notes are to be subordinated to
all of the Company's senior indebtedness as defined in the Alaska Cablevision
Purchase Agreement including but not limited to the Credit Agreement with the
Senior Lenders.
McCaw/Rock Systems. The McCaw/Rock Homer Purchase Agreement encompasses
the purchase of substantially all of the assets (with certain identified
exclusions) of McCaw/Rock Homer. Under the McCaw/Rock Homer Purchase Agreement,
at closing the Company is to deliver to McCaw/Rock Homer for its separate
distribution to the joint venturers as payment for the McCaw/Rock Homer assets
$1,466,132 (subject to adjustment and holdback at closing), payable in cash.
Similarly, the McCaw/Rock Seward Purchase Agreement encompasses the purchase of
substantially all of the assets (with certain identified exclusions) of
McCaw/Rock Seward. Under the McCaw/Rock Seward Purchase Agreement, at closing
the Company is to deliver to McCaw/Rock Seward for its separate distribution to
the joint venturers as payment for the McCaw/Rock Seward assets $2,883,868
(subject to adjustment and holdback at closing) payable in cash. See, within
this section "--Escrow and Holdback Agreements-McCaw/Rock Systems."
Under both the McCaw/Rock Homer and Seward Purchase Agreements, the
adjustments to the purchase price at closing consist of a decrease by the amount
of assumed liabilities as defined in the agreement (certain business obligations
of the Cable Company from its business prior to closing and certain obligations
accruing and relating to periods after closing under government permits and
contracts of the Cable Company) and increased by current assets of the Cable
Company (other than cash assets) as defined in the agreement (prepaid expenses
of the Cable Company related to goods and services that are to be received by
the Company after closing and in respect of which the Company would receive a
benefit, and accounts receivable).
The exclusions from assets identified in both the McCaw/Rock Homer and
the McCaw/Rock Seward Purchase Agreements consist of assets related to the
operation of the Cable Company cable systems including specified programming
agreements, agreements for cablecast of certain identified services, and certain
licenses.
Fractional Shares. A description of the designations, preferences,
rights, and qualifications, limitations and restrictions on the Company Stock is
provided elsewhere in this Proxy Statement/Prospectus. See, "DESCRIPTION OF
COMPANY CAPITAL STOCK." Fractional shares of Company Stock will not be issued in
the Acquisition Plan. Prime Group members or shareholders of Alaskan Cable
otherwise entitled to fractional shares of Company Stock will be paid cash in an
appropriate amount based upon the value of Company Class A common stock used in
the Proposed Transactions, i.e., $6.50 per share.
Conditions to the Proposed Transactions.
General. The respective obligations of the Company and each of the
Cable Companies under the respective Purchase Agreements to consummate the
transactions contemplated by the agreements are generally subject to the
satisfaction of the following conditions: (1) the Acquisition Plan and the
Proposed
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Transactions contemplated by it shall have been duly approved by the
shareholders of the Company and, as to each Proposed Transaction, by the
security holders of the corresponding Cable Company which is the subject of that
transaction and all other required consents including those of the Senior
Lenders and corresponding lenders of Prime, Alaskan Cable and Alaska
Cablevision, as the case may be, have been obtained or waived; (2) the
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act and any necessary state securities law
approvals shall have been obtained and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and remain in effect; (3) all consents of governmental entities
necessary for the transfer of control of the cable television franchises, to the
extent required to be obtained under the Acquisition Plan, shall have been
obtained, e.g., consent of the APUC; and (4) the FCC shall have consented, to
the extent such consent is legally required, to the transfer of control to the
Company of all FCC licenses possessed by the Cable Companies, except where the
failure to receive such consent will not have a materially adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
or operation of the Company and the Cable Companies, taken as a whole.
In the case of a given Purchase Agreement, the consent of the parties
to that agreement would be required to waive any of these conditions as they
pertain to that agreement. In the case of the Prime Proposed Transaction, the
consent of each of the Prime Sellers and the Company would be required in order
to waive any of the above enumerated conditions to the parties' respective
obligations to consummate the Prime Proposed Transaction, except that the Prime
Sellers may in their sole discretion unanimously agree to waive the condition
referenced in item (2) above with respect to the effectiveness of the
Registration Statement.
The obligations on the Company under each of the Purchase Agreements
are generally conditioned at closing upon the representations and warranties of
the corresponding Cable Company as true and accurate in all material respects,
the delivery of all required documents, there have been no materially adverse
changes to the cable system or assets of the Cable Company, no action,
proceeding or investigation has been instituted or threatened to set aside or
modify the Purchase Agreement, results of the Company's due diligence inspection
of the assets of the Cable Company within 30 days (60 days in the case of Prime
and Alaskan Cable) of the execution of the Purchase Agreement is satisfactory to
the Company, and the cash flow projections of the Cable Company meet the
requirements specified in the corresponding Purchase Agreement. The obligations
of the Cable Company under each of the Purchase Agreements are generally
conditioned at closing upon the representations and warranties of the Company as
true and accurate in all material respects, the delivery of all required
documents, there have been no materially adverse changes in the Company's
business, no action, proceeding or investigation has been instituted or
threatened to set aside or modify the Purchase Agreement, and the Company's cash
flow projections meet the requirements specified, if any, in the corresponding
Purchase Agreement.
Prime. The Prime Proposed Transaction is expressly conditioned upon MCI
purchasing the MCI Company Stock. In addition, the Company is at closing to
enter into the Prime Management Agreement and the Prime Registration Rights
Agreement, the Prime Company Shares issued to the Prime Sellers must be listed
and qualified for trading on each exchange on which Company Class A common stock
is then listed and qualified for trading, the Prime Sellers' two designees to
the Company Board must have been duly elected to the Company Board, and the
Prime Sellers (and their distributees, including other members of the Prime
Group, who elect in writing to be bound thereby) will become subject to the New
Voting Agreement as described elsewhere in this Proxy Statement/Prospectus. See,
within this section "--Prime Management Agreement; Registration Rights
Agreements"; and "--New Voting Agreement."
Alaskan Cable. Under the Alaskan Cable Purchase Agreement, the Company
is at closing to enter into the Alaskan Cable Registration Rights Agreement as
described elsewhere in this Proxy Statement/Prospectus. See, within this section
"--Registration Rights Agreements."
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Governmental Approvals. As of the Record Date, the only governmental
consents and governmental filings of which the Company and the Cable Companies
were aware had to be obtained or made in connection with the consummation of the
Acquisition Plan, other than in connection with compliance with federal
securities laws, were as follows: (1) filings with, and consents, orders or
approvals required to be received from, the Alaska Public Utilities Commission
("APUC") which are required in connection with the transfer of control of the
certificates of public convenience and necessity issued by the APUC related to
the cable television operations of the Cable Companies; (2) filings with, and
consents, orders or approvals required to be received from, the Federal
Communications Commission ("FCC") under the Communications Act in connection
with the transfer of control of licenses related to the cable television
operations of the Cable Companies; (3) filings with, and consents, orders or
approvals required to be received from, various U.S. military contracting
officers that are required in connection with the transfer of control of
contracts to provide cable television service to various U.S. military
installations related to the cable television operations of the Cable Companies;
and (4) state securities registration or exemption from registration
requirements. Of these items, only item (3) as it pertains to the franchises
held by Prime and Alaskan Cable to provide cable television to certain military
installations, was considered waivable prior to closing on the respective
Purchase Agreements.
Applications for transfer of control of 15 certificates of public
convenience and necessity held by the various Cable Companies to the Company
were filed with the APUC on May 23, 1996, and were approved in an order dated
September 23, 1996, such transfers to be effective on the Closing Date. No other
local governmental or state authorization is required for the transfer of the
certificates of public convenience and public necessity or otherwise for the
Company to take control and operate the cable systems of the Cable Companies
located in Alaska.
The approval of the transfer of the 15 certificates of public
convenience and necessity to the Company by the FCC is not required under
federal law, with one area of limited exception. The Cable Companies operate in
part through the use of several radio-band frequencies licensed through the FCC.
On August 5, 15, and 16, 1996, the Company and the Cable Companies applied to
the FCC for a transfer of these licenses. The FCC procedure for the transfer of
such licenses is considered routine. As of the Record Date, the FCC had granted
transfers for some of the Alaska Cablevision licenses, and approval of transfers
of the remaining licenses was expected prior to October 31, 1996.
As of the Record Date, the Company and Prime were seeking consent of
the military commanders at the military bases serviced by the Prime Alaska
Systems to the assignment of the respective franchises for those bases. However,
should such commanders wish to defer such consent until after closing on the
Prime Purchase Agreement, the Company and Prime will seek the assignment or
other transfer of those franchises subsequent to that closing. Similarly, as of
the Record Date, the Company and Alaskan Cable were seeking the consent of the
military commanders at the military bases serviced by the Alaskan Cable cable
systems to the assignment of the respective franchises for those bases. However,
should such commanders wish to defer such consents until after closing on the
Alaskan Cable Purchase Agreement, the Company and Alaskan Cable will seek the
assignment or other transfer of those franchises subsequent to that closing.
The Company and the Cable Companies intend to pursue vigorously all
required authorizations that have not been obtained as of the Record Date. There
can be no assurance, however, that such approvals will, in fact, be obtained or,
if obtained, as to the timing of their receipt.
The Company did make appropriate filings with the Antitrust Division of
the U.S. Department of Justice and the Federal Trade Commission ("FTC") under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("Hart-Scott-Rodino Act"), with respect to certain of the Purchase Agreements.
On June 17, 1996, the Company and Mr. Jack Kent Cooke (as the ultimate parent
entity of each of the
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corporations comprising Alaskan Cable) each filed a notification of the Alaskan
Cable Proposed Transaction with the FTC and the U.S. Department of Justice
pursuant to the Hart-Scott-Rodino Act. Mr. Cooke is the ultimate parent entity
of Alaskan Cable by virtue of indirectly holding more than 50% of each of the
three corporations comprising Alaskan Cable. The statutory waiting period
expired with respect to that filing, without giving rise to a request by either
agency for additional information. On June 18, 1996, the Company and ACI (as the
ultimate parent entity of Prime) each filed a notification of the Prime Proposed
Transaction with the FTC and the U.S. Department of Justice pursuant to the
Hart-Scott-Rodino Act. ACI is the ultimate parent entity of Prime by reason of
its current entitlement to 50% or more of the profits of Prime. The two federal
agencies granted early termination of the statutory waiting period with respect
to that filing. Depending on several factors, such as fluctuations in the market
price of the Company Class A common stock, additional filings under the
Hart-Scott-Rodino Act may have to be made as a precondition to consummation of
the Acquisition Plan.
Certain security holders of the Cable Companies may be individually
subject to the notification and waiting-period requirements of the
Hart-Scott-Rodino Act if they will hold Company Stock having a value of more
than $15 million as a result of the Acquisition Plan. Determination of whether
notification is required in a particular case will necessitate, among other
things, consideration of potentially applicable exemptions and application of a
jurisdictional test relating to the holder's revenue and assets. Persons whom
the Company expects to receive shares of Company Stock valued in excess of $15
million will be required, as a precondition to receiving such shares, to provide
the Company with evidence of compliance with the Hart-Scott-Rodino Act,
satisfactory in form and substance to the Company and its counsel. If necessary,
the Company will deposit into escrow the shares of Company Stock issuable to any
holder obligated to file notification under the Hart-Scott-Rodino Act and
instruct the escrow agent to hold such shares pending the expiration or
termination of the applicable waiting period.
Other Approvals The Prime Proposed Transaction is subject to the
consent or approval of certain of the Prime Group members, and the Alaskan Cable
Proposed Transaction is subject to the consent or approval of the respective
sole shareholder of each of the three corporations comprising Alaskan Cable as
further described elsewhere in this Proxy Statement/Prospectus. See, "CABLE
COMPANY SECURITY HOLDER CONSENTS." The Proposed Transactions are in addition
subject to the consent of lenders of the respective Cable Companies and the
Senior Lenders of the Company. Various agreements entered into between the Cable
Companies and their respective vendors will be assigned to the Company. If
assignment is not available or if the Company in its sole discretion chooses, it
may negotiate new agreements with those vendors or other persons providing
similar services.
Covenants.
General. The Purchase Agreements involving the Cable Companies all
provide that, following their execution but prior to closing, the respective
Cable Company will continue to operate its cable system in conformance with its
standard operating practices and in accordance within existing budgets,
including its ordinary level of maintenance capital expenditures, unless agreed
otherwise by the Company. During this period, each Cable Company has agreed that
its designated agent shall be included in material business discussions
regarding that company's conduct of its affairs. During this period each Cable
Company has agreed that neither such company nor anyone acting on its behalf
will enter into or continue any discussions, negotiations, or contracts relating
to the sale of all or any portion of the assets nor to distribute any assets
except in the ordinary course of business. Each Cable Company has agreed to
operate in the ordinary course of business and in the manner as it is being
conducted at the beginning of the period without material change in operations,
except as may be approved in advance by the Company. In each of the Purchase
Agreements, the Company has made to the Cable Companies (and to the Prime
Sellers) covenants regarding the operation of the Company's business pending the
final closings which are similar to those described above made by the Cable
Companies to the Company.
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Under each of the Purchase Agreements, at final closing, the securities
(in the case of Prime) or the assets (in the case of the other Cable Companies)
are to be transferred to the Company, free and clear of all liens and
encumbrances, except for those expressly disclosed to the Company under the
corresponding Purchase Agreement.
Under each of the Proposed Transactions as a condition precedent to
final closing, it is subject to consents of various persons including state and
federal regulators, shareholders of the Company, securities holders of Prime,
and Cable Company, and the Company's lenders.
Prime. Unique to the Prime Purchase Agreement are the following
covenants. PIIM will, prior to closing on the Prime Purchase Agreement, continue
to manage Prime under the existing management agreement. However, during this
period, PIIM must receive the Company's prior written consent on all future
capital expenditure projects which cause the capital expenditure budget of Prime
to be exceeded by more than 10% and the Company must receive the Prime Sellers'
prior written consent on all future capital expenditure projects which cause the
capital expenditure budget of the Company to be exceeded by more than 10%. Prime
has agreed not to issue or enter into any agreement to issue any additional
partnership interests, securities, or warrants or options to purchase securities
prior to the final closing, other than for purposes of raising additional equity
capital for Prime and then only on terms whereby such new equity holders shall
sell their equity interests in Prime to the Company as a part of the Prime
Purchase Agreement for no additional aggregate consideration payable by the
Company. Prime has agreed to continue to operate the Prime Alaska Systems in the
ordinary course of business and in the same manner as it is being operated as of
the date of the Purchase Agreement without material change except (1) to upgrade
the cable system during 1996 at a cost not to exceed $7 million in the
aggregate, or (2) as may be approved in advance by the Company. Prime has agreed
not to enter into or modify any material contract, including existing executive
compensation benefits. Prime is not to enter into any executive compensation
arrangement conditioned upon the acquisition or attempted acquisition of a
significant interest of Prime, except in the ordinary course of business.
The Prime Purchase Agreement further provides that the Company will not
issue or enter into any agreement to issue any additional securities,
warranties, or options (other than stock options issued in the ordinary course
of business pursuant to its stock option plan) to purchase securities prior to
the final closing except for the sale of the MCI Company Stock and the issuance
of securities as required in connection with the acquisition of the cable
businesses of the other Cable Companies. The Company is not to enter into any
discussions or agreements for the sale of all or any portion of its assets or
equity, except in the ordinary course of business. The Company has agreed to
continue to operate its business in the ordinary course and in a manner as it
was being operated as of the execution of the Prime Purchase Agreement without
material change, except as may be approved by Prime. The Company has agreed,
throughout this period, not to enter into or modify any material contract,
including any existing executive compensation benefit, except in the ordinary
course of business, and the Company has agreed not to enter into any executive
compensation arrangement conditioned upon the acquisition or attempted
acquisition of a significant interest of the Company, except as consented to by
the Prime Sellers.
At closing, the Company is to provide for execution of a Prime
Registration Rights Agreement, the terms of which are described elsewhere in
this Proxy Statement/Prospectus. See, within this section "-- Registration
Rights Agreements."
Through the Prime Purchase Agreement the Company agrees to expand the
Company Board from seven to nine members, with the Prime Sellers (and their
distributees, including other members of the Prime Group, who elect in writing
to be bound thereby), through their designated agent, to have the right to
nominate two members of that board. At the request of Prime Sellers through
their designated agent (PIIM) at closing on the Prime Purchase Agreement, MCI,
TCI-GCI, Inc., and Messrs. Duncan and Walp,
REGISTRATION STATEMENT
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the present signatories to the Voting Agreement, will terminate that agreement
and enter into the New Voting Agreement with PIIM. With the execution of the New
Voting Agreement, the Prime Sellers (and their distributees, including other
members of the Prime Group, who elect in writing to be bound thereby) will be
assured, as of the Record Date, that they will be able to exercise the right to
nominate and elect those two members under the terms of the New Voting
Agreement. See within this section "--New Voting Agreement."
Further as a condition of the Prime Purchase Agreement, at closing, the
Company and MCI are to consummate the issuance and sale of the MCI Company Stock
under the MCI Purchase Agreement simultaneously with the closing of the Prime
Purchase Agreement.
At the final closing on the Prime Purchase Agreement, PIIM, Prime
Growth, Prime Holdings, and PCLP will agree that for a period of two years
following termination of the Prime Management Agreement, they will not engage in
the cable television business in Alaska. PIIM will also agree at such closing
that each of its key employees will not engage in the cable television business
in the areas in Alaska served by the Prime Alaska Systems during that period,
for so long as that employee is employed by PIIM.
As a part of this closing, both Prime and the Company have agreed to
cooperate in the mergers of the corporate general partner (PCFI) and corporate
limited partner (ACI) of Prime with and into a subsidiary of the Company.
Alaskan Cable. The Alaskan Cable Purchase Agreement provides that upon
execution of the agreement and through final closing on it, the Company is not
to issue or enter into any agreement to issue any additional securities,
warrants, or opinions, other than stock options issued in the ordinary course of
business pursuant to its stock option plan, and otherwise is not to issue
securities prior to the final closing, except (1) the proposed issuance of the
MCI Company Stock, (2) the proposed issuance of Company Class A common stock to
Alaska Cablevision, should that corporation exercise its conversion rights in
the Cablevision Company Notes, and (3) the proposed issuance of the Class A
common stock to Prime under the Acquisition Plan. Neither the Company nor anyone
acting on behalf of the Company is to enter into or continue any discussions,
negotiations or contract relating to the sale of all or any portion of its
assets or equity, except in the ordinary course of business.
Alaska Cablevision. The Alaska Cablevision Purchase Agreement provides
that, upon execution of the agreement and through final closing on it, the
Company is not to issue or enter into any agreement to issue any additional
securities, warrants, or opinions, other than stock options issued in the
ordinary course of business pursuant to its stock option plan, to purchase
securities prior to the final closing except (1) the proposed issuance of the
MCI Company Stock, (2) the proposed issuance of Company Class A common stock to
Alaskan Cable, under the Acquisition Plan, and (3) the proposed issuance of the
Class A common stock to Prime under the Acquisition Plan. Neither the Company
nor anyone acting on behalf of the Company is to enter into or continue any
discussions, negotiations or contracts relating to the sale of all or any
portion of its assets or equity, except in the ordinary course of business.
Representations.
Each of the Cable Company Purchase Agreements contains several
representations and warranties by each respective party. The representations and
warranties of a Cable Company in a given Purchase Agreement include but are not
limited to the following: (1) that the Cable Company is duly organized, validly
existing, and in good standing under the laws of the state of organization; (2)
that the company has all requisite capacity, power, right, capitalization, and
authority to enter into the Purchase Agreement; (3) that the Purchase Agreement
constitutes legal, valid, and binding obligations of the Cable Company; (4) that
the cash flow of the Cable Company meets specified criteria; (5) that the Cable
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Company has exclusive, good and marketable title to its assets; (6) that the
Cable Company has all necessary governmental permits; (7) that the Cable Company
is in material compliance with all applicable laws, rules, regulations, orders,
ordinances, and codes of governmental authorities; (8) that the real property of
the company and improvements on it and the continuation of business on it do not
violate any applicable laws, statutes, regulations, codes, rules or orders, that
the status of employer, employee agreements and contracts and benefit plans are
as disclosed in the Purchase Agreements; (9) that the Cable Company is in
compliance with FCC rules, regulations, and orders and otherwise in compliance
with law; and (10) that the company is not insolvent. Under the Prime Purchase
Agreement, the Prime Sellers' representations and warranties regarding the
status of Prime's plant and equipment and other tangible personal property, and
the compliance of it with applicable contractual and legal requirements, is
limited to the knowledge of certain specified individuals. The agreement further
provides that except as specifically stated, the plant, equipment and other
personal property are conveyed on an "as is" basis. The representations and
warranties of the Company include but are not limited to the following: (1) that
the Company is a corporation duly organized, validly existing, and in good
standing; (2) that the capital and outstanding capitalization is as stated in
the Purchase Agreement; (3) that the Company's cash flow meets specified
criteria; (4) that the Company's indebtedness is not more than certain specified
levels; (5) that the Purchase Agreement constitutes a legal, valid, and binding
obligation of the Company; and (6) that the Company is not insolvent.
Escrow and Holdback Agreements.
Prime. Under the Prime Purchase Agreement, at final closing the Prime
Sellers and the Company are each to hold back and deposit in escrow with a third
party escrow agent ("Prime Escrow Holdback") 1,093,750 shares of Company Class A
common stock ("Prime Escrow Holdback Shares") or provide cash or an irrevocable
letter of credit equal to $8,750,000 to secure each party's indemnification for
breaches of representations, warranties and covenants. If no breach of the Prime
Purchase Agreement has occurred, the Prime Escrow Holdback Shares, such escrowed
funds or letter of credit is to be released to the partner which deposited them
into escrow, effective as of 180 days after that final closing. See, within this
section "--Certain Restrictions on Resale of Company Stock and MCI Company
Stock"; and "--Certain Federal Income Tax Consequences."
In addition, the Prime Sellers have entered into an escrow agreement
with PIIM whereby the Prime Sellers have agreed that any of the Prime Escrow
Holdback Shares that are released from the escrow holdback with the Company and
the third-party escrow agent will not be delivered to the Prime Sellers, but
will instead be delivered into escrow with PIIM acting as escrow agent. Such
escrowed shares will be held by PIIM as escrow agent and not delivered to the
Prime Sellers until that date which is one year and ten days from the closing of
the Prime Proposed Transaction. Prior to their release to the Prime Sellers,
PIIM will be entitled to hold and disburse such escrowed shares to satisfy any
claims made against the Prime Sellers by the Company prior to the prescribed
release date with respect to the representations, warranties and covenants given
to the Company by the Prime Sellers pursuant to the Prime Proposed Transaction.
Distributions of Company Stock to certain of the Prime Sellers and
distribution by them of that stock to their security holders (including other
members of the Prime Group) will be subject to transfer limitations imposed by
the Prime General Partner or, if distributed to its sole shareholder, then by
the general partner of such shareholder and by agreement of the shareholders of
the corporate limited partner (ACI) of Prime. The transfer limitations will be
designed to preserve the "continuity of interest" requirement so that the Prime
Purchase Agreement, as it applies to the owners of those corporate partners (ACI
and Prime General Partner) of Prime, to be federal income tax-free
reorganizations in the form of statutory mergers with GCI Cable. One of the
requirements of that type of reorganization is that the reorganization plan does
not include intent to transfer, distribute, or otherwise resell the securities
acquired in the
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transaction. All of the shareholders of ACI have entered into an agreement ("ACI
Escrow Agreement") whereby they have agreed to deposit or cause to be deposited
into escrow with an independent third-party escrow agent at the closing of the
Prime Purchase Agreement, as a group, 50% of the aggregate number of shares of
Prime Company Shares receivable by them in connection with the ACI Merger (less
the number of shares deposited by them pursuant to the Prime Escrow Holdback.
The ACI Escrow Agreement provides that the shares deposited into escrow pursuant
to the ACI Escrow Agreement will be released to the shareholders of ACI on that
date which is one year and five days from the date of the closing of the Prime
Purchase Agreement. PGP intends to hold 50% of the shares of Prime Company
Shares receivable by PCLP in connection with the merger of PCFI with and into a
subsidiary of the Company and not distribute such shares, for a period of at
least two years from the date of the closing of the Prime Purchase Agreement.
See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Background and
Description of Business--Prime"; "PROPOSED TRANSACTIONS: Escrow and Holdback
Agreements--Prime"; CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN: Certain
Federal Income Tax Consequences."
Alaskan Cable. Under the Alaskan Cable Purchase Agreement at final
closing the parties are each to hold back and deposit in escrow 538,000 shares
of Company Class A common stock, or a letter of credit in an amount equal to 5%
of the purchase price under the Alaskan Cable Purchase Agreement to secure their
respective indemnification for breaches of representations, warranties, and
covenants. If no breach of the Alaskan Cable Purchase Agreement has occurred
such escrowed assets are to be released following the respective indemnitee's
written instructions effective as of 180 days after the final closing.
Alaska Cablevision. Under the Alaska Cablevision Purchase Agreement, at
final closing the parties are to each hold back and deposit in escrow notes,
cash, letters of credit, or otherwise in the amount equivalent to $800,000 to
secure their respective indemnification for breaches of representations,
warranties, and covenants. If no breach of the Purchase Agreement has occurred,
escrowed assets are to be released following the respective indemnitee's written
instructions, effective as of 180 days after the final closing.
McCaw/Rock Systems. Each of the McCaw/Rock Homer and Seward Purchase
Agreements provides that at closing the Company and the Cable Company will each
deposit in escrow $75,000 in cash to secure each party's indemnification for
breaches of representations, warranties, and covenants. If no breach of the
Purchase Agreements has occurred, such escrowed funds are to be released to the
party which placed it in escrow effective as of 180 days after the closing.
Expenses. The Acquisition Plan through the various Purchase Agreements
provides that each party shall pay its own costs and expenses. The Prime
Purchase Agreement also provides that Prime will pay the costs and expenses of
the Prime Sellers. Any filing fees required by the Purchase Agreements,
including without limitation, those in connection with the Hart-Scott-Rodino
Act, are to be borne equally by the Company and the specific Cable Company which
is the subject of the filing. However, the Company is to pay for the costs of
registering the Company Stock.
Termination, Amendment and Waiver. The Purchase Agreements generally
provide for termination at the end of the term of the agreement, by mutual
consent of the parties, and in the discretion of one party at the occurrence of
an event of default caused by the other party. An event of default is a default
in the performance of any material obligation under the agreement or if any
representation or warranty of a party is materially false and the party fails to
correct or satisfy the default within 10 days after written notice is given to
that party. A party may waive an event of default by another party and require
the transactions contemplated by the agreement to be consummated by closing.
Each Purchase Agreement may be modified upon the mutual agreement of the parties
to that transaction.
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Registration Rights Agreements
Prime. Under the Prime Purchase Agreement, the initial distribution to
and, to the extent required, subsequent resales or distributions by the Prime
Sellers (and their distributees, including other members of the Prime Group) of
their portion of the Company Stock received in the Prime Purchase Agreement will
be registered under the Securities Act, in accordance with the terms of a
Registration Rights Agreement ("Prime Registration Rights Agreement") to be
entered into among the Company and the Prime Sellers at the closing of the Prime
Purchase Agreement. To the extent that subsequent resales or distributions by
the Prime Sellers (and their distributees, including other members of the Prime
Group) are required to be registered, the Company will keep the prospectus that
is a part of the Registration Statement for the Company Stock current for a
period of two years or otherwise satisfy its responsibilities for registration
through other registration formats. The Prime Sellers will, pursuant to the
Prime Registration Rights Agreement, agree (1) not to sell any of the Prime
Company Shares during the first 90-day period following the final closing, and
(2) not to sell more than 20% of their portion of that stock during the 59-day
period following that first 90-day period. Subsequent to that 59-day period, the
Prime Sellers (and their distributees, including other members of the Prime
Group) may sell the remaining portion of the Prime Company Shares, subject, in
the case of shares of the Prime Company Shares to be received under the PCFI
Merger Agreement and the ACI Merger Agreement, to various agreements among the
respective owners of Prime General Partner and ACI regarding transfer of such
shares designed to preserve the "continuity of interest" requirement for special
federal income tax treatment of such mergers. See, "CERTAIN CONSEQUENCES OF THE
ACQUISITION PLAN: Certain Federal Income Tax Consequences." In addition, a
portion of the Company Stock to be received by the Prime Sellers will be placed
in escrow at the closing. See, "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--Escrow and Holdback Agreements-Prime." The Prime Sellers (and their
distributees, including other members of the Prime Group) will have two demand
registrations, if required, to permit resales by them. The Prime Sellers (and
their distributees, including other members of the Prime Group) will also be
entitled to participate pro rata in any other registration involving the Company
(subject to limited exceptions). All expenses in connection with any
registration (other than underwriting discounts, selling commissions, and fees
and expenses of legal counsel of the sellers) and keeping any prospectus current
will be paid by the Company.
Alaskan Cable. Under the Alaskan Cable Purchase Agreement, Alaskan
Cable has registration rights similar to that described previously for Prime,
except that the holders of the shares subject to the Purchase Agreement will
have two demand registrations if required to permit resales by the holder. Under
this Proposed Transaction the Company is to keep the prospectus that is part of
the Registration Statement current for a period of two years or otherwise
satisfy its responsibilities for registration through other registration
formats.
Alaska Cablevision. Under the Alaska Cablevision Purchase Agreement,
Alaska Cablevision has registration rights, should it exercise its rights to
convert the Cablevision Company Notes to Company Class A common stock, similar
to that described previously for Prime. However, should Alaska Cablevision
exercise those registration rights during the period of 180 days subsequent to
final closing on the Alaska Cablevision Purchase Agreement, it must not during
that period sell any of that stock. The registration rights continue for a
period of ten years thereafter. Under this agreement holders of the shares
subject to the Alaska Cablevision Purchase Agreement are entitled to one demand
registration per year to the extent required to permit resales by those holders
for all or any portion of those shares.
ACI and PCFI Merger Agreements
The Prime Proposed Transaction includes the following reorganizations:
(1) the merger of ACI ("ACI Merger") with and into GCI Cable, pursuant to a plan
of merger ("ACI Merger Agreement"), with GCI
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Cable being the surviving corporation; and (2) the merger of Prime General
Partner ("PCFI Merger") with and into GCI Cable ("PCFI Merger Agreement"), with
GCI Cable being the surviving corporation. The terms of the two Merger
Agreements are similar and are briefly as follows.
Both mergers are to take effect on the date that a certificate of
merger is filed with the Secretary of State for the State of Delaware and the
articles of merger are filed with the Commissioner of the Alaska Department of
Commerce and Economic Development in accordance with the respective state
corporation laws ("Effective Time"). The name of the surviving corporation in
both cases is to be "GCI Cable, Inc." As of the Effective Time, GCI Cable will
have a five-member board of directors identified as follows: (1) Ronald A.
Duncan; (2) Donne F. Fisher; (3) Carter F. Page; (4) Larry E. Romrell; and (5)
Robert M. Walp. The two officers of GCI Cable as of the Effective Time will be
Mr. Duncan as President, and John M. Lowber as Secretary and Treasurer. These
officers and directors are also officers and directors of the Company, and their
backgrounds are described elsewhere in this Proxy Statement/Prospectus. See,
"MANAGEMENT OF THE COMPANY."
In the case of each merger, at the Effective Time GCI Cable will
receive all of the property, rights, privileges, franchises, patents,
trademarks, trade names, licenses, registrations, and other assets of ACI or
PCFI, as the case may be, including goodwill. GCI Cable at the same time will
assume all liabilities of every kind and description of ACI and PCFI under the
respective Merger Agreements.
In the case of ACI, each share of ACI Class A common stock issued and
outstanding immediately prior to the Effective Time will be converted into
1,237.261739 shares of Company Class A common stock, and each share of ACI Class
B common stock issued and outstanding immediately prior to the Effective Time,
will be exchanged for cash in the amount of $1.00 per share at the Effective
Time. In the case of PCFI, each share of PCFI common stock issued and
outstanding immediately prior to the Effective Time will be converted into
2,227.071 shares of Company Class A common stock.
The ACI Merger Agreement provides that unless otherwise agreed by GCI
Cable, it will be a condition precedent to the obligation of GCI Cable to
consummate the merger that all the shareholders of ACI will have given their
consent to the merger such that no shareholder of ACI will have appraisal rights
under the Delaware General Corporation Law as a result of or with respect to the
merger. Such appraisal rights are prohibited to shareholders of ACI under the
Delaware General Corporation Law as described elsewhere in this Proxy
Statement/Prospectus. See, "APPRAISAL RIGHTS: Prime."
Both the ACI and the PCFI Merger Agreements provide that ACI and PCFI,
respectively, will immediately prior to the Effective Time, be entitled to
declare and pay to their respective shareholders dividends consisting of all
cash on hand and any tax refund receivables held by ACI and PCFI, respectively,
immediately, prior to the Effective Time.
The ACI Merger Agreement provides for termination and abandonment by
decision of the boards of directors of ACI or GCI Cable, notwithstanding
approval of the agreement by the shareholders of one or both of the corporations
at any time prior to the Effective Time. In the event of such termination and
abandonment of the agreement, the agreement provides that it will become void
without liability on the part of the party electing so to terminate, or their
respective directors, officers or shareholders, except for liability of the
parties for their respective expenses. Similar provisions are included for
termination and abandonment in the PCFI Merger Agreement.
Both Merger Agreements provide for amendment or modification at any
time prior to the Effective Time, provided that such amendment or modification,
subsequent to the adoption of the respective agreement by the shareholders of
either party to it and who are entitled to vote on the merger, may not alter or
change (1) the amount or kind of shares, securities, cash, property, and rights
to be received in
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exchange for or on conversion of all or any shares of any class or series of a
class of shares of that corporation, except as approved by the shareholders of
each of those corporations that are parties to the Merger Agreement, (2) any
term of the Articles of Incorporation of GCI Cable, except as approved by the
shareholders of each of the corporations that are parties to the corresponding
Merger Agreement, or (3) any of the terms or conditions of the corresponding
Merger Agreement if such alteration or change would adversely affect the holders
of any class or series of a class of shares of that corporation, except as
approved by the holders of the class so affected.
Both Merger Agreements provide that the agreements are subject to the
terms and conditions of the Prime Purchase Agreement and that in any conflict
between the terms of a Merger Agreement and the terms of the Prime Purchase
Agreement, the terms and provisions of the Prime Purchase Agreement are to
govern and control.
Both Merger Agreements provide that the corresponding parties
acknowledge that the corresponding merger is subject to obtaining applicable
consents of the APUC and the FCC and that such consents have been obtained.
Prime Management Agreement
At the closing of the Prime Proposed Transaction, the Company and PIIM
will enter into a management agreement ("Prime Management Agreement") whereby
PIIM, which currently manages the Prime Alaska Systems, will commence managing
the Company Cable Systems, i.e., the Prime Alaska Systems and the cable
television systems to be acquired from Alaskan Cable, Alaska Cablevision,
McCaw/Rock-Homer, and McCaw/Rock-Seward. See, "ACQUISITION PLAN: Interests of
Certain Persons in the Acquisition Plan--Prime Security Ownership and
Officer/Director Relationships."
Under the Prime Management Agreement, the Company will pay to PIIM a
net annualized fee for managing the Company Cable Systems in the amount of
$1,000,000 for the first year, $750,000 for the second year, and $500,000 for
each year thereafter that the Prime Management Agreement is in effect. The
amounts of such management fees were arrived at as a result of negotiations
between the Company and PIIM. Such fees are fixed amounts and not based on a
percentage of cable system revenues, as is often the case with respect to fees
charged to manage cable systems. Management fees charged by management companies
to manage cable systems typically range from 3% to 5% of cable revenues. The
fees to be paid to PIIM as described above will be less than if the fee were 3%
of cable revenues of the Company Cable Systems, based on their revenues for any
twelve-month period ended on or since December 31, 1995, and are believed to be
at least as favorable to the Company than could have been obtained from other
qualified managers of cable systems.
The Prime Management Agreement is to continue for a term of nine years
unless earlier terminated under a number of circumstances including the
following: (1) with respect to the Prime Alaska Systems, upon the termination or
revocation of the Company's cable television certificate of public convenience
and necessity or franchise for that system; (2) upon the sale of all or
substantially all of the assets of the Company Cable Systems or the sale of all
of the equity interests of the owner of the Company Cable Systems; (3) upon
PIIM's material breach of the agreement and failure to cure within 30 days; (4)
upon the Company's material breach of the agreement and failure to cure within
30 days; or (5) after the second anniversary of the date of the agreement, at
the option of either PIIM or the Company. The Prime Management Agreement does
not specifically deal with issues relating to advance notice requirements or
cooperation with successor managers in the event of a termination of the
agreement after the second anniversary of the date of the Prime Management
Agreement by either PIIM or the Company. Under the Prime Management Agreement,
PIIM would be entitled to be paid for all accrued management fees and
reimbursable expenses which have accrued prior to the effective date of the
termination.
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New Voting Agreement
As a part of the Prime Proposed Transaction, the parties to the Voting
Agreement will agree to allow the Prime Sellers, through PIIM as their
designated agent, to become a party to and participant in a new voting agreement
("New Voting Agreement"). The proposed New Voting Agreement will supersede and
replace the Voting Agreement, provided the Prime Proposed Transaction is
consummated. See, "OWNERSHIP OF THE COMPANY: Changes in Control--Voting
Agreement."
The New Voting Agreement contemplates the increase of the Company Board
from seven to nine directors. The New Voting Agreement provides that all of the
shares subject to the agreement will be voted as one block for so long as the
full membership on the Company Board is at least eight, for the election to the
Company Board of individuals recommended by a party to the agreement. The
allocation of recommendations to positions on the Company Board made by parties
to the agreement is to be as follows: (1) for recommendations from MCI, two
nominees; (2) for recommendations from Messrs. Duncan and Walp, one nominee
each; (3) for recommendations from TCI GCI, Inc., two nominees; and (4) for
recommendations from Prime Sellers (and their distributees, including other
members of the Prime Group, who elect in writing to be bound thereby), through
PIIM as their designated agent, two nominees for so long as the Prime Sellers
(and their distributees, including other members of the Prime Group, who agree
in writing to be bound by the terms of the agreement) collectively own at least
10% of the then issued and outstanding shares of Company Class A common stock
and the Prime Management Agreement is in full force and effect, provided that if
either of these conditions are not satisfied, then the Prime Sellers (and their
distributees, including other members of the Prime Group, who elect in writing
to be bound thereby) are to be entitled to recommend only one nominee and if
neither of these conditions are met, the Prime Sellers are not to be entitled to
recommend any nominee pursuant to the terms of the New Voting Agreement. The
shares subject to the New Voting Agreement are in addition to be voted as one
block, to the extent possible, to cause the full membership of the Company Board
to be maintained at not less than eight members, and are to be voted on other
matters to which the parties unanimously agree. Initially the two nominees of
the Prime Sellers (and their distributees) will be designated by the Prime
Sellers.
The stated term of the New Voting Agreement is through the completion
of the annual shareholder meeting of the Company to take place in June, 2001 or
until there is only one party to the agreement, whichever occurs first. However,
the parties to the agreement may extend its term but only upon unanimous vote
and written amendment of the Agreement. Parties to the agreement are to remain
parties to it as to voting for nominees to the Company Board and to maintain at
least eight members on that board only for so long as either the Prime Sellers
(and their distributees who agree in writing to be bound by the terms of the
agreement) collectively own at least 10% of the then issued and outstanding
Company Class A common stock or the Prime Management Agreement is in effect.
Except for the stated term and the conditions just outlined, a party to the
agreement (other than the Prime Sellers and their distributees, including other
members of the Prime Group, who elect in writing to be bound thereby) will be
subject to the agreement until the party disposes of more than 25% of the votes
represented by the party's holdings of Company common stock. That is, these
conditions on the term of the New Voting Agreement control and not the stated
term ending in 2001. A party to the agreement (other than the Prime Sellers and
their distributees, including other members of the Prime Group, who elect in
writing to be bound thereby) shall then be subject to the agreement regardless
of whether the party disposes of more than 25% of its votes.
The New Voting Agreement is to commence as of the Closing Date. Upon
its execution, the Company Board will within 30 days thereafter adopt a
resolution expanding the board from seven to nine members, and the Prime Sellers
will thereafter present their nominees for two positions on the Company Board.
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MCI Purchase Agreement
General. The Company and MCI Telecommunications Corporation, a Delaware
corporation ("MCI") entered into the MCI Stock Purchase Agreement effective as
of September 13, 1996 ("MCI Purchase Agreement"). The MCI Purchase Agreement
includes the following as separate agreements between the parties: (1) an
agreement providing certain registration rights to MCI with respect to the MCI
Company Stock ("MCI Registration Rights Agreement" as further described in this
section (see, "-Registration Rights Agreement"); and (2) the New Voting
Agreement. The MCI Company Stock when issued will become subject to the Voting
Agreement. Upon execution of the New Voting Agreement to replace the Voting
Agreement, the MCI Company Stock will become subject to that new agreement. The
New Voting Agreement is further described elsewhere in this Proxy
Statement/Prospectus. See, "OWNERSHIP OF THE COMPANY: Changes in Control--Voting
Agreement" and "PROPOSED TRANSACTIONS: New Voting Agreement."
Consideration, Closing Date. The MCI Purchase Agreement provides for
the issuance and sale of 2 million shares of Company Class A common stock ("MCI
Company Stock") for $13 million payable in immediately available funds.
The MCI Purchase Agreement sets the closing date on the agreement as
being no later than the fifth business day following the later of the full
consummation and Prime Purchase Agreement or the satisfaction or waiver of the
last condition precedent set forth in the MCI Purchase Agreement ("MCI Closing
Date").
Conditions To the Agreement. The obligations of MCI and the Company to
consummate the MCI Purchase Agreement are subject to the satisfaction at or
before the MCI Closing Date of each of the following conditions: (1) the
consummation of the transactions contemplated by the MCI Purchase Agreement
shall not be precluded by any order, decree or preliminary or permanent
injunction of a federal or state court of competent jurisdiction; and (2) the
consummation of the Prime Purchase Agreement.
The obligations of the Company to consummate the transactions
contemplated by the MCI Purchase Agreement are specifically subject to the
satisfaction at or before the MCI Closing Date of each of the following
conditions: (1) the representations of MCI set forth in the agreement shall have
been true and correct in all material respects; (2) MCI shall have performed in
all material respects its agreements as contained in the MCI Purchase Agreement
required to be performed at or prior to the MCI Closing Date; (3) the Company
shall have received a certificate of an officer of MCI dated as of the MCI
Closing Date certifying as to the fulfillment of items (1) and (2) above; and
(4) the Company shall have received from MCI the amount of $13 million by wire
transfer of immediately available funds.
The obligations of MCI to consummate the transactions contemplated by
the MCI Purchase Agreement are specifically subject to the satisfaction at or
before the MCI Closing Date of each of the following conditions: (1) the
representations of the Company set forth in the agreement shall have been true
and correct in all material respects; (2) the Company shall have performed in
all material respects its agreements as contained in the MCI Purchase Agreement
required to be performed at or prior to the MCI Closing Date; (3) all applicable
consents and approvals (including those of the FCC and any applicable public
utility commission or other regulatory body) which are necessary to consummate
the transactions contemplated by the MCI Purchase Agreement shall have been
obtained; (4) MCI shall have received from the Company certificates representing
shares of the MCI Company Stock registered in the name of MCI; (5) MCI shall
have received a certified copy of the Company Articles and Company Bylaws as of
the MCI Closing Date and a certificate of good standing for the Company from the
jurisdiction of its incorporation; (6) MCI shall have received (a) the MCI
Registration Rights Agreement executed by a duly authorized officer of the
Company dated as of the MCI Closing Date and (b) the New Voting Agreement
executed by
REGISTRATION STATEMENT
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a duly authorized officer of all the parties to it, dated as of the MCI Closing
Date; (7) MCI shall have received an opinion of legal counsel for the Company in
a form as agreed by MCI and the Company dated as of the MCI Closing Date; (8)
MCI shall have received a certificate of secretary from the Company dated as of
the MCI Closing Date certifying that attached thereto is a copy of a resolution
duly adopted by the Company Board authorizing and approving the execution of the
MCI Purchase Agreement and the consummation of the transactions contemplated by
the agreement; (9) MCI shall have received a certificate of an officer of the
Company dated as of the MCI Closing Date certifying as to the fulfillment of the
matter contained in items (1)-(3) above; (10) the Prime Purchase Agreement shall
not have been amended, modified, or altered without the prior written consent of
MCI; and (11) the Company shall not have issued in the aggregate more than 18
million shares of Class A common stock in connection with the acquisitions of
the Cable Companies, and the price per share of any share of that stock in
connection with those acquisitions shall have been at least $6.50.
Covenants. Under the MCI Purchase Agreement and during the period from
the effectiveness of the agreement to the MCI Closing Date, MCI and the Company
have agreed as follows: (1) the Company will cause its subsidiaries to conduct
their respective businesses only in the ordinary course and to maintain, keep
and preserve their assets and properties in good condition and repair; (2) the
Company will not permit any of its subsidiaries to make or propose any change or
amendment in their respective certificates of incorporation or bylaws; (3)
except in connection with the acquisition of the Cable Companies, the Company
will not (and will not permit any of its subsidiaries to) issue, pledge or sell
any shares of capital stock or any other securities of any of them or issue any
securities convertible into or exchangeable for or representing the right to
purchase or receive, or enter into any contract with respect to the issuance of
any shares of capital stock or any other securities of any of them other than
pursuant to the MCI Purchase Agreement or the exercise of stock options
outstanding on the effective date of the MCI Purchase Agreement, or enter into
any contract with respect to the purchase or voting of shares of their capital
stock or otherwise reclassify any of their securities, or make any other
material changes in their capital structure; (4) the Company will not declare or
otherwise pay any dividend or other distribution (whether in cash, stock or
property) with respect to or purchase or redeem any shares of capital stock; (5)
the Company will not (and will not permit any of its subsidiaries to) encumber,
sell or otherwise dispose of or acquire any material assets, or encumber, sell
or otherwise dispose of assets having a value in excess of $3 million in the
aggregate, or enter into any merger of other agreement providing for the
acquisition of any material assets of the Company or any of its subsidiaries, or
acquire any corporation or other business organization, or enter any contract or
other agreement to do any of the foregoing, except the Proposed Transactions;
(6) the Company will (and will cause its subsidiaries to) afford MCI access at
all reasonable times to their officers, employees and agents, properties, books,
records and contracts and will furnish MCI all financial, operating and other
data and information as MCI may reasonably request; (7) MCI and the Company will
(a) cooperate with one another in promptly (i) determining whether any filings
or authorizations required to be made under any state or federal law or any
consents or other action required to be obtained from other parties to loan
agreements or contracts material to the business of the Company in connection
with the transaction contemplated by the MCI Purchase Agreement, and (ii) making
any such filings, furnishing information required in connection with them, and
(b) as promptly as practicable file with the FTC and the U.S. Department of
Justice the notification and report forms, if required; and (8) the Company will
not amend or otherwise alter the Prime Purchase Agreement without the prior
written consent of MCI.
Representations. Under the MCI Purchase Agreement, the Company
represents and warrants to MCI as follows: (1) the Company and each of its
subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their jurisdiction of incorporation with corporate
power and authority to own, lease and operate their respective properties and to
conduct their respective businesses, and each of these corporate entities is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the character of its properties owned or held or the
nature of its
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activities makes such qualification necessary; (2) the Company has the requisite
corporate power to enter into the MCI Purchase Agreement and to perform its
obligations under it, and the execution, delivery, and performance by the
Company of its obligations under the agreement have been duly authorized by all
requisite corporate action and the agreement is valid and binding on the Company
and not in conflict with the Company Articles or the Company Bylaws or other
material agreement or instrument to which the Company is a party; (3)(a) as of
the effective date of the MCI Purchase Agreement and after the issuance of the
MCI Company Stock, the authorized, issued, and outstanding capital stock of the
Company will be as represented by the Company, (b) with the exception of options
held by officers of the Company or reserved to its Stock Option Plan, or as
relating to the Acquisition Plan, there are outstanding no options, warrants,
rights or convertible securities or other agreements providing for the issuance
of capital stock of the Company, and except for the Voting Agreement there are
no voting trusts or agreements to which the Company or a subsidiary of it is a
party, and to the knowledge of the Company no other voting trusts exist with
respect to the capital stock of the Company or any of its subsidiaries, and (c)
except for the pledges of GCC stock to the Senior Lenders and of GCI Leasing
Co., Inc. stock to National Bank of Alaska, the Company owns the entire equity
interest in each of its subsidiaries, and all of the outstanding capital stock
of each subsidiary of the Company are validly issued, fully paid and
nonassessable and are owned by the Company free and clear of all liens and other
encumbrances; (4) the MCI Company Stock when sold and delivered by the Company
to MCI under the MCI Purchase Agreement will have been duly authorized and
validly issued and will be fully paid and non-assessable and not subject to any
preemptive rights and free and clear of any security interest or other
encumbrance; (5) the Company has timely filed all forms, reports and other
statements with the Commission pursuant to the Exchange Act since June 30, 1993
and prepared such reports and such registrations as it has made under the
Securities Act since that date in compliance with applicable requirements of the
Exchange Act and the Securities Act, respectively; (6)(a) the audited financial
statements of the Company included in the reports and registrations described in
item (5) above and the unaudited interim monthly financial statements for
periods subsequent to such audited financial statements are correct and
complete, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, (b) no event has occurred since the
preparation of those financial statements that would require a restatement of
those financial statements, (c) those financial statements reflect and at the
MCI Closing Date will reflect, the interests of the Company in the assets,
liabilities and operations of all subsidiaries of the Company, and (d) from the
date of the most recent balance sheet included in the financial statements to
and including the effective date of the MCI Purchase Agreement, the Company's
business has been operated only in the ordinary course, the Company has not sold
or disposed of any assets other than in the ordinary course of business, there
have not occurred any material adverse changes or events in the Company's
business, operations, assets, liabilities, financial condition or results of
operations compared to the corresponding disclosures in the financial statements
described in item (6)(a) above and there has not occurred any theft, damage,
destruction or loss which has had a material adverse effect on the Company; (7)
since the date of the Company's 1995 Proxy Statement (April 28, 1995) to the
effective date of the MCI Purchase Agreement, the Company has not entered into
or otherwise become obligated with respect to any transaction which would
require a disclosure pursuant to Item 404 of Regulation S-K in accordance with
Items 7(b) or (c) of Schedule 14A under the Exchange Act were the Company to
distribute a proxy statement as of the effective date of the MCI Purchase
Agreement and the MCI Closing Date; (8) there is no claim, suit, action, or
other proceeding pending or to the knowledge of the Company threatened against
or affecting the Company or any of its subsidiaries which seek to restrain the
consummation of the MCI Purchase Agreement; (9) no governmental consent or other
action is necessary for the execution and delivery of the MCI Purchase
Agreement, the issuance and sale of the MCI Company Stock or the consummation of
the transactions contemplated by the agreement other than applicable consents or
approvals by the FCC and applicable public utility commissions; (10) since
December 31, 1995, (a) there has not occurred or arisen any event having a
material adverse effect on the business, properties or financial condition of
the Company and its subsidiaries taken as a whole, (b) the Company and its
subsidiaries have conducted their businesses only in the ordinary course
consistent with past practices, and (c) neither the Company nor
REGISTRATION STATEMENT
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any of its subsidiaries has taken any prohibited action as described in items
(1) through (5) of the Company's covenants (see within this section
"-Covenants"); (11) neither the Company nor any of its subsidiaries has paid any
fee or commission to any broker or funds in connections with the transactions
contemplated by the MCI Purchase Agreement; (12) except for the acquisition of
the Cable Companies, there are no contracts or other agreements with the Company
or any of its subsidiaries that create or govern the right of another party to
acquire the Company or an equity interest in the Company or any subsidiary of it
or to increase any such equity interest; (13) neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement, and none of
these entities have since March 31, 1993 been subject to employee strikes, work
stoppages, or requests for certification of bargaining unit or other requests
for collective bargaining; (14) the Company and its subsidiaries have all
permits, licenses and other certificates which are necessary for the Company and
its subsidiaries to conduct their operations in the manner conducted prior to
the effective date of the MCI Purchase Agreement, and no event has occurred or
has been threatened with respect to those licenses which permits revocation or
termination of them or would result in any material impairment of the rights of
holders of those licenses; (15)(a) each employee benefit plan of the Company
subject to the federal Employee Retirement Income Security Act of 1974, as
amended ("ERISA") complies with the applicable provision of ERISA, the Code and
other applicable law, and (b) neither the Company nor any subsidiary of the
Company, nor any plan, nor any of their respective directors, officers,
employees or agents has with respect to any such plan engaged in any "prohibited
transaction" as defined in Section 4975 of the Code and Section 406 of ERISA,
which could result in any taxes or penalties or other liabilities under Section
4975 of the Code or Section 502(i) of ERISA; (16) except for the pledges of GCC
stock held by the Company's Senior Lenders and pledges of GCI Leasing Co., Inc.
stock held by National Bank of Alaska, the Company and its subsidiaries have
good title to all of their material assets with limited exception of (i) liens
for current taxes and assessments not yet past due, (ii) inchoate mechanics' and
materialmens' liens for construction in progress, (iii) workers', repairmens',
and other liens arising out of the ordinary course of business, and (iv) all
matters of record, liens and imperfections of title and encumbrances which would
not in the aggregate have a materially adverse effect on the business,
properties or financial condition of the Company and its subsidiaries taken as a
whole; (17) the Company has listed all material contracts and agreements as of
the effective date of the MCI Purchase Agreement which the Company or any of its
subsidiaries is a party or by which any of their respective properties or assets
are bound other than such agreements for services purchased under tariffs; (18)
the Company is in material compliance with all applicable federal, state and
local laws and regulations pertaining to its business and affairs; (19) the
Company has duly and timely filed in proper form all federal, state, local and
foreign income, franchise, sales, use, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority and has paid or made provision for payment of
all such taxes, fees and assessments which are due with respect to any of the
aspects of its business or any of its properties; (20) there are no sales, use,
transfer or other charges applicable with respect to the transactions
contemplated by the MCI Purchase Agreement; (21) no written statement in the MCI
Purchase Agreement or any agreement or document delivered pursuant to it or on
behalf of the Company contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements made in it in light of
the circumstances under which they were made not misleading; (22) the Company is
not an "investment company" or company controlled by such a company within the
meaning of the Investment Company Act of 1940; and (23) as of the effect date of
the MCI Purchase Agreement and as of the MCI Closing Date, the Company is not
and will not be insolvent.
Under the MCI Purchase Agreement, MCI represents and warrants to the
Company as follows: (1) MCI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware; (2) MCI has the
requisite corporate power to enter into the MCI Purchase Agreement and to
perform its obligations under it; and the execution and delivery by MCI of and
the performance by MCI of its obligations under the agreement have been duly
authorized by all requisite corporate action of MCI; (3) MCI is purchasing the
MCI Company Stock for investment for its own account and not with a view to
REGISTRATION STATEMENT
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<PAGE>
or for sale in connection with any distribution if it, and MCI is an existing
security holder of shares of issued and outstanding common stock of the Company,
and no commission or other remuneration will be paid by MCI in connection with
its purchase of the MCI Company Stock; (4) MCI understands that (a) the MCI
Company Stock has not been registered under the Securities Act or under any
state securities law and is being issued in reliance upon the exemptions from
registration and prospectus delivery requirements of the Securities Act set
forth at Sections 4(2) and 4(6) of that act, (b) the MCI Company Stock cannot be
transferred without compliance with the registration requirements of the
Securities Act and applicable state securities laws or under an exemption from
such registration requirements is available, and (c) the reliance of the Company
upon these exemptions is predicated upon MCI's representations and warranties;
(5) the jurisdiction in which MCI's principal executive officers are located is
in the District of Columbia; (6) MCI is an "accredited investor" as defined in
Rule 501 adopted under the Securities Act; (7) the Company has made available to
MCI the opportunity to ask questions of, and to receive answers from, the
Company's officers and directors and other persons acting on their behalf
concerning the terms and conditions of the MCI Purchase Agreement and the
transactions contemplated in it and to obtain any other information requested by
MCI to the extent the Company possesses such information or can acquire it
without unreasonable effort or expense, and MCI has been afforded the
opportunity to inspect the books and records of the Company; (8) no written
statement in the MCI Purchase Agreement or in any other agreement or document
delivered pursuant to the MCI Purchase Agreement by or on behalf of MCI contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements in that agreement in light of the circumstances
under which they were made not misleading; (9) MCI is not an "investment
company" or a company controlled by such a company within the meaning of the
Investment Company Act of 1940; and (10) as of the effective date of the MCI
Purchase Agreement and the MCI Closing Date, MCI is not and will not be
insolvent.
Under the MCI Purchase Agreement, all representations, warranties and
covenants contained in it are to survive the execution of the agreement and the
consummation of the transactions contemplated by it.
Termination, Amendment, Waiver. The MCI Purchase Agreement and the
transactions contemplated in it may be terminated at any time prior to the MCI
Closing Date (1) by mutual written consent of MCI and the Company, (2) by MCI
and the Company if either is prohibited by an order or injunction of a court of
competent jurisdiction from consummating the transaction contemplated by the
agreement, or (3) by MCI or the Company if the MCI Closing Date does not occur
on or before December 31, 1996, provided this third right to terminate will not
be available to a party whose failure to fulfill any obligation under the
agreement has been the cause of the failure of the closing to occur on or before
the MCI Closing Date.
The MCI Purchase Agreement may not be amended except by a writing duly
signed by the parties. No party may waive any terms or conditions of the
agreement except by a duly signed writing referring to the specific provision to
be waived.
Registration Rights Agreement. Under the MCI Purchase Agreement, MCI
and the Company will on the MCI Closing Date enter into the MCI Registration
Rights Agreement. Under the MCI Registration Rights Agreement and following the
expiration of a 180-day "stand still period" after the effective date of the
agreement and then only if required to permit resales of the MCI Company Stock
by MCI and its successors and assigns who are holders of all or any portion of
the MCI Company Stock (collectively with MCI, "Holders"), the Holders will at
any time and from time to time have the right to require registration under the
Securities Act of all or any portion of the MCI Company Stock on the terms and
subject to the conditions set forth in the agreement.
REGISTRATION STATEMENT
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<PAGE>
The MCI Registration Rights Agreement provides the Company will not be
required to effect any registration under the agreement if one or more of the
following have occurred: (1) the requests for registration cover an aggregate
number of shares of the MCI Company Stock which the Holders request to have
registered having an aggregate market value of less than $1.5 million as of the
date of the last of such requests; (2) the Company has previously filed two
registration statements under the Securities Act pursuant to the agreement (not
including incidental registrations); (3) the Company, in order to comply with
such a request, would be required to undergo a special interim audit or prepare
and file with the Commission sooner than would otherwise be required pro forma
or other financial statements relating to any proposed transaction; or (4) if in
the opinion of counsel to the Company, the form of which opinion will be
acceptable to the Holders, a registration is not required in order to permit
resale by Holders. The first demand registration under the agreement may be
requested only by Holders of a minimum of 30% of the MCI Company Stock. The
Holders will also be entitled to participate pro rata in other registrations
involving Company Class A common stock subject to limited exceptions. All
expenses in connection with any registration (other than underwriting discounts,
selling commissions, and fees and expenses of legal counsel and accountants of
the Holders) and keeping any prospectus current will be paid by the Company.
Certain Personal Matters
In the context of the Acquisition Plan and other than the Proposed
Transactions there are no separate arrangements or agreements between the
Company and any of the Cable Companies or between the Company and MCI or between
the Company and any of the officers, directors, or controlling shareholders of
the Cable Companies or MCI. See, "CERTAIN CONSEQUENCES OF THE ACQUISITION PLAN:
Company Cable Systems--Management and Personnel."
Certain Restrictions on Resale of Company Stock and MCI Company Stock
All of the Company Stock issuable in the Acquisition Plan will be
registered under the Securities Act and freely transferable, except that any
such shares received by persons who are deemed "affiliates," as the term is
defined under Rule 145 of the Securities Act, of the Cable Companies prior to
the consummation of the Acquisition Plan may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act, or under Rule 144 in the case of such persons who become affiliates of the
Company, or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of the Cable Companies generally include individuals or
entities that control, are controlled by, or are under common control with, one
or more of the Cable Companies and may include certain officers and directors of
the Cable Companies as well as principal shareholders or securities holders of
those companies. In addition, the Company has agreed to file and keep effective
a registration statement pursuant to Rule 145 under the Securities Act for a
period of two years after the effective date of this Proxy Statement/Prospectus
with respect to, at all times, the Company Stock that such persons will receive
in exchange for their securities in Prime and assets of Alaskan Cable. Resales
pursuant to such a registration statement would not be subject to the resale
provisions of Rule 144 or Rule 145 under the Securities Act.
Resales of the Company Stock are subject to holdback restrictions and
transfer limitations set forth separately in the Prime and Alaskan Cable
Purchase Agreements as described elsewhere in this Proxy Statement/Prospectus.
See within this section "--Cable Company Purchase Agreements--Escrow and
Holdback Agreements."
Incorporation by Reference, Excluded Schedules
General. The Proposed Transactions and exhibits to them, including but
not limited to the Prime Management Agreement, the ACI Merger Agreement, the
PCFI Merger Agreement, the New Voting
REGISTRATION STATEMENT
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<PAGE>
Agreement, and the Registration Rights Agreements, are all included in the
Registration Statement and are incorporated by reference into this Proxy
Statement/Prospectus. Also included in this Registration Statement and
incorporated by reference into this Proxy Statement/Prospectus are two schedules
to the Prime Purchase Agreement: (1) Schedule 1A--listing the allocation of
Prime Company Shares to the Prime Sellers; and (2) Schedule 14 and Attachment A
to it--listing shareholders of and their holdings in ACI. These documents are
otherwise available for review as provided elsewhere in this Proxy
Statement/Prospectus. See, "AVAILABLE INFORMATION."
With the exception of the previously identified two schedules, none of
the schedules to the Prime Purchase Agreement, the Alaskan Cable Purchase
Agreement, the Alaska Cablevision Purchase Agreement, the McCaw/Rock Homer
Purchase Agreement, or the McCaw/Rock Seward Purchase Agreement are included in
the Registration Statement, and none of them are incorporated by reference or
otherwise available for review. These documents and materials have been excluded
by the Company because they contain voluminous specific technical descriptions
of the cable systems to be acquired by the Company, identification of specific
channel offerings and rates, lists of correspondence and various agreements
entered into by the Cable Companies, lists of licenses and permits, inventories
of equipment and other personal property, inventories of real property, lists of
employees and employee benefits, tariff filings with the FCC, and other specific
operational information typical of the functions of cable television companies.
The excluded schedules also contain reference to certain programming agreements.
Portions of the excluded schedules, which the Company believes may be
pertinent to the offering of the Company Stock and to seeking the consent and
approval of the Acquisition Plan by the shareholders of the Company and which
are not described elsewhere in this Proxy Statement/Prospectus are briefly
described as follows.
Prime. While the Prime Purchase Agreement is based upon an exchange of
Prime Company Shares for security interests in Prime, the parties have agreed to
exclude certain assets from the transaction: (1) the use of the names "Prime
Cable," "Prime Media Services" and "Prime Mobile Radio"; and (2) Prime's limited
partnership interest in Prime Video, L.P., which as of December 31, 1995 had an
approximate value of $67,883 and is to be sold and the proceeds distributed to
Prime's partners prior to closing on the Prime Purchase Agreement. Matters
addressed in the schedules pertaining to pending litigation, regulation and
environmental matters and tax matters are discussed elsewhere in the Proxy
Statement/Prospectus. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Prime-Pending Litigation, -Regulations
and Environmental Matters, -Tax Matters" and "--Regulatory Developments,
Competition and Legislation/Regulation."
Alaskan Cable. Matters addressed in the schedules pertaining to pending
litigation of Alaskan Cable are discussed elsewhere in this Proxy
Statement/Prospectus. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Alaskan Cable-Pending Litigation."
Alaska Cablevision. Matters addressed in the schedules pertaining to
pending litigation of Alaska Cablevision are discussed elsewhere in the Proxy
Statement/Prospectus. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Background and Description of Business--Alaska Cablevision-Pending Litigation."
McCaw/Rock Systems. Matters addressed in the schedules pertaining to
pending litigation of McCaw/Rock Homer and McCaw/Rock Seward are discussed
elsewhere in the Proxy Statement/Prospectus. See, "CERTAIN INFORMATION REGARDING
THE CABLE COMPANIES: Background and Description of Business--McCaw/Rock
Homer-Pending Litigation; and --McCaw/Rock Seward-Pending Litigation."
REGISTRATION STATEMENT
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<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
Background and Description of Business
General Communication, Inc., an Alaska corporation ("Company"), was
incorporated in 1979 and began commercial operations in November, 1982. The
Company supplies common-carrier long-distance and other telecommunication
products and services to residential, commercial and government users.
Telecommunication services that the Company provides are carried over facilities
that are owned by the Company or are leased from other companies.
Products and Services
The Company offers a broad spectrum of telecommunication services to
residential, commercial and government customers primarily throughout Alaska.
The Company operates in two industry segments and offers five primary product
lines. The message and data transmission services industry segment offers
message toll, private line and private network services, and the system sales
and service industry segment offers data communication equipment sales and
technical services.
The Company's message and data transmission services industry segment
is engaged in the transmission of interstate and intrastate switched message
toll service and private line and private network communication service between
the major communities in Alaska, and the remaining United States and foreign
countries. The Company's message toll services include intrastate, interstate
and international direct dial, 800, calling card, operator and enhanced
conference calling, as well as termination of northbound toll service for MCI,
U.S. Sprint and several large resellers without facilities in Alaska. The
Company also provides origination of southbound calling card and 800 toll
services. Private line and private network services utilize voice and data
transmission circuits, dedicated to particular subscribers, which link a device
in one location to another in a different location. Regulated telephone relay
services for the deaf, hard-of-hearing and speech impaired are provided through
the Company's operator service center. The Company offers its message services
to commercial and residential subscribers. Subscribers may cancel service at any
time. Toll related services account for approximately 93%, 90% and 90% of the
Company's 1995, 1994 and 1993 total revenues, respectively.
In addition to providing communication services, the Company through
its subsidiaries sells, services and operates, on behalf of certain customers,
dedicated communication and computer networking equipment and provides
field/depot, third party, technical support, consulting and outsourcing services
through its systems sales and service industry segment. The Company also
supplies integrated voice and data communication systems incorporating
interstate and intrastate digital private lines, point-to-point and multipoint
private network and small earth station services operating at data rates up to
1.544 mbs. In addition, the Company designs, installs and maintains data
communication systems for commercial and government customers throughout Alaska.
Development of demand assigned multiple access ("DAMA") satellite
communication technology was initiated in 1994. A four-module demonstration
system was constructed in 1994 and was integrated into the Company's
telecommunication network in 1995. Existing satellite technology relies on fixed
channel assignments to a central hub. DAMA technology assigns satellite capacity
on an as needed basis. The digital DAMA system allows calls to be made between
remote villages using only one satellite hop thereby reducing satellite delay
and capacity requirements while improving quality. Construction and deployment
of facilities in 56 communities in rural Alaska are to occur in 1996, with
services expected to be provided during the fourth quarter of 1996.
REGISTRATION STATEMENT
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<PAGE>
Personal communication service ("PCS") systems are expected to make an
individual carrying a pocket-sized phone available at the same number, whether
at home, at work, or travelling. A caller using a PCS system will not need to
know the location of the person the caller is trying to reach. The FCC concluded
an auction of spectrum to be used for the provision of PCS in March, 1995. The
Company was named by the FCC as the high bidder for one of the two 30-megaHertz
blocks of spectrum, with Alaska statewide coverage. Acquisition of the license
for a cost of $1.65 million is anticipated to allow the Company to introduce a
new PCS system in Alaska.
The Company began developing plans for PCS deployment in 1995 with
technology service trials expected to take place in the fourth quarter of 1996
and the first quarter of 1997. Management expects to incur up to $2 million in
equipment and installation costs associated with the technology service trial.
Service is expected to be offered as early as late 1997 or 1998.
The Company's efforts on PCS through the Record Date included business
plan development, evaluation of alternative PCS technologies, network design and
engineering. As of that date, the Company expected to utilize then existing
technology in its product deployment and was not expending material amounts on
research and product development efforts. Expenditures for PCS deployment could
total $50 million to $100 million over the 10-year period commencing in 1997.
The estimated cost for PCS system deployment is expected to be funded through
income from operations and additional debt and, perhaps, equity financing. The
Company's ability to deploy its PCS system will be dependent on its available
resources.
The recently passed 1996 Telecom Act allows telecommunication providers
to expand their levels of service by entering into new, previously protected
business areas. Among other efficiencies, the new federal legislation allows
open competition among local telephone providers, long distance carriers and
cable television companies.
Management believes the once-distinct differences between telephone,
wireless, and cable services are beginning to merge and that the Proposed
Transactions allow the Company to integrate such services to bring more
information not only to more customers, but in a manner that is quicker, more
efficient and more cost effective than ever before.
The Proposed Transactions will consolidate cable television operations
across the state of Alaska and, together with the Company's state-wide PCS
license, will offer a platform for developing new customer products and services
over the next several years. Upon consolidation of cable operations under common
management, the Company intends to upgrade facilities as required to allow for
consistent cable television product offerings to the extent sufficient resources
are available. The cable facilities are expected to provide bandwidth for the
Company's existing telecommunications services and additional services allowed
by the 1996 Telecom Act, including local service, a backbone for PCS and
high-speed data services.
The Company plans to add PCS to its product line to complement existing
long distance, data and cellular resale services, and to provide enhanced
wireless local services. The Company intends to develop the capabilities to
provide common billing for all services including PCS. The Company's efforts are
further discussed in its Form 10-Q for the quarter ended June 30, 1996. See,
"ANNUAL REPORT" and "AVAILABLE INFORMATION."
Subsidiaries
As of the Record Date, the Company had three wholly-owned subsidiaries:
(1) GCI Communication Corp., an Alaska corporation ("GCC"), serving as an
operating company for many of the
REGISTRATION STATEMENT
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<PAGE>
telecommunication goods and services provided by the Company; (2) GCI
Communication Services, Inc., an Alaska corporation, providing private network
point-to-point data and voice transmission services between Alaska, Hawaii, and
the western contiguous United States; and (3) GCI Cable, Inc., an Alaska
corporation ("GCI Cable"), recently formed to participate in and be the
surviving entity in the ACI Merger and the PCFI Merger.
Other Information
Other background, historical, business, operational, facility, and
customer information and financial data on the Company are contained in the
Company's Annual Report and statements filed with the Commission. See,
"AVAILABLE INFORMATION" and "ANNUAL REPORT."
CERTAIN INFORMATION REGARDING THE CABLE COMPANIES
Background and Description of Business
General. A brief description of the business done by each of the Cable
Companies follows, giving the general nature and scope of the business.
The tables of selected data and historical information within this
section make use of certain terms to describe cable television systems as
follows: (1) "homes passed" means dwellings and commercial establishments that
are or can be connected to the distribution systems of a cable system without
further extension of the transmission lines of that system; (2) "total basic
subscribers" means all dwelling and commercial units, including but not limited
to individual residences, commercial establishments, apartment units, and hotel
rooms, in respect of which the cable system provides basic cable television
services for a fee; (3) "equivalent basic subscribers" means a number
representing the sum of (i) subscribers receiving the lowest level of television
service that may be subscribed to by such subscribers, who are billed for such
service at a rate equal to the standard residential rate, plus (ii) for
subscribers receiving basic service under bulk billing arrangements which
provide for pricing at a rate not equal to the standard residential rate,
including but not limited to, multi-unit residential complexes, hotels, motels,
and hospitals, the number derived by dividing (a) the monthly amount billed to
such subscribers for basic cable television service by (b) the standard
residential rate; (4) "average total basic subscribers" for a specified period
of time means the result of the sum of the total basic subscribers on the first
day of the period and the total basic subscribers on the last day of the period
divided by two; (5) "CPS" means cable programming service; (6) "addressability"
refers to computer controlled descrambler terminals used for control of cable
television signals, where, if the number of services or separate channels to be
controlled is large, as for example in an urban setting with many channels of
diverse programming or pay per view channels, then addressability is the control
method most often used, and where, for less urban areas with fewer selections,
traps and filters are used for channel control; and (7) "NPT" means a new
product tier.
Prime.
Organizational Structure. Prime Cable of Alaska, L.P., a Delaware
limited partnership ("Prime"), was formed in January, 1989 for the purpose of
acquiring, owning, and operating three cable communication systems serving
several communities in Alaska ("Prime Alaska Systems"): (1) Anchorage (including
Eagle River, Chugiak, Fort Richardson, and Elmendorf Air Force Base); (2) Kenai
and Soldotna; and (3) Bethel. The executive offices of Prime General Partner are
located at One American Center, 600 Congress Avenue, Suite 3000, Austin, Texas
78701, and its telephone number is (512) 476-7888.
As of the Record Date, Prime operated under the Prime Cable of Alaska,
L.P. Amended and Restated Agreement of Limited Partnership dated June 30, 1989,
as amended on August 9, 1991 and May
REGISTRATION STATEMENT
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<PAGE>
20, 1994 ("Prime Partnership Agreement"). See, "COMPARISON OF SECURITY HOLDER
RIGHTS IN THE COMPANY AND CERTAIN CABLE COMPANIES." The partnership structure is
as follows: (1) general partner--Prime Cable Fund I, Inc., a Delaware
corporation ("Prime General Partner" or "PCFI"), whose sole shareholder is Prime
Cable Limited Partnership, a Delaware limited partnership ("PCLP"); (2)
corporate limited partner--Alaska Cable, Inc., a Delaware corporation ("ACI");
and (3) two other limited partners--Prime Venture I Holdings, L.P. ("Prime
Holdings"), and Prime Cable Growth Partners, L.P. ("Prime Growth"), both
Delaware limited partnerships. See, "ACQUISITION PLAN: Interests of Certain
Persons in the Acquisition Plan--Prime Security Ownership and Officer/Director
Relationships."
As of the Record Date, the holders, directly or indirectly, of all the
limited and general partner interests and all of the equity participation
interests in Prime ("Prime Sellers") were as follows: (1) ACI and its
shareholders--(a) Austin Ventures, L.P., a Delaware limited partnership, (b)
Centennial Business Development Fund III, L.P., a Colorado limited partnership,
(c) Centennial Fund II, L.P., a Delaware limited partnership, (d) Centennial
Fund III, L.P., a Colorado limited partnership, (e) Prime Holdings, (f) Prime
Venture II, L.P., a Delaware limited partnership, and (g) William Blair Venture
Partners III Limited Partnership, an Illinois limited partnership; (2) Prime
Growth; (3) Prime Holdings; (4) PCLP; and (5) as holders of equity participation
interests--(a) BancBoston Capital, Inc., a Massachusetts corporation, (b) First
Chicago Investment Corporation, a Delaware corporation, and (c) Madison Dearborn
Partners V, an Illinois general partnership. As of the Record Date, Prime was in
"good standing" under the Delaware Partnership Act, i.e., it had made all
required filings, paid required taxes and fees and had not dissolved. The
holders, directly or indirectly, of all of the limited and general partner and
equity participation interests in Prime and the security holders of Prime
Growth, Prime Holdings, PCLP, ACI and PVII are sometimes referred to in this
Proxy Statement/Prospectus as the "Prime Group."
REGISTRATION STATEMENT
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<PAGE>
Organizational Structure of Prime
Prime: Limited partnership having one general partner and three limited
partners
- General partner -- Prime General Partner (a corporation)
- PCLP (a limited partnership) - Sole shareholder
- General partner - PGP (a corporation)
- Limited partners - Institutional investors,
venture capital firms and other investors
- Limited partners -
- ACI (a corporation)
- Shareholders include Prime Growth, Prime
Holdings, PVII and several institutional
investors and venture capital firms
- Prime Growth (a limited partnership) -
- Managing general partner - Prime Holdings
- Other general partner - PVI (a corporation)
- Limited partners - Several institutional
investors, venture capital firms and other
investors
- Prime Holdings (a limited partnership)
- Managing general partner - PVI (a
corporation)
- Other general partner - PMG (a corporation)
- Limited partners - Several institutional
investors, venture capital firms, Prime
affiliates, and other investors
Business Structure. As of the Record Date, Prime was the largest cable
communications operator in Alaska. The Prime Alaska Systems consist in aggregate
of approximately 1,015 miles of cable plant passing approximately 106,000 homes.
The Anchorage cable plant, which represents approximately 87% of the aggregate
cable plant for the Prime Alaska Systems in terms of miles of plant, has a
current channel load of 61 channels plus one institutional channel. The Bethel
and Kenai/Soldotna systems have approximately 25 miles and 100 miles of cable
plant, respectively.
The Anchorage system, which is located in the urban center for Alaska,
is fully addressable, with all optional services scrambled, aside from the
broadcast basic. Kenai, Soldotna, and Bethel have fewer channels, less service
options and less an urban orientation, and use traps for program control. As a
result, these small systems do not have access to pay-per-view services.
The following table sets forth selected data regarding the Prime Alaska
Systems as of June 30, 1996.
REGISTRATION STATEMENT
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<PAGE>
Selected Data
on Prime Alaska Systems (1)
Homes passed..........................................................106,820
Total basic subscribers................................................64,511
Equivalent basic subscribers...........................................57,506
Basic residential subscribers..........................................52,187
Percent of saturation (2)...............................................53.8%
Total pay TV subscriptions.............................................50,911
Residential pay TV subscriptions.......................................48,087
Percent of residential pay TV penetration (3).......................... 92.1%
Equivalent CPS subscribers.............................................52,042
Percent of CPS penetration to basic (4).................................90.5%
Average monthly revenue per basic subscriber (5).......................$41.60
- ------------
1 All statistics are approximate.
2 Equivalent basic subscribers divided by homes passed.
3 Residential pay TV subscriptions divided by residential basic
subscribers.
4 Equivalent CPS subscribers divided by equivalent basic subscribers.
5 Total subscriber revenue for the quarter ended June 30, 1996 divided by
average total basic subscribers.
- ------------
As of the Record Date the programming services offered to subscribers
of the Prime Alaska Systems differ by system. Each system offers a basic
service. In addition, Anchorage and Bethel offer a CPS. An NPT is only offered
in the Anchorage cable system. The composition and rates of the levels of
service vary between the systems. Anchorage cable system offers a basic service
that includes the 18-channel basic service for $14.32 per month, including the
wire maintenance charge of $.82 per month. The converter rental fee is $2.75 per
month. The Anchorage cable system offers a CPS which includes 26 channels at an
additional cost of $16.42 per month. For an additional $2.50 per month,
subscribers may also receive the six channel NPT service which includes TNT,
CNN, Discovery, America's Talking, Outdoor Life and the Sci-/Fi Channel.
Individual pay TV service fees range from $8.50 to $10.50 per month, and pay TV
packages range from $17.95 to $26.95 per month. The Bethel cable system offers a
basic service for $35.50 per month and a CPS of 13 channels for an additional
cost of $13.50 per month. Pay TV services are priced between $9.00 and $10.50
per month. The basic service for the Kenai/Soldotna cable system consists of 32
channels for $30.61 per month, including the wire maintenance fee of $.87 per
month. The rental fee for converter boxes is $1.43 per month. Pay TV services
are available either individually or as part of a value package. Individual TV
channels start at $8.50 per month, and pay TV packages range from $17.97 to
$26.95 per month.
As of the Record Date, commercial subscribers such as hospitals, hotels
and motels were charged negotiated monthly service fees. Apartment and other
multi-unit dwelling complexes could receive basic services at a negotiated bulk
rate.
The franchise or governmental authorizations held by Prime to operate
the Prime Systems in all areas except two military bases are granted by the APUC
(see within this section "--Regulatory Developments, Competition and
Legislation/Regulation - Legislation/Regulation - Regulation by the Alaska
Public Utilities Commission"), and have no expiration date. The commanding
officer acts as the regulatory authority for the corresponding franchises at
Fort Richardson and Elmendorf Air Force Base, the two military bases served by
Prime. The ten year franchise for these bases expires September 30, 2000.
None of the franchises require Prime or its customers to pay a franchise fee.
As of the Record Date, Prime had approximately 120 employees.
REGISTRATION STATEMENT
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<TABLE>
The table below sets forth a summary of homes passed and equivalent
basic subscriber information for Prime's domestic cable communications systems
as of December 31 of each of the following five years.
Selected Historical Information
For Prime
<CAPTION>
As of December 31,
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed.......................... 106,300 106,200 104,500 103,100 102,000
Equivalent basic subscribers.......... 58,169 56,266 52,555 49,846 46,797
</TABLE>
Pending Litigation. As of the Record Date, Prime was a defendant in one
lawsuit alleging damages as a result of alleged violations of discrimination
laws protecting individuals with disabilities and Prime's employment policies,
and in another lawsuit alleging wrongful termination of employment by Prime.
Prime believes that it has adequate reserves to cover any liability that might
result from the above lawsuits or that any such liability is not material to
Prime. Prime is a defendant in several lawsuits alleging personal injuries and
property damage as a result of Prime's alleged negligence. Prime believes that
it has adequate insurance coverage for any liabilities and costs that it may
incur as a result of those lawsuits. While the ultimate results of these matters
cannot be predicted with certainty, management does not expect them to have a
material adverse effect on the financial position or results of operations of
Prime. Therefore, no provision for liability has been made in the financial
statements. See, "INDEX TO FINANCIAL STATEMENTS: Historical Financial
Statements--Prime."
Regulations and Environmental Matters. Substantive regulatory matters
involving Prime are discussed elsewhere in this Proxy Statement/Prospectus. See,
"CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Regulatory Developments,
Competition and Legislation/Regulation."
As of the Record Date, Prime did not believe it would be exposed to any
regulatory challenges or refund liability in any of its operations of the Prime
Alaska Systems relating to rates. As of the Record Date, Prime believed it was
clear that neither the local franchising authority nor the FCC had expressed
significant interest in altering Prime's rates. Therefore, management of Prime
has concluded exposure of Prime to any regulatory liability, as it relates to
rate roll-backs and refunds, seems minimal. Moreover, management of Prime has
concluded that as a result of recent FCC opinions, including adopting final cost
of service rules, it is likely that the FCC will sustain Prime's cost of service
justifications.
In the course of operating the Prime Alaska Systems, Prime has used
various materials defined as hazardous by applicable governmental regulations.
These materials have been used for insect repellant, locate paint and pole
treatment, and as heating fuel, transformer oil, cable cleaner, batteries, and
in various other ways in the operation of those systems. As of the Record Date,
management of Prime did not believe that these materials, when used in
accordance with manufacturer instructions, posed an unreasonable hazard to those
who used them or to the environment.
Tax Matters. Prime has received a notice from the Internal Revenue
Service that Prime's 1993 and 1994 federal income tax returns will be audited as
part of a coordinated examination of all the Prime entities. The audit commenced
on April 22, 1996, and Prime has been informed by the Internal Revenue Service
that the audit is scheduled to last up to two years. There were no developments
in connection with the audit as of the Record Date, inasmuch as the audit was in
the preliminary stages. Management of Prime does not anticipate that any
adjustments will result from this examination.
REGISTRATION STATEMENT
Page 91
<PAGE>
Accounting Matters. Prime has retained Ernst & Young LLP, with offices
in Austin, Texas, as its independent certified public accountants for the fiscal
years ended December 31, 1995 and 1994. Prime previously had retained Coopers &
Lybrand L.L.P., with offices in Austin, Texas, as the independent certified
public accountants for the fiscal year ended December 31, 1993. The change of
accountants was amicable, and there were no disagreements as to financial
disclosure or accounting practices. It is anticipated that Prime General Partner
will appoint Ernst & Young LLP as Prime's independent, certified public
accountants for the fiscal year ending December 31, 1996.
Alaskan Cable.
Organizational Structure. Alaskan Cable is comprised of three Alaska
corporations as follows: (1) Alaska Cable Network/Fairbanks, Inc. ("Alaska
Cable/Fairbanks"), incorporated in April, 1979; (2) Alaskan Cable
Network/Juneau, Inc. ("Alaska Cable/Juneau"), incorporated in July, 1965; and
(3) Alaskan Cable Network/Ketchikan-Sitka, Inc. ("Alaska Cable/Ketchikan"),
incorporated in February, 1980. The executive offices for each of these
corporations are located at Kent Farms, Middleburg, Virginia 20117 and their
joint telephone number is (540) 687-4000. See, "ACQUISITION PLAN: Interests of
Certain Persons in the Acquisition Plan--Alaskan Cable Security Ownership and
Officer/Director Relationships."
Alaskan Cable/Fairbanks was incorporated for the purpose of acquiring,
owning, and operating a cable communication system serving Fairbanks, Alaska. As
of the Record Date it served in addition Fort Wainwright and Eielson Air Force
Base in the Fairbanks area. Alaskan Cable/Juneau was incorporated for the
purpose of acquiring, owning, and operating a cable communication system serving
Juneau, Alaska. Alaskan Cable/Ketchikan was incorporated for the purpose of
acquiring, owning, and operating a cable communication system serving Ketchikan
and Sitka, Alaska. All three corporations were as of the Record Date in good
standing under the Alaska Corporations Code, meaning that they each were current
on filings of biennial report and payment of corporation taxes under that code.
Organizational Structure
of Alaskan Cable
Alaskan Cable Companies: Comprised of three corporations
* Alaskan Cable/Fairbanks
* Alaskan Cable Network, Inc. - Sole shareholder
* Alaskan Cable/Juneau
* Alaska Cable Network/Juneau Holdings, Inc. -
Sole shareholder
* Alaskan Cable/Ketchikan
* Jack Kent Cooke Incorporated - Sole
shareholder
Business Structure. As of the Record Date, the three corporations
comprising Alaskan Cable were each the only cable communication operator in its
respective service area. As of the Record Date, the Alaskan Cable/Fairbanks
system consisted of an aggregate of approximately 207 miles of cable plant
passing approximately 21,456 homes, and provided a channel load of 35 channels
and no institutional channels. As of that date, the Alaskan Cable/Juneau system
consisted of an aggregate of approximately 146 miles of cable plant passing
approximately 11,673 homes, and provided a channel load of 61 channels and no
institutional channels. As of the Record Date, the Alaskan Cable/Ketchikan
system consisted of an aggregate of approximately 111 miles of cable plant
passing approximately 9,591 homes, and provided a channel load of 61 channels
and no institutional channels.
REGISTRATION STATEMENT
Page 92
<PAGE>
As of the Record Date, of the Alaskan Cable cable systems, the Alaska
Cable/Fairbanks system was fully addressable and the Alaskan Cable/Juneau and
Alaskan Cable/Ketchikan systems were partially addressable. An addressable
system is one that is able to perform subscriber tasks on-line such as start-ups
and disconnects and is able to offer movies and special events on-line that
would otherwise require a manual change to the converter boxes provided to
subscribers. The partially addressable systems are limited to computer
controlled special events.
<TABLE>
The following table sets forth selected information regarding the cable
systems for each of the corporations comprising Alaskan Cable as of June 30,
1996.
Selected Data
on Alaskan Cable Systems (1)
<CAPTION>
Alaskan Cable Alaskan Cable/Juneau Alaskan Cable/Ketchikan
Fairbanks
<S> <C> <C> <C>
Homes passed......................... 21,456 11,673 9,591
Total basic subscribers.............. 11,811 9,611 7,641
Equivalent basic subscribers......... 2,787 1,594 963
Basic residential subscribers........ 9,024 8,017 6,678
Percent of saturation (2)............ 55% 82% 80%
Total pay TV subscriptions........... 6,746 5,102 199
Residential pay TV subscriptions..... 5,633 4,513 2,307
Percent of residential pay TV
62% 56% 35%
penetration (3).....................
Equivalent CPS Subscribers........... 8,290 --- ---
Equivalent Tier 1........... --- 2,924 6,047
Equivalent Tier 2........... --- 6,166 904 (5)
Percent of CPS penetration to basic (4) 70% --- ---
Tier 1 penetration to basic. --- 30% 79%
Tier 2 penetration to basic. --- 64% 12%
Average monthly revenue per basic
subscriber (6)....................... $ 41.82 43.21 39.22
<FN>
- ------------
1 All statistics are approximate.
2 Equivalent basic subscribers divided by homes passed.
3 Residential pay TV subscriptions divided by Residential basic
subscribers.
4 Equivalent CPS subscribers divided by equivalent basic subscribers.
5 Ketchikan only.
6 Total subscriber revenue for the quarter ended June 30, 1996 divided by
average total basic subscribers.
- ------------
</FN>
</TABLE>
The programming services currently offered to subscribers to each of
the three corporations comprising Alaskan Cable cable services are structured so
that each cable system offers a basic service and a CPS. Each of the three cable
systems has different basic service packages at different rates.
As of the Record Date, Alaskan Cable/Fairbanks cable system offered a
CPS that included 12 channels and no pay-per-view service for $10.64 per month
(average monthly rate). The cable system "satellite service" included the
limited service options plus 24 additional channels for a total cost of $39.81
per month. Individual pay TV service fees ranged from $8.95 to $12.00 per month,
and pay TV packages ranged from $18.95 to $34.95 per month.
REGISTRATION STATEMENT
Page 93
<PAGE>
As of the Record Date, the Alaskan Cable/Juneau cable system offered an
11-channel basic service package for $14.16 per month. The system offered a CPS
Tier 1 that included the basic service plus an additional 4 channels for a total
rate of $19.35 per month. The system also offered a CPS Tier 2 which consisted
of the basic service plus an additional 34 channels for a total rate of $48.51
per month. Pay TV services were priced between $2.95 and $10.25 per month.
As of the Record Date, the Alaskan Cable/Ketchikan cable system for
Ketchikan offered an 8-channel basic service for $10.85 per month. The system
offered a CPS Tier 1 which consisted of the basic service plus 33 additional
channels for a total rate of $37.35 per month. The system also offered a CPS
Tier 2 which consisted of the basic service, the CPS Tier 1 and an additional 4
channels for a total rate of $46.97 per month. The Alaskan Cable/Ketchikan cable
system in Sitka offered an 8 channel basic service for $8.23 per month. The
system's expanded basic service included the basic service plus 38 additional
channels for a total rate of $40.73 per month. Both systems offer pay TV that
range form $10.00 to $12.00 per month.
The franchises or governmental authorizations held by each of the three
corporations comprising Alaskan Cable to operate their perspective cable systems
in all areas except the two military bases are granted by the APUC (see within
this section "--Regulatory Developments, Competition, and Legislation/Regulation
- - Legislation/Regulation - Regulation by the Alaska Public Utilities
Commission") and have no expiration date. The commanding officer acts as the
regulatory authority for the corresponding franchises at Fort Wainwright and
Eielson Air Force Base, the two military bases served by Alaskan
Cable/Fairbanks. The separate 10 year franchises for these two bases expire on
June 30, 2001, and November 30, 1999, respectively. None of the franchises
require Alaskan Cable or its customers to pay a franchise fee.
As of the Record Date, the three corporations had the following number
of employees: (1) Alaskan Cable/Fairbanks -- approximately 28; (2) Alaskan
Cable/Juneau -- approximately 19; and (3) Alaskan Cable/Ketchikan --
approximately 12.
The following table sets forth a summary of homes passed and equivalent
basic subscriber information for each of the three corporations comprising
Alaskan Cable domestic cable communication systems as of December 31 of each of
the following four years.
REGISTRATION STATEMENT
Page 94
<PAGE>
<TABLE>
Selected Historical Information
For Alaskan Cable
As of December 31,
1995 1994 1993 1992 1991 (1)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alaskan Cable/Fairbanks:
Homes passed...................... 21,192 21,244 20,880 20,268 ---
Equivalent basic subscribers...... 11,264 11,690 11,575 11,043 ---
Alaskan Cable/Juneau:
Homes passed...................... 11,517 11,243 11,008 10,829 ---
Equivalent basic subscribers...... 9,262 8,978 8,571 8,450 ---
Alaskan Cable/Ketchikan:
Home passed....................... 9,617 7,975 8,020 7,996 ---
Equivalent basic subscribers...... 7,668 7,652 7,489 7,850 ---
<FN>
- -----------------
1 Information not available.
- -----------------
</FN>
</TABLE>
Pending Litigation. As of the Record Date, Alaskan Cable was involved
in a lawsuit involving Alaskan Cable/Juneau over injuries sustained by an
individual as a result of being struck by one of the corporation's vehicles on
June 9, 1992. Alaskan Cable believes that liability,if any, for the incident is
covered by its insurance carrier. The case has not been to court, however, as of
the Record Date, depositions were underway. On or about August 12, 1996, a
complaint was served on Alaskan Cable where the plaintiff is a former customer
and is the debtor in a Chapter 7 bankruptcy case. The plaintiff alleges that
after notification of the filing of the Chapter 7 bankruptcy, Alaskan Cable
continued to demand payment of sums owed by plaintiff to Alaskan Cable and
discontinued service to the plaintiff, all in violation of the automatic stay
imposed under the federal bankruptcy laws. The plaintiff seeks damages in the
amount of $5,000.00, plus costs and attorneys' fees. While as of the Record Date
the lawsuit was in the early stages of litigation, Alaskan Cable believed the
case was without merit and did not present a material risk of loss to it. The
State of Alaska has assessed additional taxes against Alaskan Cable for its
operations in Alaska for the year ended December 31, 1990 in the amount of
$102,000 plus penalties and interest through June 30, 1994 of $161,173, for a
total of $263,173. The state's claim is based upon the federal alternative
minimum tax paid Jack Kent Cooke Incorporated Consolidated Group for the 1990
tax year even though none of the federal alternative minimum tax was
attributable to the Alaskan operations of Alaskan Cable. Alaskan Cable through
its accountants and tax counsel believes the state's position is entirely
without merit. Therefore, Alaskan Cable believes it is unlikely that the state
will prevail. Alaskan Cable has not paid nor does it anticipate paying the
assessment, and, as of the Record Date, the case was on appeal.
Accounting Matters. Each of the three corporations comprising Alaskan
Cable retained Ernst & Young LLP, with offices in Woodland Hills, California as
its independent certified public accountants for them during the fiscal year
ended December 31, 1995.
REGISTRATION STATEMENT
Page 95
<PAGE>
Alaska Cablevision.
Organizational Structure. Alaska Cablevision, Inc. is a Delaware
corporation ("Alaska Cablevision"), was formed in February, 1980. Its executive
offices are located at 135 Lake Street South, Suite 265, Kirkland, Washington
98033, and its telephone number is (206) 822-0252.
Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward were, as of
the Record Date, all managed by Rock Associates, Inc., a Nevada corporation,
pursuant to separate management agreements with each of the companies. There are
a number of common owners of the three companies, but no one has a controlling
interest in two or more of these entities. The stock of Rock Associates, Inc. is
owned by four individuals, three of whom are also shareholders in Alaska
Cablevision, and the fourth has a beneficial interest in Alaska Cablevision. No
one person has controlling interest in Rock Associates, Inc.
As of the Record Date, Alaska Cablevision owned and operated the cable
television systems in Kodiak, Valdez, Cordova, Petersburg, Wrangell, Kotzebue,
and Nome, Alaska.
Business Structure. As of the Record Date, each of the seven Alaska
Cablevision cable systems was operated as a separate system, and a separate
customer office was maintained in each of the seven communities served by those
systems. The signal for all cable channels, with the exception of local
origination programming and a local Public Broadcasting Station in Kodiak, were
received via satellite. Broadcast network stations (ABC, NBC, CBS and PBS) were
either imported from West Coast cities or were Alaska stations delivered via
satellite. The following table sets forth selected information regarding the
Alaska Cablevision cable systems as of June 30, 1996.
Selected Data on Alaska Cablevision Systems (1)
Homes passed........................................................... 11,010
Total basic subscribers................................................ 9,075
Equivalent basic subscribers........................................... 7,991
Basic residential subscribers.......................................... 7,537
Percent of saturation (2).............................................. 72.6%
Total pay TV subscriptions............................................. 8,478
Residential pay TV subscriptions....................................... 7,655
Percent of residential pay TV penetration (3).......................... 101.6%
Equivalent CPS Tier 1 subscribers...................................... 7,455
Percent of CPS Tier 1 penetration to basic (4)......................... 93.3%
Equivalent CPS Tier 2 subscribers...................................... 4,936
Percent of CPS Tier 2 penetration to basic (4)......................... 61.8%
Average monthly revenue per basic subscriber (5)....................... $51.93
- ------------
1 All statistics are approximate.
2 Equivalent basic subscribers divided by homes passed.
3 Residential pay TV subscriptions divided by Residential basic
subscribers.
4 Equivalent CPS subscribers divided by equivalent basic subscribers.
5 Total subscriber revenue for the quarter ended June 30, 1996 divided by
average total basic subscribers.
- ------------
As of the Record Date, the Alaska Cablevision cable systems offered up
to 30 channels of the most popular basic cable channels, as well as the major
broadcast networks, packaged into three levels of service. The basic service
consisted of three channels, one of which was a PBS channel, and was priced
between $6.00 and $7.00 per month. The CPS Tier 1 (which included the basic
service) had either 24 or 25 channels and was priced between $39.56 and $43.06
per month. The CPS Tier 2 had between
REGISTRATION STATEMENT
Page 96
<PAGE>
8 and 14 cable channels and was priced between $12.40 and $16.03 per month in
addition to the CPS Tier 1. In addition, each system offered 4 or 5 channels of
premium pay services, except for Kodiak which offered 8 channels of premium pay
services and 3 channels of pay-per-view programming. In 1994, the Kodiak cable
system was rebuilt to allow added channel capacity. At that time, addressability
was added to the system in order to add the 3 channels of pay-per-view movies.
As of the Record Date Alaska Cablevision employed approximately 50
persons, and each cable system operated by it had at least one technical and one
customer service person.
<TABLE>
The table below sets forth a summary of homes passed and equivalent
basic subscriber information for Alaska Cablevision's domestic cable systems as
of December 31 for each year in the five-year period ended December 31, 1995:
Selected Historical Information
For Alaska Cablevision
<CAPTION>
As of December 31,
1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed...................... 10,860 10,616 10,237 10,208 10,077
Equivalent basic subscribers...... 8,139 8,037 7,590 7,194 7,243
</TABLE>
Pending Litigation. As of the Record Date, there were no material or
significant proceedings against Alaska Cablevision or the assets which are the
subject of the Alaska Cablevision Purchase Agreement.
Accounting Matters. Alaska Cablevision retained Carl & Carlsen, with
offices in Seattle, Washington as its independent certified public accountants
during the fiscal year ended December 31, 1995.
McCaw/Rock Homer.
Organizational Structure. The McCaw/Rock Homer Cable System, J.V., an
Alaska joint venture ("McCaw/Rock Homer") is a corporate joint venture owned 51%
by Rock Associates, Inc. and 49% by McCaw Communications of Homer, Inc., a
wholly-owned subsidiary of AT&T Corporation. Its executive offices are located
at 135 Lake Street South, Suite 235, Kirkland, Washington 98033, and its
telephone number is (206) 822-0252. The relationship between McCaw/Rock Homer,
Alaska Cablevision and McCaw/Rock Seward is discussed elsewhere in this Proxy
Statement/Prospectus. See, within this section "--Background and Description of
Business - Alaska Cablevision-Business Structure."
On July 1, 1988 the joint venture was granted a certificate by the APUC
to build and operate a cable system in Homer, Alaska.
Business Structure. The following table sets forth selected information
regarding the McCaw/Rock Homer cable systems as of June 30, 1996:
REGISTRATION STATEMENT
Page 97
<PAGE>
Selected Data
on McCaw/Rock Homer Systems (1)
Homes passed............................................................ 1,635
Total basic subscribers................................................. 958
Equivalent basic subscribers............................................ 876
Basic residential subscribers........................................... 801
Percent of saturation (2)............................................... 53.6%
Total pay TV subscriptions.............................................. 247
Residential pay TV subscriptions........................................ 237
Percent of residential pay TV penetration (3)........................... 29.6%
Equivalent CPS (cable programming service) subscribers.................. 815
Percent of CPS penetration to basic (4)................................. 93.1%
Average monthly revenue per basic subscriber (5)........................$42.82
- ------------
1 All statistics are approximate.
2 Equivalent basic subscribers divided by homes passed.
3 Residential pay TV subscriptions divided by Residential basic
subscribers.
4 Equivalent CPS subscribers divided by equivalent basic subscribers.
5 Total subscriber revenue for the quarter ended June 30, 1996 divided by
average total basic subscribers.
- ------------
As of the Record Date, the McCaw/Rock Homer cable system offered 36
cable channels packaged into two levels of service. The basic service consisted
of 7 channels, including the local translator channels and was priced at $11.50
per month. The CPS had 36 channels (including the basic service channels) and
was priced at $39.01 per month. All of the channels, with the exception of three
local translator channels and local origination programming were received via
satellite. In addition there were five channels of premium pay services. The
system was fully addressable using Jerrold addressable technology.
As of the Record Date, McCaw/Rock Homer employed three persons.
<TABLE>
The table below sets forth a summary of homes passed and equivalent
basic subscriber information for McCaw/Rock Homer's domestic cable systems as of
December 31 for each year in the five-year period ended December 31, 1995:
Selected Historical Information
On McCaw/Rock Homer
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Homes passed........................... 1,625 1,610 1,600 1,575 1,550
Equivalent basic subscribers........... 812 655 631 569 534
</TABLE>
Pending Litigation. As of the Record Date, there were no material or
significant proceedings against McCaw/Rock Homer or the assets which are the
subject of the McCaw/Rock Homer Purchase Agreement.
REGISTRATION STATEMENT
Page 98
<PAGE>
McCaw/Rock Seward.
Organizational Structure. McCaw/Rock Seward Cable System, J.V., an
Alaska joint venture ("McCaw/Rock Seward") is a corporate joint venture owned
49% by Rock Associates, Inc. and 51% by McCaw Communications of Seward, Inc., a
wholly-owned subsidiary of AT&T Corporation. Its executive offices are located
at 135 Lake Street South, Suite 265, Kirkland, Washington 98033, and its
telephone number is (206) 822-0252. The relationship between McCaw/Rock Seward,
Alaska Cablevision and McCaw/Rock Homer is discussed elsewhere in this Proxy
Statement/Prospectus. See within this section "--Background and Description of
Business-Alaska Cablevision - Business Structure."
On November 26, 1986 the joint venture was granted a certificate by the
APUC to build and operate a cable system in Seward, Alaska.
Business Structure. The following table sets forth selected information
regarding the McCaw/Rock Seward cable systems as of June 30, 1996:
Selected Data on McCaw/Rock Seward (1)
Homes passed............................................................ 1,643
Total basic subscribers................................................. 1,713
Equivalent basic subscribers............................................ 1,273
Basic residential subscribers........................................... 1,021
Percent of saturation (2)............................................... 77.5%
Total pay TV subscriptions.............................................. 535
Residential pay TV subscriptions........................................ 448
Percent of residential pay TV penetration (3)........................... 43.9%
Equivalent CPS subscribers.............................................. 1,210
Percent of CPS penetration to basic (4)................................. 95.1%
Average monthly revenue per basic subscriber (5)........................$32.33
- ------------
1 All statistics are approximate.
2 Equivalent basic subscribers divided by homes passed.
3 Residential pay TV subscriptions divided by Residential basic
subscribers.
4 Equivalent CPS subscribers divided by equivalent basic subscribers.
5 Total subscriber revenue for the quarter ended June 30, 1996 divided by
average total basic subscribers.
- ------------
As of the Record Date the cable systems offered 39 channels packaged
into two levels of service. The basic service consisted of 3 channels, one of
which was a PBS channel, and was priced at $4.50 per month. The CPS had 30
channels (including the basic service) and was priced at $38.26 per month. All
of the channels, with the exception of local origination programming, were
received via satellite. In addition there were five channels of premium pay
services. The system is fully addressable using Jerrold addressable technology.
In addition, the system provides 12 channels to 300 outlets in a State
of Alaska correction facility through a separate receive and headend site.
As of the Record Date, McCaw/Rock Seward employed three persons.
<TABLE>
The table below sets forth a summary of homes passed and cable
subscriber information for McCaw/Rock Seward's domestic cable systems as of
December 31 for each year in the five-year period ended December 31, 1995.
REGISTRATION STATEMENT
Page 99
<PAGE>
Selected Historical Information
On McCaw/Rock Seward
<CAPTION>
December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Homes passed...................... 1,636 1,630 1,629 1,551 1,529
Equivalent basic subscribers...... 1,214 1,157 1,126 1,087 1,069
</TABLE>
Pending Litigation. As of the Record Date, there were no material or
significant proceedings against McCaw/Rock Seward or the assets which are the
subject of the McCaw/Rock Seward Purchase Agreement.
Market Price of and Dividends of Cable Companies
Market Information. All of the Cable Companies are privately held.
There is no established public trading market for their securities. See,
"SUMMARY: Comparative Market Price Data."
Holders. As of the Record Date, the approximate number of holders of
each class of common equity for Prime and Alaskan Cable was as set forth
elsewhere in this Proxy Statement/Prospectus. See, "SUMMARY: Holders."
Dividends. For the years ended December 31, 1995, 1994 and 1993, the
three corporations comprising Alaskan Cable paid cash dividends aggregating
$18.2 Million, $0.1 Million and $0.1 Million, respectively. For 1994 and 1993,
these cash dividends represent the payment by the corporations comprising
Alaskan Cable of certain expenses on behalf of its respective shareholder. These
payments were treated as cash dividends. No cash dividends were paid by the
three corporations comprising Alaskan Cable during the six months ended June 30,
1996. During those periods Prime had no net profits and made no cash
distributions to its security holders. Furthermore, under Prime's bank loan
agreement, it was precluded from making cash distributions to its security
holders. Alaska Cablevision, as an S-corporation under the Code, has paid cash
dividends to its shareholders to compensate for income taxes owed. It also has
paid cash dividends based upon a fixed charge coverage ratio test, i.e.,
dividends were paid when operating income exceeded fixed charges (including debt
service and capital expenditures) by 5% of the operating income. Alaska
Cablevision paid such dividends in each of the years 1995, 1994, and 1993 and
during each of the quarters ended March 31 and June 30, 1996. See, "INDEX TO
FINANCIAL STATEMENTS: Historical Financial Statements."
Selected and Supplementary Financial Data for Certain Cable Companies
Tables setting forth selected and supplementary financial data for each
of Prime, Alaskan Cable and Alaska Cablevision (1) as of June 30, 1996 and as of
December 31 for each of the years in the five-year period ended December 31,
1995, and (2) for the six-month periods ended June 30, 1996 and 1995 and for
each of the years in the five-year period ended December 31, 1995 are set forth
elsewhere in this Proxy Statement/Prospectus. See, "SUMMARY: Selected Historical
Financial and Pro Forma Data and Certain Per Share Data--Prime, Alaskan Cable,
and Alaska Cablevision." These data, insofar as they relate to each of the years
1993 through 1995, have been derived from the annual audited financial
statements for each of the Cable Companies and notes to them appearing elsewhere
in this Proxy Statement/Prospectus. The data as of and for the years ended
December 31, 1991, 1992, and 1993 and for the years ended December 31, 1991 and
1992 have been derived from the unaudited financial statements for these Cable
Companies. The data for the six-month periods ended June 30, 1996 and 1995 have
been derived from the unaudited financial statements also appearing elsewhere in
this Proxy Sta-
REGISTRATION STATEMENT
Page 100
<PAGE>
tement/Prospectus and, which, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the unaudited period. The information
contained in those tables is qualified in its entirety by, and should be read in
conjunction with, the accompanying financial statements and notes to them for
the Cable Companies and the Company. See, "INDEX TO FINANCIAL STATEMENTS."
Management's Discussion and Analysis of Financial Condition and Results of
Operation for Certain Cable Companies
General. A discussion and analysis of financial condition and results
of operations is set forth below for each year in the three-year period ended
December 31, 1995 and for the three- and six-month periods ended June 30, 1996
and 1995 for each of Prime, Alaskan Cable and Alaska Cablevision and is prepared
by the respective management of each of those Cable Companies.
This Proxy Statement/Prospectus, including this section (Management's
Discussion and Analysis of Financial Condition and Results of Operation for
Cable Companies) and documents incorporated by reference into the Proxy
Statement/Prospectus, contains forward looking statements regarding the
Company's and the Cable Companies' future performance that involve certain risks
including those discussed in this Proxy Statement/Prospectus. See, "RISK
FACTORS: Risks of the Businesses in Which the Company Will Be Engaged." Future
results of the Company with or without the consummation of the Acquisition Plan
may differ materially from any forward looking statement due to such risks.
Prime-Introduction. Prime management's discussion of the financial
condition of Prime must be addressed in the context of regulatory changes in the
form of the 1996 Telecom Act, the 1992 Cable Act, and the Communications Act
discussed elsewhere in this Proxy Statement/Prospectus. See, "CERTAIN
INFORMATION REGARDING THE CABLE COMPANIES: Regulatory Developments, Competition
and Legislation/Regulation."
The 1996 Telecom Act substantially changed the competitive and
regulatory environment for telecommunications providers by significantly
amending the Communications Act including certain of the rate regulation
provisions previously imposed by the 1992 Cable Act. Compliance with the rate
regulation provisions of the 1992 Cable Act has had a negative impact on Prime's
revenues and cash flow. Prime implemented various subscriber service and rate
changes effective September 1, 1993. These changes resulted in a reduction of
total monthly revenue of approximately 6%.
Prime believes that recent policy decisions by the FCC will permit it
to increase regulated service rates in the future in response to specified
historical and anticipated future cost increases, although certain costs may
continue to rise at a rate in excess of that which Prime will be permitted to
pass on to its customers. The 1996 Telecom Act provides that rate regulation of
the cable programming service tier will be phased out altogether in 1999.
Further, the regulatory environment will continue to change pending, among other
things, the outcome of legal challenges and FCC rulemaking and enforcement
activity in respect of the 1992 Cable Act and the completion of a significant
number of FCC rulemakings under the 1996 Telecom Act. There can be no assurance
as to what, if any, future action may be taken by the FCC, Congress or any other
regulatory authority or court, or the effect thereof on Prime's business.
Accordingly, Prime's historic financial results as described below are not
necessarily indicative of future performance.
In May 1996, the partners of Prime executed the Prime Proposed
Transaction. Under the terms of the transaction, the non-corporate partners will
sell their partnership interests and the shareholders of the corporate partners
will exchange their corporate shares, all for a total consideration of the Prime
REGISTRATION STATEMENT
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Company Shares. The transaction is expected to close in the fourth quarter of
1996 following required regulatory approvals.
Prime-For Each Year in the Three-Year Period Ended December 31, 1995.
Overview. As of December 31, 1995, the Prime Alaska Systems passed more
than 106,000 homes and served more than 53,000 residential subscribers and
12,000 non-standard residential and business connections, including individual
dwelling units in apartment complexes and hotels which are billed under bulk
billing arrangements. Prime had approximately 63,000 subscriptions to premium
service units.
Liquidity and Capital Resources. Cash provided by operating activities
decreased $913,000 to $7.54 million for the year ended December 31, 1995
compared to the corresponding period of 1994 resulting primarily from increases
in interest expense. Cash provided by operating activities increased $395,000 to
$8.45 million for the year ended December 31, 1994 compared to the corresponding
period of 1993. The increases resulted primarily from increases in sales of
premium services, pay-per-view, equipment rentals and advertising, as well as an
increase in trade payables and accruals.
Cash used in investing activities increased $920,000 to $4,930,000 for
the year ended December 31, 1995 compared to the corresponding period of 1994,
primarily due to expenditures related to plant upgrades in 1995. Cash used in
investing activities increased $1.21 million to $4.01 million for the year ended
December 31, 1994 compared to the corresponding period of 1993, primarily from
increased capital expenditures related to purchases of addressable converters.
Cash used in financing activities decreased from $4.98 million to $1.5
million for the year ended December 31, 1995 compared to the corresponding
period of 1994 related primarily to reduced debt repayment in 1995 as compared
to 1994. Cash used in financing activities increased from $3.79 million to $4.98
million for the year ended December 31, 1994 compared to the corresponding
period of 1993 related primarily to increased debt repayment in 1994 as compared
to 1993.
Except for its working capital requirements, Prime's cash needs will
depend on management's investment decisions. Investment considerations include
(1) whether further capital contributions will be made, (2) whether Prime can
obtain debt financing, (3) whether Prime is able to generate positive operating
cash flow, and (4) the timing of the build-out or upgrades of Prime's systems.
Historically, Prime has financed its ongoing cash requirements through
borrowings under existing credit facilities and agreements.
Prime's primary need for capital has been to finance plant extensions,
rebuilds and upgrades and to add addressable converters to certain cable
systems. Prime spent $4,990,000 during 1995 on capital expenditures and
currently intends to spend approximately $4,620,000 in 1996 for capital
expenditures, including $820,000 to extend its service areas. Prime's ability to
fund these capital expenditures will continue to be dependent on its ability to
remain in compliance with the financial covenants contained in its new bank
credit agreement ("Bank Credit Agreement") of which there can be no assurance.
On March 7, 1996, Prime consummated the Bank Credit Agreement using the
proceeds to pay off all amounts outstanding under the previous bank credit
agreement and subordinated notes. Prime has up to $125 million available under
the commitment in the new loan agreement, with available borrowing levels based
on debt to operating cash flow ratios as specified in the loan agreement.
Borrowings bear interest at the bank's prime rate plus 2%. At Prime's option,
all or a specified portion of the indebtedness may be fixed for periods ranging
from one month to one year based on Eurodollar rates plus 3%. The interest rates
under the Bank Credit Agreement are subject to reductions of up to 1.75% per
annum if
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certain financial tests are met. While Prime may elect to reduce amounts due and
available under the Bank Credit Agreement through prepayments of not less than
$1 million, a mandatory prepayment is required each May, beginning May, 1999,
if, for the prior year ended December 31, Prime's operating cash flow (as
defined in Note 6 of the 1995 audited financial statements for Prime, see,
"INDEX TO FINANCIAL STATEMENTS") exceeds payments made for cash interest expense
and capital expenditures among other items. Mandatory principal payments may be
required in the event of other defined occurrences.
Prime's ability to meet its long-term liquidity and capital
requirements is contingent upon its ability to obtain external financing and
generate positive operating cash flow. There can be no assurance that any such
financing will be available on acceptable terms and conditions.
Results of Operations. Revenues totaled $32.6 million, $30.6 million
and $29.1 million during the years ended December 31, 1995, 1994 and 1993,
respectively. The 6.5% growth in 1995 as compared to 1994 and the 5.2% growth in
1994 as compared to 1993 resulted primarily from increases in the number of
subscribers, primarily as a result of additional homes passed and increases in
the number of subscriptions for services. Approximately $356,000 of the growth
in 1995 revenues was due to increases in regulated service rates implemented in
January, 1995. No rate increases were implemented during 1994. Average revenue
per account was approximately $482, $479 and $489 in 1995, 1994 and 1993,
respectively, representing an increase (decrease) of approximately 0.6%, (2.0%)
and (1.4%), respectively. Revenues were primarily generated from subscription
fees, installation charges, and subscriber cable equipment rentals.
Cable television system expenses, representing costs directly
attributable to providing cable services to customers, increased 9.1% in 1995 as
compared to 1994 and increased 8.0% in 1994 as compared to 1993. The increases
result from increased business activity resulting from the growth in the number
of subscribers and increased programming costs.
Prime pays management fees plus associated reimbursable expenses under
the present Prime management agreement with its manager, PIIM. The management
fee is based on a percentage of gross revenues (presently 5%). Management fees
and reimbursable expenses for the years ended December 31, 1995, 1994 and 1993
were $1.7 million, $1.7 million, and $1.5 million, respectively. Payment of
management fees will be deferred during most of 1996 as required by the Bank
Credit Agreement.
Operating income before depreciation and amortization ("EBITDA") as a
percentage of revenues decreased from 45.7% to 45.0% during the year ended
December 31, 1995 compared to the corresponding period of 1994. The decrease was
primarily caused by an increase in cable television system expenses that on a
percentage basis exceeded the corresponding increase in revenues. EBITDA as a
percentage of revenues decreased from 47.2% to 45.7% during the year ended
December 31, 1994 compared to the corresponding period of 1993. The decrease was
primarily caused by an increase in cable television system expenses that on a
percentage basis exceeded the corresponding increase in revenues as affected by
the approximate 6% rate reduction previously described. EBIDTA is an acronym
representing earnings before interest, taxes, depreciation and amortization.
EBITDA, a measure of a company's ability to generate cash flows, should be
considered in addition to, but not as a substitute for, or superior to, other
measures of financial performance reported in accordance with generally accepted
accounting principles. EBIDTA, also known as operating cash flow, is often used
by analysts when evaluating companies in the cable television industry.
Depreciation and amortization expense was $16.5 million, $16.9 million
and $17.3 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The 1995 decrease as compared to 1994
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and the 1994 decrease as compared to 1993 resulted from certain tangible and
intangible assets becoming fully amortized.
Loss from operations decreased to $1.8 million from $3.0 million in
1995 as compared to 1994, and decreased to $3.0 million from $3.5 million in
1994 as compared to 1993. The 1995 decrease was due primarily to increased
revenues of $1,995,000 and a decrease of $457,000 in depreciation and
amortization expense, offset by an increase in cable television system expenses
of $1,353,000. The 1994 decrease was due primarily to increased revenues of
$1,498,000 and a decrease of $317,000 in depreciation and amortization expense,
offset by an increase in cable television system expenses of $1,099,000.
Interest expense was $15.0 million, $9.0 million and $8.0 million for
the years ended December 31, 1995, 1994 and 1993, respectively. The increases,
except for that described below, were primarily attributable to increases in
interest rates throughout most of the three-year period and amortization of
additional deferred loan costs related to amendments of Prime's prior agreement.
Approximately $4.4 million of the 1995 increase results from accrual of the
December 31, 1995 profit participation amount (equity participation interest) as
further described in Note 7 to Prime's accompanying December 31, 1995 financial
statements. See, "INDEX TO FINANCIAL STATEMENTS."
Prime, as a partnership entity, pays no income taxes, although it is
required to file federal and state income tax returns for informational purposes
only. All income or loss "flows through" to the individual partners in the
manner specified in the Prime Partnership Agreement.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" ("SFAS No. 119").
SFAS No. 119 requires disclosures regarding amount, nature and terms of
derivative financial instruments, e.g., futures, forwards, swap and option
contracts and other instruments with similar characteristics. Prime had no
derivative financial instruments as of December 31, 1995. Management does not
expect to obtain derivative financial instruments in 1996. Accordingly,
management does not expect that implementing SFAS 119 in 1996 will have an
effect on Prime's financial statements.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). This statement sets forth new standards for determining when
long-lived assets are impaired and requires such impaired assets to be written
down to fair value. Prime anticipates that the adoption of SFAS No. 121 in 1996
will not have a material effect on its financial statements.
Certain of Prime's expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation. However, Prime does not believe that its financial results have
been, or will be, adversely affected by inflation in a material way, provided
that it is able to increase its service rates periodically, of which there can
be no assurance.
Prime--For Three- and Six-Month Periods Ended June 30, 1996 and 1995.
Overview. As of June 30, 1996, the Prime Alaska Systems passed more
than 107,000 homes and served more than 52,000 residential subscribers and
12,000 non-standard residential and business connections, including individual
dwellings units in apartment complexes and hotels which are billed under bulk
billing arrangements. Prime had approximately 51,000 subscriptions to premium
service units.
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Liquidity and Capital Resources. Cash provided by operating activities
increased $1,804,000 for the six months ended June 30, 1996, compared to the
corresponding period of 1995. The increase results primarily from a timing
difference in the payment of interest expense, the deferral of payment of
management fees and from increased revenues attributable to increased subscriber
counts and a December 15, 1995 rate increase.
Cash used in investing activities decreased $578,000 to $2,189,000 for
the six months ended June 30, 1996, compared to the corresponding period of
1995. The decrease results primarily from decreased capital expenditures related
to improvements to the cable television system and decreases in the purchase of
addressable converters.
Cash used in financing activities totaled $11,941,000 for the six
months ended June 30, 1996 resulting from the repayment of current debt and
previously outstanding debts and payments of deferred debt issuance costs in
excess of the initial draw on the Bank Credit Agreement. The Bank Credit
Agreement is described below.
Except for its working capital requirements, Prime's cash needs will
depend on management's investment decisions. Investment considerations include
(1) whether further capital contributions will be made, (2) whether Prime can
obtain debt financing, (3) whether Prime is able to generate positive operating
cash flow, and (4) the timing of the upgrade of Prime's systems. Historically,
Prime has financed its ongoing requirements through borrowings under existing
credit facilities and agreements.
Prime's primary need for capital has been to finance plant extensions,
rebuilds and upgrades and to add addressable converters to certain cable
systems. Prime spent $2,201,000 during the first six months of 1996 on capital
expenditures and currently intends to spend approximately $4,620,000 in 1996 for
capital expenditures, including $820,000 to extend its plant to new service
areas. Prime's ability to fund these capital expenditures will continue to be
dependent on its ability to remain in compliance with the financial covenants
contained in the Bank Credit Agreement of which there can be no assurance.
The Bank Credit Agreement was consummated in March, 1996. Prime has up
to $125 million available under the commitment in the new loan agreement, with
available borrowing levels based on debt to operating cash flow ratios as
specified in the loan agreement. Based on Prime's operating cash flow for the
quarter ending June 30, 1996, Prime could have borrowed up to approximately
$112.3 million without being in default at June 30, 1996. Borrowings bear
interest at the bank's prime rate plus 2%.
Prime's ability to meet its long-term liquidity and capital
requirements remained contingent upon its ability to obtain external financing
and generate positive operating cash flow. There can be no assurance that any
such financing will be available on acceptable terms and conditions.
Results of Operations. Revenues totaled $8.53 million and $17.28
million for the quarter and six months ended June 30, 1996, respectively and
$8.05 million and $16.1 million for the quarter and six months ended June 30,
1995, respectively. The 6.0% growth in the quarter and the 7.3% growth for the
six months result primarily from increases in the number of subscribers as a
result of additional homes passed and increases in the number of subscriptions
for services as well as a rate increase implemented effective December 15, 1995.
Average revenue per account was approximately $125 and $253 for the quarter and
six months ended June 30, 1996, respectively. Average revenue per account was
approximately $121 and $244 for the quarter and six months ended June 30, 1995,
respectively. This represents an increase of approximately 3.3% and 3.7% for
quarter and six months ended June 30, 1996 compared to the corresponding periods
of 1995. Revenues were primarily generated from subscription fees, installation
charges, and subscriber cable equipment rentals.
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Cable television system expenses, representing costs directly
attributable to providing cable services to customers, increased 3.4% and 6.4%
respectively for the quarter and six months ended June 30, 1996 compared to the
corresponding periods of 1995. This resulted from increased business activity
attributed to growth in the number of subscribers and increased programming
costs.
Prime pays management fees plus associated reimbursable expenses under
the present Prime management agreement with its manager, PIIM, as described in
the previous section. Management fees and reimbursable expenses were $460,000
and $924,000 for the quarter and six months ended June 30, 1996, respectively.
The management fees and reimbursable expenses were $410,000 and $817,000 for the
quarter and six months ended June 30, 1995, respectively.
EBITDA, i.e., operating income before depreciation and amortization, as
a percentage of revenues increased to 45.0% from 44.1% during the quarter ended
June 30, 1996 compared to the corresponding period of 1995. EBITDA increased to
44.5% from 44.3% for the 6 months ended June 30, 1996 compared to the
corresponding period of 1995. The increases were primarily caused by an increase
in cable television system gross margin resulting from the December 15, 1995
rate increase to subscribers. EBIDTA is an acronym representing earnings before
interest, taxes, depreciation and amortization. EBITDA, a measure of a company's
ability to generate cash flows, should be considered in addition to, but not as
a substitute for, or superior to, other measures of financial performance
reported in accordance with generally accepted accounting principles. EBIDTA,
also known as operating cash flow, is often used by analysts when evaluating
companies in the cable television industry.
Depreciation and amortization expense was $4,298,000 and $8,410,000 for
the quarter and six months ended June 30, 1996, respectively. Expense was
$4,066,000 and $8,208,000 for the quarter and six months ended June 30, 1995,
respectively. The increase results from additional purchases of property, plant
and equipment.
Loss from operations decreased to $472,000 and $726,000 from $520,000
and $1,075,000 for the quarter and six months ended June 30, 1996 compared to
the same period of 1995. The 1996 decrease was due primarily to increased gross
margin due to the increase in revenues.
Interest expense totaled $2.26 million and $4.74 million for the
quarter and six months ended June 30, 1996, respectively. Interest expense
totaled $2.64 million and $5.35 million for the quarter and six months ended
June 30, 1995, respectively. The 1996 decrease was primarily attributable to
lower total borrowings and lower effective interest rates in 1996 compared to
1995.
Prime, as a partnership entity, pays no income taxes although it is
required to file federal and state income tax returns for informational purposes
only. All income or loss "flow through" to the individual partners in the manner
specified in the partnership agreement.
Prime anticipates that the adoption of SFAS No. 119 (described in the
previous section on Prime) will not have a material effect on its financial
statements. Prime anticipated that the adoption of SFAS No. 121 (described in
the previous section) will not have a material effect on its financial
statements.
Certain of Prime's expenses, such as those for wages and benefits,
equipment repair and replacement and billing and marketing generally increase
with inflation. However, Prime does not believe that is financial results have
been, or will be adversely affected by inflation in a material way, provided
that is able to increase its service rates periodically, of which there can be
no assurance.
Alaskan Cable-Introduction. Alaskan Cable management's discussion of
the financial condition of Alaskan Cable must be addressed in the context of
regulatory changes in the form of the 1996 Telecom
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Act, the 1992 Cable Act, and the Communications Act discussed elsewhere in this
Proxy Statement/Prospectus. See, within this section "--Prime-Introduction" and
"CERTAIN INFORMATION REGARDING THE CABLE COMPANIES: Regulatory Developments,
Competition and Legislation/Regulation." The 1996 Telecom Act substantially
changed the competitive and regulatory environment for telecommunication
providers by significantly amending the Communications Act, including certain of
the rate regulation provisions previously imposed by the 1992 Cable Act.
Compliance with the rate regulation provisions of the 1992 Cable Act has had a
negative impact on Alaskan Cable's revenues and cash flow. Alaskan Cable
implemented various subscriber service and rate changes effective September 1,
1993 which resulted in decreased monthly revenue. These rates were then
readjusted on August 1, 1994. The 1994 rate changes resulted in an increase of
total monthly revenue of approximately 5.9%.
Alaskan Cable believes that recent policy decisions by the FCC will
permit it to increase regulated service rates in the future in response to
specified historical and anticipated future cost increases, although certain
costs may continue to rise at a rate in excess of that which Alaskan Cable will
be permitted to pass on to its customers. The 1996 Telecom Act provides that
rate regulation of the cable programming service tier will be phased out
altogether in 1999. Further, the regulatory environment will continue to change
pending, among other things, the outcome of legal challenges and FCC rulemaking
and enforcement activity in respect of the 1992 Cable Act and the completion of
a significant number of FCC rulemakings under the 1996 Telecom Act. There can be
no assurance as to what, if any, future action may be taken by the FCC, Congress
or any other regulatory authority or court, or the effect thereof on Alaskan
Cable's business. Accordingly, Alaskan Cable's historic financial results as
described below are not necessarily indicative of future performance.
In April, 1996 Alaskan Cable executed the Alaskan Cable Proposed
Transaction. The selling price ($70 million) is in excess of the net book value
of Alaskan Cable's assets at December 31, 1995. The transaction is expected to
close in the fourth quarter of 1996 following required regulatory approvals.
Alaskan Cable--For Each Year in the Three-Year Period Ended December
31, 1995.
Overview. As of December 31, 1995, Alaskan Cable's cable systems
(combined for all three corporations comprising Alaskan Cable throughout this
discussion) passed more than 42,300 homes and served more than 25,900
residential subscribers. Alaskan Cable had approximately 15,780 subscriptions to
premium service units.
Liquidity and Capital Resources. Cash provided by operating activities
increased $845,000 to $7,124,000 for the year ended December 31, 1995 compared
to the corresponding period of 1994 resulting primarily from increased net
income of $178,000 and $444,000 resulting from a $225,000 increase in accounts
payable in 1995 compared to a $219,000 decrease in 1994. Cash provided by
operating activities decreased $1,048,000 to $6,279,000 for the year ended
December 31, 1994 compared to the corresponding period of 1993. The decrease
resulted primarily from cash used for the acquisition of other assets and
payments of accounts payable.
Cash used in investing activities decreased $256,000 to $914,000 for
the year ended December 31, 1995 compared to the corresponding period of 1994.
Cash used in investing activities decreased $4,835,000 to $1,170,000 for the
year ended December 31, 1994 compared to the corresponding period of 1993. Both
decreases result primarily from reduced capital expenditures related to
purchases of property, plant and equipment.
Cash used in financing activities increased from $1,786,000 to
$8,458,000 for the year ended December 31, 1995 compared to the corresponding
period of 1994 related primarily to the excess of
REGISTRATION STATEMENT
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dividends paid over borrowings in 1995 as compared to 1994. Cash used in
financing activities increased from $112,000 to $1,786,000 for the year ended
December 31, 1994 compared to the corresponding period of 1993 primarily due to
increased loans to affiliates.
Except for its working capital requirements, Alaskan Cable's cash needs
will depend on management's investment decisions. Investment considerations
include (1) whether further capital contributions will be made, (2) whether
Alaskan Cable can obtain debt financing, (3) whether Alaskan Cable is able to
generate positive operating cash flow, and (4) the timing of the upgrade and
build-out of Alaskan Cable's systems. Historically, Alaskan Cable has funded its
cash requirements through operations and borrowings and capital contributions
from affiliates.
Alaskan Cable's primary need for capital has been to finance plant
extensions, rebuilds and upgrades and to add addressable converters to certain
cable systems. Alaskan Cable spent $914,000 during 1995 on capital expenditures,
and currently intends to spend approximately $400,000 in 1996 for capital
expenditures, including $70,000 to extend its plant to new service areas.
Alaskan Cable's ability to fund these capital expenditures will continue to
depend on its ability to remain in compliance with financial covenants contained
in its line of credit agreement described below, of which there can be no
assurance.
Results of Operations. Revenues totaled $14,515,000, $13,883,000 and
$14,142,000 during the years ended December 31, 1995, 1994 and 1993,
respectively. The 4.6% growth in 1995 as compared to 1994 resulted primarily
from increases in the number of subscribers, primarily as a result of additional
homes passed and increases in the number of subscriptions for services.
Substantially all of the growth in 1995 revenues was due to increases in
regulated service rates implemented January 1, 1995. The 1.8% decrease in 1994
as compared to 1993 resulted primarily from the subscriber rate reductions
implemented September 1, 1993. Average revenue per account was approximately
$576, $549 and $573 in 1995, 1994 and 1993, respectively, representing an
increase (decrease) of approximately 4.9%, (4.2%) and (1.3%), respectively.
Revenues were primarily generated from subscription fees, installation charges,
and subscriber cable equipment rentals.
Cost of revenues representing costs directly attributable to providing
cable services to customers, increased 5.3% in 1995 as compared to 1994 and
increased 2.7% in 1994 as compared to 1993. The increases result from increased
business activity resulting from the growth in the number of subscribers and
increased programming costs.
EBIDTA is an acronym representing earnings before interest, taxes,
depreciation and amortization. EBITDA, a measure of a company's ability to
generate cash flows, should be considered in addition to, but not as a
substitute for, or superior to, other measures of financial performance reported
in accordance with generally accepted accounting principles. EBIDTA, also known
as operating cash flow, is often used by analysts when evaluating companies in
the cable television industry. EBITDA as a percentage of revenues decreased from
47.6% to 46.9% during the year ended December 31, 1995 compared to the
corresponding period of 1994. The decrease was primarily caused by an increase
in cost of revenues and selling, general and administrative expenses that on a
percentage basis exceeded the corresponding increase in revenues. EBITDA as a
percentage of revenues increased from 28.6% to 47.6% during the year ended
December 31, 1994 compared to the corresponding period of 1993. The increase was
primarily caused by a loss on disposal of assets in 1993 offset by a net
decrease in cost of revenues, selling, general and administrative expenses,
depreciation and amortization expenses that on a percentage basis exceeded the
corresponding decrease in revenues as affected by the approximate 10.5% rate
reduction described above.
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Depreciation and amortization expense was $6,176,000, $6,092,000 and
$6,362,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The 1995 increase as compared to 1994 results from continued cable television
build-out expenditures, and the amortization of line of credit deferred loan
expenses. The 1994 decrease as compared to 1993 results from disposal of old
cable television systems in 1993 whose original construction costs were higher
than the expenditures made to rebuild the system.
Income (loss) from operations before net interest income, loss on
disposal of assets, income taxes and cumulative effect of change in accounting
principle totaled $632,000, $516,000 and $367,000 in 1995, 1994 and 1993,
respectively. The 1995 increase over 1994 was due primarily to increased
revenues of $632,000, offset by increases in cost of revenues and selling,
general and administrative expenses of $432,000 and an increase of $84,000 in
depreciation and amortization expense. The 1994 net increase over 1993 resulted
from the following: (1) reduced revenues in 1994 of $259,000 resulting primarily
from the rate reduction previously described; and (2) increased cost of revenues
totalling $117,000 in 1994 as compared to 1993. The changes from 1993 to 1994
were offset by the following: (1) decreased selling, general and administrative
costs totalling $255,000 in 1994 as compared to 1993; and (2) decreased
depreciation and amortization costs totalling $270,000 in 1994 as compared to
1993.
Income tax (provision) benefit totaled $208,000, ($9,000) and $622,000
in 1995, 1994 and 1993, respectively, resulting from the application of
statutory income tax rates to net earnings or loss before income taxes. Alaskan
Cable experienced income (loss) before income taxes and cumulative effect of
change in accounting principle of $712,000, $751,000 and ($2,274,000) for the
years ended December 31, 1995, 1994, and 1993, respectively. Although Alaskan
Cable has experienced pretax profits in the past two years, Alaskan Cable had a
loss in 1993 as well as in the past. These losses have resulted, as of December
31, 1995, in unused net operating loss carryforwards for federal and state
income tax purposes of approximately $4,500,000 and $5,900,000, respectively.
In light of Alaskan Cable's history of losses prior to 1994, the
potential negative impact of recent deregulation in the cable television
industry, and the ability of other Jack Kent Cooke Incorporated entities to
utilize Alaskan Cable's net operating loss carryforwards, management currently
believes it is more likely than not that Alaskan Cable will be unable to realize
its deferred tax assets in the amount of $2,661,000 as of December 31, 1995
prior to the expiration of the net operating loss carryforwards. Accordingly, a
valuation allowance for $2,661,000 was reflected in Alaskan Cable's December 31,
1995 financial statements. Alaskan Cable will continue to assess the need for a
valuation allowance based upon future operating results and facts and
circumstances at the time.
In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting
for Income Taxes. SFAS No. 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable earnings in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date.
Alaskan Cable adopted SFAS 109 on January 1, 1993. The cumulative
effect adjustment recorded in 1993 due to adoption of SFAS 109 totaled $622,000.
Certain of Alaskan Cable's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, Alaskan Cable does
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not believe that its financial results have been, or will be, adversely affected
by inflation in a material way, provided that it is able to increase its service
rates periodically, of which there can be no assurance.
Alaskan Cable--For Three- and Six-Month Periods Ended June 30, 1996 and
1995.
Overview. As of June 30, 1996, Alaskan Cable's systems passed more than
42,720 homes and served more than 25,426 residential subscribers. Alaskan Cable
had approximately 20,310 subscriptions to tier service units.
Liquidity and Capital Resources. Cash provided by operating activities
decreased $594,000 to $304,900 for the six-month period ended June 30, 1996
compared to the corresponding period of 1995 resulting from decreased net income
of $471,000 and a net use of cash resulting from changes in operating assets and
liabilities in 1996 as compared to 1995.
Cash used in investing activities decreased from $275,000 to $216,000
for the six-month period ended June 30, 1996 compared to the corresponding
period of 1995 resulting from reduced capital expenditures for property, plant
and equipment in 1996 as compared to 1995.
Cash used in financing activities decreased from $8,072,000 to
$5,723,000 for the six-month period ended June 30, 1996 compared to the
corresponding period of 1995. For 1996, increases in cash from line of credit
borrowings in 1996 totaling $6,000,000 were offset by repayments of line of
credit borrowings totaling $11,000,000. For 1995, dividends paid of $9,700,000
were offset by reduced loan repayments from affiliates of $2,331,000.
Except for its working capital requirements, Alaskan Cable's cash needs
will depend on management's investment decisions. Investment considerations
include (i) whether further capital contributions will be made and (ii) whether
Alaskan Cable is able to generate positive operating cash flow. Historically,
Alaskan Cable has funded its cash requirements through operations, outside
borrowings and capital contributions from affiliates.
Alaskan Cable's primary need for capital has been to finance plant
extensions, rebuilds and upgrades and to add addressable converters to certain
cable systems. Alaskan Cable currently intends to spend approximately $400,000
in 1996 for capital expenditures, including $70,000 to extend its plant to new
service areas.
Alaskan Cable's ability to fund capital expenditures and its long-term
liquidity requirements will continue to depend on it's ability to generate
positive operating cash flow.
Results of Operations. Revenues totaled $3,650,000 and $3,647,000 for
the quarters ended June 30, 1996 and 1995, respectively, and totaled $7,442,000
and $7,224,000 during the six-month periods ended June 30, 1996 and 1995,
respectively. The revenue growth in 1996 as compared to 1995 resulted primarily
from rate increases for services. Average revenue per account for the second
quarters ended June 30, 1996 and 1995, was approximately $144 and $140,
respectively, representing an increase of approximately 2.9% and 4.5%,
respectively. Average revenue per account for the six months ended June 30, 1996
and 1995, was approximately $293 and $277, respectively, representing increases
of 5.8% and 1.8%, respectively. Revenues were primarily generated from
subscription fees, installation charges, and subscriber cable equipment rentals.
Cost of revenues, representing costs directly attributable to providing
cable services to customers, increased 2.1% for the quarter ended June 30, 1996
compared to the corresponding period of 1995 and increased 4.7% for the
six-month period ended June 30, 1996 compared to the corresponding period of
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1995. 1996 increases resulted from increased business activity from increased
services and increased programming costs.
Selling, general and administrative operating expenses increased 3.3%
for the quarter ended June 30, 1996 compared to the corresponding period of 1995
and increased 4.5% for the six-month period ended June 30, 1996 compared to the
corresponding period of 1995. 1996 increases resulted from increased business
activity from increased services.
Depreciation and amortization expense totaled $1,556,000 and $1,517,000
for the quarters ended June 30, 1996 and 1995, respectively and totaled
$3,113,000 and $3,034,000 for the six-month periods ended June 30, 1996 and
1995, respectively. The 1996 increases as compared to 1995 is primarily the
result of the amortization of deferred loan expenses pertaining to the line of
credit reflected in the first six months of 1996.
Income before interest, income taxes, depreciation and amortization
("EBITDA") as a percentage of revenues decreased from 46.9% to 45.6% during the
quarter ended June 30, 1996 compared to the corresponding period of 1995 and
decreased from 47.1% to 46.2% during the six-month period ended June 30, 1996
compared to the corresponding period of 1995. The 1996 decreases were primarily
caused by a increases in cost of revenues and selling, general and
administrative expenses that on a percentage basis exceeded the corresponding
increase in revenues. EBIDTA is an acronym representing earnings before
interest, taxes, depreciation and amortization. EBITDA, a measure of a company's
ability to generate cash flows, should be considered in addition to, but not as
a substitute for, or superior to, other measures of financial performance
reported in accordance with generally accepted accounting principles. EBIDTA,
also known as operating cash flow, is often used by analysts when evaluating
companies in the cable television industry.
Income from operations before net interest income (expense) and income
taxes totaled $109,000 and $194,000 for the quarters ended June 30, 1996 and
1995, respectively and totaled $329,000 and $366,000 for the six-month periods
ended June 30, 1996 and 1995, respectively. The 1996 decreases as compared to
1995 were due primarily to increased operating expenses that on a percentage
basis exceeded the corresponding increase in revenues.
Income tax benefit totaled $15,000 for the six-month period ended June
30, 1996. Income tax benefit totaled $16,000 for the quarter and six-month
periods ended June 30, 1995. The 1996 benefit resulted from the reversal of the
tax provision reported in the December 31, 1995 financial statements. This
amount was reversed due to the application of net operating loss carryforwards
applied in 1995. The 1995 benefit resulted from the application of net operating
loss carryforwards.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 establishes financial accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
SFAS No. 125 requires the recognition of financial assets and servicing assets,
if any, that are controlled by Alaskan Cable, the derecognition of financial
assets, if any, when control is surrendered, and the derecognition of
liabilities, if any, when control has been surrendered in the transfer of
financial assets. Alaskan Cable anticipates that the adoption of SFAS No. 125 in
1997 will not have a material effect on its consolidated financial statements.
Certain of Alaskan Cable's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, Alaskan Cable does
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not believe that its financial results have been, or will be, adversely affected
by inflation in a material way, provided that it is able to increase its service
rates periodically, of which there can be no assurance.
Alaska Cablevision - Introduction. Alaska Cablevision management's
discussion of the financial condition of Alaska Cablevision must be addressed in
the context of regulatory changes in the form of the 1996 Telecom Act, the 1992
Cable Act, and the Communications Act discussed elsewhere in this Proxy
Statement/Prospectus. See, "CERTAIN INFORMATION REGARDING THE CABLE COMPANIES:
Regulatory Development, Competition and Legislation/Regulation."
Compliance with the rate regulation provisions of the 1992 Cable Act
has had a negative impact on the Company's revenues and cash flow. The Company
implemented various subscriber service and rate changes effective September,
1993 for the two systems serving more than 1,000 subscribers each (Kodiak and
Valdez, Alaska) and July, 1994 for the five systems serving less than 1,000
subscribers each (Nome, Petersburg, Wrangell, Kotzebue and Cordova, Alaska).
These changes resulted in a reduction of total monthly revenue of approximately
5%.
The Company believes that recent policy decisions by the FCC will
permit it to increase regulated service rates in the future in response to
specified historical and anticipated future cost increases, although certain
costs may continue to rise at a rate in excess of that which the Company will be
permitted to pass on to its customers. The 1996 Telecom Act provides that rate
regulation of the cable programming service tier will be phased-out altogether
in 1999. Further, the regulatory environment will continue to change pending,
among other things, the outcome of legal challenges and FCC rulemaking and
enforcement activity in respect of the 1992 Cable Act and the completion of a
significant number of FCC rulemakings under the 1996 Telecom Act.
The 1996 Telecom Act includes provisions for small cable operators,
whereby the Company's cable programming service is now rate-deregulated. Only
the entry level, basic service tier is subject to rate regulation by the local
franchising authority. Cable television systems in Alaska, while subject to rate
regulation, can only be regulated at the state level, i.e., the APUC, and only
after a qualifying petition and majority vote among cable subscribers has
occurred. There can be no assurance as to what, if any, future action may be
taken by the FCC, Congress or any other regulatory authority or court, or the
effect thereof on Alaska Cablevision's business. Accordingly, Alaska
Cablevision's historic financial results as described below are not necessarily
indicative of future performance.
Alaska Cablevision signed definitive agreements in May, 1996 to sell
all of its assets to the Company. The Company is a telecommunications company
providing long distance services in Alaska. The aggregate selling price totals
$26,650,000, consisting of $16,650,000 in cash and subordinated Cablevision
Company Notes totaling $10,000,000 which are convertible into as many as
1,538,462 shares of Company Class A common stock. The selling price is in excess
of the net book value of Alaska Cablevision's assets at December 31, 1995. The
transaction is expected to close in the fourth quarter of 1996 following
required regulatory approvals.
Alaska Cablevision - For Each Year in the Three-Year Period Ended
December 31, 1995.
Overview. As of December 31, 1995, Alaska Cablevision's cable systems
passed more than 10,860 homes and served more than 7,735 residential subscribers
and over 100 business subscribers. Alaska Cablevision had approximately 7,875
residential subscriptions to premium service units.
Liquidity and Capital Resources. Cash provided by operating activities
decreased approximately $200,000 to $1,780,000 for the year ended December 31,
1995 compared to the corresponding period of 1994 resulting primarily from the
net effect of the following: (1) the decrease (receipt) of advances to
REGISTRATION STATEMENT
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affiliates in 1994; (2) the decrease (receipt) of other receivables in 1995; and
(3) the increase in operating income in 1995. Cash provided by operating
activities increased $481,000 to $1,960,000 for the year ended December 31, 1994
compared to the corresponding period of 1993. The increase resulted primarily
from the net effect of the following: (1) a decrease in advances to affiliates
in 1994 as compared to an increase in 1993; (2) an increase in accounts payable
and accrued expenses in 1994 compared to 1993; and (3) a decrease in operating
income from 1993 to 1994.
Cash used in investing activities decreased $367,000 to $742,000 for
the year ended December 31, 1995 compared to the corresponding period of 1994.
The 1995 decrease results primarily from reduced capital expenditures related to
purchases of property, plant and equipment. Cash used in investing activities
increased $775,000 to $1,110,000 for the year ended December 31, 1994 compared
to the corresponding period of 1993. The 1994 increase results primarily from
increased capital expenditures related to purchases of property, plant and
equipment.
Cash used in financing activities decreased from $797,000 to $627,000
for the year ended December 31, 1995 compared to the corresponding period of
1994. The 1995 decrease resulted from $3,700,000 of borrowings from Alaska
Cablevision's new senior revolving credit loan agreement which was used to
payoff $3,600,000 in loans from affiliates and notes due to former stockholders,
offset by a $43,000 increase in distributions to stockholders. Cash used in
financing activities decreased from $1,200,000 to $797,000 for the year ended
December 31, 1994 compared to the corresponding period of 1993 related primarily
to a net decrease in the pay-down of loans from affiliates of $303,000 and
reduced stockholder distributions of $85,000.
Except for its working capital requirements, Alaska Cablevision's cash
needs will depend on management's investment decisions. Investment
considerations include the following: (1) whether the Company can obtain debt
financing; (2) whether the Company is able to generate positive operating cash
flow; and (3) the timing of the upgrade and build-out of Alaska Cablevision's
systems. Historically, Alaska Cablevision has financed its cash requirements
through operations and from borrowings from affiliates and banks.
Alaska Cablevision's primary need for capital has been to finance plant
rebuilds and upgrades, channel additions and service vehicles. Alaska
Cablevision spent $757,000 during 1995 on capital expenditures and currently
intends to spend approximately $525,000 in 1996 for capital expenditures,
including $75,000 to extend its plant to new service areas. Alaska Cablevision's
ability to fund these capital expenditures will continue to depend on its
ability to remain in compliance with financial covenants contained in its senior
reducing revolving credit loan agreement described below. The recorded cost of
assets disposed of totaled approximately $234,000, $583,000 and $501,000 in
1995, 1994 and 1993, respectively. 1995 disposals resulted from the replacement
of vehicles and upgraded plant and headend equipment. 1994 and 1993 disposals
resulted primarily from the write-off of converters and inside the home cable
wiring resulting from certain provisions of the 1992 Cable Act affecting the
pricing of converter rentals and ownership of inside the home cable wiring.
On February 28, 1995, Alaska Cablevision and Rock Associates, Inc., as
co-borrowers, entered into a new $6.4 million senior reducing revolving credit
loan agreement with a bank. Borrowings under the agreement are collateralized by
all of Alaska Cablevision's common stock and assets and bear interest, at Alaska
Cablevision's option, at (1) the higher of the bank's prime rate or the federal
funds rate plus 1/2%, or (2) the LIBOR rate plus 1-1/2%. The agreement expires
December 31, 1997. The line of credit agreement places certain restrictions on
Alaska Cablevision, including limitations on liens, disposition of assets,
loans, investments, capital expenditures, and requires compliance with certain
financial covenants.
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Alaska Cablevision's ability to meet its long-term liquidity and
capital requirements is contingent upon its ability to obtain external financing
and generate positive operating cash flow.
Results of Operations. Revenues totaled $5,920,000, $5,710,000 and
$5,660,000 during the years ended December 31, 1995, 1994 and 1993,
respectively. The 3.7% growth in 1995 as compared to 1994 resulted primarily
from modest incremental growth in the number of subscribers and increases in
regulated service rates. Approximately $171,000 of the growth in 1995 revenues
was due to increases in regulated service rates implemented November 1, 1994 and
November 1, 1995. The 0.88% increase in 1994 as compared to 1993 resulted
primarily from additional revenues resulting from a 4.6% increase in the number
of subscribers offset by the subscriber rate reductions implemented in September
1993 and July 1994. Average annual revenue per account was approximately $730,
$734 and $777 in 1995, 1994 and 1993, respectively, representing a decrease of
approximately 0.5%, 5.5% and 1.3%, respectively. Revenues were primarily
generated from subscription fees, installation charges, and subscriber cable
equipment rentals and advertising revenues.
Programming and copyright costs directly attributable to providing
cable services to customers increased 4.6% in 1995 as compared to 1994 and
increased 11.5% in 1994 as compared to 1993. The increases result from increased
business activity from growth in the number of subscribers, increased program
offerings and increased programming rates.
Depreciation and amortization expense was $420,000, $314,000 and
$435,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The
1995 increase as compared to 1994 results from additional depreciation resulting
from increased capital expenditures in 1995 and 1994. The 1994 decrease as
compared to 1993 result from certain tangible and intangible assets becoming
fully amortized.
Income from operations totaled $2,160,000, $2,220,000 and $2,380,000 in
1995, 1994 and 1993, respectively. The 1995 increase over 1994 was due primarily
to increased revenues of $211,000 and reduced management fees of $171,000,
offset by net increases in operating expenses of $264,000. The 1994 net decrease
of $166,000 as compared to 1993 resulted from net increases in operating
expenses totaling $215,000 and increased programming and copyright costs
totaling $98,000 in 1994, offset by increased revenues of $49,000 in 1994
resulting primarily growth in customers served.
EBITDA is an acronym representing earnings before interest, taxes,
depreciation and amortization. EBITDA, a measure of a company's ability to
generate cash flows, should be considered in addition to, but not as a
substitute for, or superior to, other measures of financial performance reported
in accordance with generally accepted accounting principles. EBITDA, also known
as operating cash flow, is often used by analysts when evaluating companies in
the cable television industry. EBITDA as a percentage of revenues increased from
33.5% to 35.7% during the year ended December 31, 1995 compared to the
corresponding period of 1994. The increase is primarily a result of a reduction
in management fees charged by Rock Associates, Inc. from $571,000 to $400,000.
EBITDA as a percentage of revenues decreased from 39.1% to 33.5% during the year
ended December 31, 1994 compared to the corresponding period of 1993. The
decrease was primarily caused by an increase in programming costs and operating
expenses that on a percentage basis exceeded the corresponding increase in
revenues.
The Company, with the consent of its shareholders, has elected to have
its income reported directly by the shareholders under provisions of Sub-chapter
S of the Code and pays no income taxes, although it is required to file federal
and state income tax returns for informational purposes only. All income or loss
"flows through" to the individual shareholders.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of
REGISTRATION STATEMENT
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Financial Instrument" ("SFAS No. 119"). SFAS No. 119 requires disclosures
regarding amount, nature and terms of derivative financial instruments, for
instance futures, forward, swap and option contracts and other instruments with
similar characteristics. Alaska Cablevision anticipates that the adoption of
SFAS No. 119 in 1996 will not have a material effect on its financial
statements.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of long-lived Assets and for long-lived Assets to be Disposed of"
("SFAS No. 121"). This statement sets forth new standards for determining when
long-lived assets are impaired and requires such impaired assets to be written
down to fair value. Alaska Cablevision anticipates that the adoption of SFAS No.
121 in 1996 will not have a material effect on its financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Alaska Cablevision anticipates that
the adoption of SFAS No. 123 in 1996 will not have a material effect on its
financial statements.
Certain of Alaska Cablevision's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, Alaska Cablevision does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that it is able to increase its service rates
periodically, of which there can be no assurance.
Alaska Cablevision--For Three- and Six-Month Periods Ended June 30,
1996 and 1995.
Overview. As of June 30, 1996, Alaska Cablevision's cable systems
passed more than 11,000 homes and served more than 7,500 residential subscribers
and over 1,500 business subscribers. Alaska Cablevision had approximately 7,650
residential subscriptions to premium service units.
Liquidity and Capital Resources. Sources of cash during the first six
months of 1996 included Alaska Cablevision's operating activities which
generated positive cash flow of $802,000 net of changes in the components of
working capital. Cash provided by operating activities decreased $162,000 for
the six-month period ended June 30, 1996 compared to the corresponding period of
1995 resulting primarily from the net effect of the decrease (receipt) of
subscriber receivables, other receivables and prepaid assets in 1995 and the
decrease (payment) of payables, accrued expenses and deferred revenues in 1996.
Cash used in investing activities decreased $214,000 to $227,000 for
the six-month period ended June 30, 1996 compared to the corresponding period of
1995. The 1995 decrease results primarily from reduced capital expenditures
related to purchases of property, plant and equipment.
Cash used in financing activities totaled $486,000 and $177,000 during
the six-month periods ended June 30, 1996 and 1995, respectively. Uses of cash
in 1996 resulted primarily from repayment on notes due to former stockholders of
$109,000 and distributions to stockholders of $374,000. Uses of cash in 1995
resulted primarily from repayment on notes due to former stockholders of
$101,000 and distributions to stockholders of $348,000. Proceeds from a new
senior revolving credit loan agreement totaling $3.7 million were used in 1995
to payoff $3.4 million in loans from affiliates.
REGISTRATION STATEMENT
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Except for its working capital requirements, Alaska Cablevision's cash
needs will depend on management's investment decisions. Investment
considerations include (1) whether Alaska Cablevision can obtain debt financing;
(2) whether Alaska Cablevision is able to generate positive operating cash flow;
and (3) the timing of the upgrade and build-out of Alaska Cablevision's cable
systems. Historically, Alaska Cablevision has financed its cash requirements
through operations and from borrowings from affiliates and banks.
Alaska Cablevision's primary need for capital has been to finance plant
rebuilds and upgrades, channel additions and service vehicles. Alaska
Cablevision spent $227,000 during for the six-month period ended June 30, 1996
on capital expenditures and currently intends to spend approximately $525,000 in
1996 for capital expenditures, including $75,000 to extend its plan to new
service areas. Alaska Cablevision's ability to fund these capital expenditures
will continue to depend on it's ability to remain in compliance with financial
covenants contained in its senior reducing revolving credit loan agreement
described below. The recorded cost of assets disposed of totaled approximately
$54,000 for the six-month period ended June 30, 1996 resulting from the
replacement of vehicles and corporate office equipment.
On February 28, 1995, Alaska Cablevision and Rock Associates, Inc., as
co-borrowers, entered into a new $6.4 million senior reducing revolving credit
loan agreement with a bank. Borrowings under the agreement are collateralized by
all of Alaska Cablevision's common stock and assets and bear interest, at Alaska
Cablevision's option, at (1) the higher of the bank's prime rate or the federal
funds rate plus 1/2%, or (2) the LIBOR rate plus 1-1/2%. The agreement expires
December 31, 1997. The line of credit agreement places certain restrictions on
Alaska Cablevision, including limitations on liens, disposition of assets,
loans, investments, capital expenditures, and requires compliance with certain
financial covenants.
Alaska Cablevision's ability to meet its long-term liquidity and
capital requirements is contingent upon its ability to obtain external financing
and generate positive operating cash flow.
On April 15, 1996, Alaska Cablevision entered into the Alaska
Cablevision Purchase Agreement with the Company. The Company is a
telecommunications company providing long distance services in Alaska. Under the
Alaska Cablevision Purchase Agreement, Alaska Cablevision will sell
substantially all of its assets to the Company for a total consideration of
$26,650,000, consisting of Cablevision Company Notes for $10 million,
convertible to as many as 1,538,462 shares of Company Class A common stock and
$16,650,000 cash. It is anticipated that the transaction will close in the
fourth quarter of 1996.
Results of Operations. Revenues totaled approximately $1.5 million
during the quarters ended June 30, 1996 and 1995, respectively. Revenues totaled
$3.0 million during the six-month periods ended June 30, 1996 and 1995,
respectively. Average revenue per account was approximately $186 and $184 during
the quarters ended June 30, 1996 and 1995, respectively, representing an
increase (decrease) of approximately 1.1% and (1.1)%, respectively. Average
revenue per account was approximately $372 and $367 during the six-month periods
ended June 30, 1996 and 1995, respectively, representing an increase (decrease)
of approximately 1.4% and (1.6)%, respectively. Revenues were primarily
generated from subscription fees, installation charges, and subscriber cable
equipment rentals and advertising revenues.
Programming and copyright costs and certain wages and benefits directly
attributable to providing cable services to customers decreased 0.68% during the
quarter ended June 30, 1996 compared to the corresponding period of 1995 due to
a decrease in copyright costs, partially offset by an increase in programming
costs. Programming and copyright costs increased 2.5% during the six-month
period ended June 30, 1996 compared to the corresponding period of 1995 due to
increased business activity from growth in the number of subscribers, increased
program offerings and increased programming rates.
REGISTRATION STATEMENT
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Depreciation and amortization expense was approximately $106,000 for
the quarters ended June 30, 1996 and 1995 and $237,000 and $210,000 for the
six-month periods ended June 30, 1996 and 1995, respectively. The increase in
the six-month period ended June 30, 1996 as compared to the same period of 1995
results from additional depreciation resulting from capital expenditures during
1996 and a full year of depreciation in 1996 on 1995 capital expenditures as
compared to a partial year of depreciation in 1995.
Income from operations totaled $564,000 and $557,000 during the
quarters ended June 30, 1996 and 1995, respectively. The 1996 increase over 1995
was due primarily to decreased revenues of $5,000 offset by a net decrease in
operating expenses of $12,000. Income from operations totaled $1.07 million and
$1.15 million during the six-month periods ended June 30, 1996 and 1995,
respectively. The 1996 decrease from 1995 was due primarily to increased
revenues of $38,000 offset by a net increase in operating expenses of $115,000.
EBITDA is an acronym representing earnings before interest, taxes,
depreciation and amortization. EBITDA, a measure of a company's ability to
generate cash flows, should be considered in addition to, but not as a
substitute for, or superior to, other measures of financial performance reported
in accordance with generally accepted accounting principles. EBITDA, also known
as operating cash flow, is often used by analysts when evaluating companies in
the cable television industry. EBITDA as a percentage of revenues decreased from
38.1% to 35.9% during the quarter ended June 30, 1996 compared to the
corresponding period of 1995. The decrease is primarily a result of expenses
associated with the sale of Alaska Cablevision's assets as described below.
EBITDA as a percentage of revenues decreased from 38.5% to 36.0% during the
six-month period ended June 30, 1996 compared to the corresponding period of
1995. The decrease is primarily a result of expenses associated with the sale of
Alaska Cablevision's assets as described below and an increase in programming
costs and operating expenses that on a percentage basis exceeded the
corresponding increase in revenues.
Alaska Cablevision, with the consent of its shareholders, has elected
to have its income reported directly by the shareholders under provisions of
Sub-chapter S of the Code and pays no income taxes, although it is required to
file federal and state income tax returns for informational purposes only. All
income or loss "flows through" to the individual shareholders.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 establishes financial accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
SFAS No. 125 requires the recognition of financial assets and servicing assets,
if any, that are controlled by Alaska Cablevision, the derecognition of
financial assets, if any, when control is surrendered, and the derecognition of
liabilities, if any, when control has been surrendered in the transfer of
financial assets. Alaska Cablevision anticipates that the adoption of SFAS No.
125 in 1997 will not have a material effect on its financial statements.
Certain of Alaska Cablevision's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, Alaska Cablevision does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that it is able to increase its service rates
periodically, of which there can be no assurance.
Recent Developments Involving Cable Companies
There had been no material changes in the respective businesses or
financial positions for Prime, Alaskan Cable or Alaska Cablevision as set forth
in this Proxy Statement/Prospectus for the period from June 30, 1996 to and
including the Record Date.
REGISTRATION STATEMENT
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Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Each of Prime, Alaskan Cable, and Alaska Cablevision was as of the
Record Date unaware of any disagreements with their respective independent
public accountants as to disclosure or financial accounting of their respective
business, and each of those Cable Companies considered its relationship with its
respective accountant as excellent.
Regulatory Developments, Competition and Legislation/Regulation
The following summary of regulatory developments, competition, and
legislation and regulation does not purport to describe all present and proposed
federal, state, and local regulation and legislation affecting the cable
industry. Other existing federal regulations, copyright licensing, and, in many
jurisdictions, state and local franchise requirements, are currently the subject
of judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degrees, the manner in which cable television systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable television industry or the Cable Companies or the Company in acquiring the
securities or assets of the Cable Companies can be predicted at this time.
Regulatory Developments. The federal Telecommunications Act of 1996
("1996 Telecom Act"), the most comprehensive reform of the nation's
telecommunications laws since the federal Communications Act of 1934
("Communications Act"), became effective in February, 1996. The 1996 Telecom Act
will result in changes in the marketplace for cable television, telephone and
other telecommunications services.
Cable franchisees are subject to the federal Cable Communications
Policy Act of 1984 ("1984 Cable Act"), the federal Cable Television Consumer
Protection and Competition Act of 1992 ("1992 Cable Act," and together with the
1984 Cable Act, "Cable Acts") and the 1996 Telecom Act (see within this section,
"-Legislation/Regulation"), as well as FCC, state and local regulations.
The Cable Companies franchises are nontransferable without the consent
of governmental authority. Although franchises historically have been renewed
and, under the Cable Acts, should continue to be renewed for companies that have
provided adequate service and have complied generally with franchise terms,
renewal may be more difficult as a result of the 1992 Cable Act and may include
less favorable terms and conditions. Furthermore, the governmental authority may
choose to award additional franchises to competing companies at any time (see
within this section, "-Competition" and "-Legislation/Regulation"). In addition,
under the 1996 Telecom Act certain providers of programming services may be
exempt from local franchising requirements.
Competition. Cable television systems face competition from alternative
methods of receiving and distributing television signals and from other sources
of news, information and entertainment such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
computer services and home video products, including videotape cassette and
video records. The extent to which a cable television system is competitive
depends, in part, upon the cable system's ability to provide, at a reasonable
price to consumers, a greater variety of programming and other communication
services than are available off-air or through other alternative delivery
sources (see within this section, "-Legislation/Regulation") and upon superior
technical performance and customer service.
The 1996 Telecom Act will make it easier for local exchange telephone
companies ("LECs") and others to provide a wide variety of video services
competitive with services provided by cable systems and to provide cable
services directly to subscribers (see within this section,
"-Legislation/Regulation"). Various LECs currently are seeking to provide video
services within their telephone service areas through a variety
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of distribution methods. Cable systems could be placed at a competitive
disadvantage if the delivery of video services by LECs becomes widespread since
LECs may not be required, under certain circumstances, to obtain local
franchises to deliver such video services or to comply with the variety of
obligations imposed upon cable systems under such franchises (see within this
section, "-Legislation/Regulation"). Issues of cross-subsidization by LECs of
video and telephony services also pose strategic disadvantages for cable
operators seeking to compete with LECs who provide video services. The Company
cannot predict at this time the likelihood of success of video service ventures
by LECs or the impact on its proposed operations in the cable area or on the
Cable Companies should the Proposed Transactions not close.
Cable television systems generally operate pursuant to franchises
granted on a non-exclusive basis. The 1992 Cable Act gives local franchising
authorities jurisdiction over basic cable service rates and equipment in the
absence of "effective competition," prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems (see within this section,
"-Legislation/Regulation"). Well financed businesses from outside the cable
industry (such as the public utilities that own certain of the poles on which
cable is attached) may become competitors for franchises or providers of
competing services (see within this section "-Legislation/Regulation - The 1996
Telecom Act"). The costs of operating a cable system where a competing service
exists may be substantially greater than if there were no competition present.
As of the Record Date, competition existed in the areas serviced by Prime's
systems. However, as of that date there were no competing services in the areas
served by Alaska Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward. In
addition, LECs in Alaska have announced plans to compete with Prime's Bethel
cable television system.
Cable operators face additional competition from private satellite
master antenna television ("SMATV") systems that serve condominiums, apartment
and office complexes and private residential developments. The operators of
these SMATV systems often enter into exclusive agreements with building owners
or homeowners' associations. While the 1984 Cable Act gives a franchised cable
operator the right to use existing compatible easements within its franchise
area on nondiscriminatory terms and conditions, there have been conflicting
judicial decisions interpreting the scope of the access right granted to serve
such private property. Various states have enacted laws to provide franchised
cable systems access to such private complexes. These laws have been challenged
in the courts with varying results. Due to the widespread availability of
reasonably priced earth stations, SMATV systems now can offer both improved
reception of local television stations and many of the same satellite-delivered
program services offered by franchised cable systems. The ability of the Cable
Companies to compete for subscribers in residential and commercial developments
served by SMATV operators is uncertain. The 1996 Telecom Act gives cable
operators greater flexibility with respect to pricing of cable television
services provided to subscribers in multi-dwelling unit residential and
commercial developments. It also broadens the definition of SMATV systems not
subject to regulation as a franchised cable television service.
The availability of reasonably-priced home satellite dish earth
stations ("HSDs") enables individual households to receive many of the
satellite-delivered program services formerly available only to cable
subscribers. Furthermore, the 1992 Cable Act contains provisions, which the FCC
has implemented with regulations, to enhance the ability of cable competitors to
purchase and make available to HSD owners certain satellite-delivered cable
programming at competitive costs.
In recent years, the FCC and the Congress have adopted policies
providing a more favorable operating environment for new and existing
technologies that provide, or have the potential to provide, substantial
competition to cable systems. These technologies include, among others, the
direct broadcast satellite ("DBS") service whereby signals are transmitted by
satellite to receiving facilities located on the premises of subscribers.
Programming is currently available to the owners of HSDs through conventional,
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medium and high-powered satellites. Primestar Partners L.P. ("Primestar"), a
consortium comprised of cable operators and a satellite company, commenced
operation in 1990 of a medium-power DBS satellite system using the Ku portion of
the frequency spectrum and, as of the Record Date, provided service consisting
of approximately 95 channels of programming, including broadcast signals and
pay-per-view services. Direct TV, which recently added AT&T Corp. as an
investor, began offering nationwide high-power DBS service in 1994 accompanied
by extensive marketing efforts. Several other major companies are preparing to
develop and operate high-power DBS systems, including MCI Communications Corp.
and News Corp. DBS systems are expected to use video compression technology to
increase the channel capacity of their systems to provide movies, broadcast
stations and other program services competitive with those of cable systems. The
extent to which DBS systems are competitive with the service provided by cable
systems depends, among other things, on the availability of reception equipment
at reasonable prices and on the ability of DBS operators to provide competitive
programming.
Cable television systems also compete with wireless program
distribution services such as multichannel, multipoint distribution service
("MMDS") which use low-power microwave frequencies to transmit video programming
over-the-air to subscribers. There are MMDS operators who are authorized to
provide or are providing broadcast and satellite programming to subscribers in
areas served by Prime's cable systems. Additionally, the FCC has pending a
rulemaking proceeding in which it proposed to allocate frequencies in the 28 GHz
band for a new multichannel wireless video service similar to MMDS. There are no
MMDS operators who are authorized to provide or who are providing broadcast and
satellite programming to subscribers in the areas served by Alaska Cablevision,
McCaw/Rock Homer, or McCaw/Rock Seward. A license has been granted by the FCC
for a multi-channel UHF provider in Kodiak, Alaska, but as of the Record Date
there had been no construction activity. Fairbanks has a lowpower UHF 25 channel
plus L/P microwave service. Anchorage has also encountered some competition from
MMDS operators. The Company is unable to predict whether wireless video services
will have a material impact on its operations.
Other new technologies may become competitive with non-entertainment
services that cable television systems can offer. The FCC has authorized
television broadcast stations to transmit textual and graphic information useful
both to consumers and businesses. The FCC also permits commercial and
non-commercial FM stations to use their subcarrier frequencies to provide
non-broadcast services including data transmissions. The FCC established an
over-the-air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with informational
and data services. LECs and other common carriers also provide facilities for
the transmission and distribution to homes and businesses of interactive
computer-based services, including the Internet, as well as data and other
non-video services. The FCC has conducted spectrum auctions for licenses to
provide PCS. PCS will enable license holders, including cable operators, to
provide voice and data services. The Company is the licensee of an A block 33mHz
PCS license for the Alaska major trading area. See, "CERTAIN INFORMATION
CONCERNING THE COMPANY: Products and Services."
Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environment are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable television industry.
Legislation/Regulation. The Cable Acts and the 1996 Telecom Act amended
the Communications Act and established a national policy to guide the
development and regulation of cable systems. Principal responsibility for
implementing the policies of the Cable Acts is allocated between the FCC and
state or local franchising authorities. In addition, legislative and regulatory
proposals by the Congress and federal agencies, particularly the approximately
80 rulemakings at the FCC resulting from the 1996 Telecom Act and the many state
regulatory proceedings necessary to implement the 1996 Telecom Act, may
materially affect the cable television industry. The following is a summary of
federal laws and
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regulations materially affecting the growth and operation of the cable
television industry and a description of certain applicable laws of Alaska.
The 1996 Telecom Act. The 1996 Telecom Act, the most comprehensive
reform of the nation's telecommunications laws since the Communications Act,
became effective in February, 1996. The 1996 Telecom Act will result in changes
in the marketplace for cable television, telephone and other telecommunications
services. Although the long-term goal of this act is to promote competition and
decrease regulation of these industries, in the short-term the law delegates to
the FCC (and in some cases the states) broad new rulemaking authority. The new
law requires many of these rulemakings to be complete in a limited period of
time. The following is a brief summary of the important features of the 1996
Telecom Act that will affect the cable television, telephone and other
telecommunications industries.
The 1996 Telecom Act deregulates rates for CPS tiers by March, 1999.
Deregulation will occur sooner for certain small operators or where "effective
competition" is established under the 1992 Cable Act, as amended by the 1996
Telecom Act. Alaska Cablevision has never been subject to FCC rate regulation,
and, even if it were so subject, it believes it is a small operator for the
purpose of FCC rate regulation.
The 1996 Telecom Act also modifies the uniform rate provisions of the
1992 Cable Act by limiting regulation of bulk discount rates offered to
subscribers in multi-dwelling unit commercial and residential developments.
Regulated equipment rates are permitted to be computed by aggregating costs of
broad categories of equipment at the franchise, system, regional or company
level. The 1996 Telecom Act eliminates the right of individual subscribers to
file rate complaints with the FCC concerning certain CPS tiers and requires the
FCC to issue a final order within 90 days after the receipt of CPS tier rate
complaints filed by any franchising authority after the date of enactment of the
1996 Telecom Act. The 1996 Telecom Act modifies the existing statutory
provisions governing cable system technical standards, equipment compatibility,
subscriber notice requirements and program access. It also permits certain
operators to include losses incurred prior to September, 1992 in setting
regulated rates and repeals the three-year antitrafficking prohibition adopted
in the 1992 Cable Act.
The 1996 Telecom Act eliminates the requirement that LECs obtain FCC
approval under Section 214 of the Communications Act before providing video
services in their telephone service areas and removes the telephone
company/cable television cross-ownership prohibition that had been codified by
the 1984 Cable Act, thereby facilitating the ability of the LECs to offer video
services in their telephone service areas. LECs may provide service as
traditional cable operators with local franchises or they may opt to provide
their programming over unfranchised "open video systems," in which case they
must set aside a portion of their channel capacity for use by unaffiliated
program distributors and satisfy certain other requirements. Under certain
circumstances, cable operators also may elect to offer services through open
video systems. The 1996 Telecom Act also prohibits a LEC from acquiring a cable
operator in its telephone service area except in limited circumstances.
Rate Regulation. The FCC's initial "going forward" regulations limited
rate increases for Regulated Services after the establishment of an initial
regulated rate to an inflation-indexed amount plus increases for channel
additions and certain external costs beyond the cable operator's control, such
as franchise fees, taxes and increased programming costs. Under these
regulations, cable operators are entitled to take a 7.5% mark-up on certain
programming costs increases. In November, 1994, the FCC modified these
regulations and instituted an alternative three-year flat fee mark-up plan for
charges relating to new channels added to the CPS tier. As of January, 1995,
cable operators were permitted to charge subscribers for channels added to the
CPS tier after May, 1994, at a monthly rate of up to 20 cents per added channel,
up to a total of $1.20 plus an additional 30 cents for programming license fees
per subscriber over the first two years of the three-year period; and cable
operators may charge an additional
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20 cents plus the cost of the programming in the third year (1997) for one
additional channel added in that year. Alternatively, operators may increase
rates by the amount of any programming license fees in connection with such
added channels, provided that the total monthly rate increase per subscriber for
the added channels, including license fees, does not exceed $1.50 over the first
two years, and $1.70, plus any increase in the license fees for the added
channels, in the third year. Operators must make a one-time election to use
either the 20 cent per channel adjustment or the 7.5% mark-up on programming
cost increases for all channels added after December 31, 1994. The FCC is
currently considering whether to modify or eliminate the regulation allowing
operators to receive the 7.5% mark-up on increases in existing programming
license fees. In September, 1995, the FCC authorized a new, alternative method
of implementing rate adjustments which will allow cable operators to increase
rates for Regulated Services annually on the basis of projected increases in
external costs (inflation, costs of programming, franchise-related obligations,
and changes in the number of regulated channels) rather than on the basis of
cost increases incurred in the preceding calendar quarter. Operators that elect
not to recover all of their accrued external costs and inflation pass-throughs
each year may recover them (with interest) in subsequent years.
In response to complaints from subscribers about Prime's CPS tier
rates, Prime submitted an appropriate responsive filing and a cost of service
justification to the FCC. Prime's responsive filing was approved by the FCC. The
FCC has yet to rule on the reasonableness of Prime's current and requested CPS
tier rates. Prime's cost of service justification was filed with the FCC August
15, 1994. The complaints giving rise to the FCC filings were made by subscribers
residing in Anchorage and a nearby community (Eagle River), where the
franchising authority has not been certified to regulate the basic service tier
rates. In addition Prime has requested approval of its external cost increases
and inflation adjustment which would result in the maximum permitted rate
increase on the CPS tier service. The FCC has not ruled on this filing, and it
is not expected to do so before ruling on the cost of service justification
filing referred to above. Prime had rate increases on its CPS tier service in
January, 1995 and December, 1995.
Alaskan Cable had rate increases in December, 1995 for services
provided by each of the three corporations.
In response to a complaint in January, 1995 from one subscriber about a
CPS tier rate in Kodiak, Alaska, Alaska Cablevision submitted the appropriate
forms to the FCC to justify its rates. As of the Record Date the FCC has not
ruled on the reasonableness of the rate involved in the complaint. In November,
1995, the CPS tier rate in Kodiak was increased, and the appropriate rate
justification forms were filed with the FCC. As of the Record Date the FCC has
not ruled on the reasonableness of the new rates. In May, 1996, Alaska
Cablevision filed a certification with the FCC that it qualified as a small
system operator under the new definition established by the 1996 Telecom Act and
requested that the FCC dismiss the pending CPS tier complaint on the grounds
that the FCC no longer had jurisdiction over the CPS tier rates in Kodiak. As of
the Record Date the FCC had not ruled on the request to dismiss the rate
complaint.
In November, 1994, the FCC adopted regulations permitting cable
operators to create NPTs, i.e., new product tiers, that will not be subject to
rate regulation if certain conditions are met. The FCC also revised its
previously adopted policy and concluded that packages of a la carte services are
subject to rate regulation by the FCC as CPS tiers. Because of the uncertainty
created by the FCC's prior a la carte package guidelines, the FCC has allowed
cable operators, including Prime under certain circumstances, to treat
previously offered a la carte packages as NPTs.
Franchising authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used by
subscribers to receive the basic cable service tier,
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such as converter boxes and remote control units. The FCC's rules require
franchising authorities to regulate these rates on the basis of actual cost plus
a reasonable profit, as defined by the FCC. The 1996 Telecom Act requires the
FCC to revise its regulations to permit operators to compute regulated equipment
rates by aggregating costs of broad categories of equipment at the franchise,
system, regional or company level. In November, 1995, the FCC initiated a
general rulemaking proposal that permits cable operators to price services
uniformly across multiple franchise areas, as well as regional areas. If the FCC
adopts the proposals, cable operators that provide service to clusters of
systems would be permitted to charge uniform rates across large geographic
areas. Because the proposal is designed to be revenue neutral, it would not
affect the overall revenue that operators receive, but administrative and
marketing costs could be reduced.
Cable operators required to reduce rates may also be required to refund
overcharges with interest. Rate reductions will not be required where a cable
operator can demonstrate that existing rates for Regulated Services are
justified and reasonable using cost-of-service guidelines. In November 1993, the
FCC ruled that operators choosing to justify rates through a cost-of-service
submission must do so for all Regulated Services. In February 1994, the FCC
adopted interim cost-of-service regulations establishing, among other things,
the rebuttable presumptions of an industry-wide 11.25% after tax rate of return
on an operator's allowable rate base and that acquisition costs above original
historic book value of tangible assets should be excluded from the allowable
rate base. In December, 1995, the FCC adopted final cost-of-service rate
regulations requiring, among other things, cable operators to exclude 34% of
system acquisition costs related to intangible and tangible assets used to
provide Regulated Services. The FCC also reaffirmed the industry-wide 11.25%
after tax rate of return on an operator's allowable rate base, but initiated a
further rulemaking in which it proposes to use an operator's actual debt cost
and capital structure to determine an operator's cost of capital or rate of
return.
In June, 1995, the US Court of Appeals for the District of Columbia
Circuit substantially upheld the cable rate regulations adopted by the FCC
pursuant to the 1992 Cable Act. In February, 1996, the US Supreme Court declined
to review the circuit court decision.
"Anti-Buy Through" Provisions. The 1992 Cable Act requires cable
systems to permit subscribers to purchase video programming offered by the
operator on a per channel or a per program basis without the necessity of
subscribing to any tier of service, other than the basic cable service tier,
unless the system's lack of addressable converter boxes or other technological
limitations does not permit it to do so. The statutory exemption for cable
systems that do not have the technological capability to offer programming in
the manner required by the statute is available until a system obtains such
capability, but not later than December, 2002. The FCC may waive such time
periods, if deemed necessary. Prime's Anchorage system is fully addressable and
does comply with these provisions. The Kenai, Soldotna and Bethel systems use
traps to provide Pay TV services to basic service tier customers, however, such
traps do not provide the technological capability to offer pay-per-view
services. As of the Record Date the system provided by Alaskan Cable/Fairbanks
complies but the systems provided by Alaskan Cable/Juneau and Alaskan
Cable/Ketchikan did not comply. In all systems served by Alaskan Cable, Alaska
Cablevision, McCaw/Rock Homer, and McCaw/Rock Seward, traps are used to secure
the lowest level of service (limited), and such traps do not provide the
technological capability to offer a la carte services.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years to require a cable system to
carry the station, subject to certain exceptions, or to negotiate for
"retransmission consent" to carry the station. A cable system generally is
required to devote up to one-third of its activated channel capacity for the
carriage of local commercial television stations whether pursuant to the
mandatory carriage or retransmission consent requirements of the 1992 Cable Act.
Local non-commercial television stations are also given mandatory carriage
rights. However, such stations are not given the
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option to negotiate retransmission consent for the carriage of their signals by
cable systems. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WTBS), commercial radio
stations and certain low power television stations carried by such systems after
October, 1993.
In April, 1993, a special three-judge federal district court issued a
decision upholding the constitutional validity of the mandatory signal carriage
requirements as necessary to preserve the economic viability of the broadcast
industry. In June 1994, the U.S. Supreme Court vacated this decision and
remanded it to the district court to determine, among other matters, whether the
statutory carriage requirements are necessary to preserve the economic viability
of the broadcast industry. In December, 1995, the district court upheld the
mandatory carriage requirements of the 1992 Cable Act. In February, 1996, the
Supreme Court agreed to review this decision of the district court. The Company
cannot predict the ultimate outcome of this litigation. Pending action by the
Supreme Court, the mandatory broadcast signal carriage requirements remain in
effect.
Commercial Leased Access Channels. The 1984 Cable Act permits
franchising authorities to require cable operators to set aside certain channels
for public, educational and governmental access programming. The 1984 Cable Act
also requires a cable system with 36 or more channels to designate a portion of
its channel capacity for commercial leased access by third parties to provide
programming that may compete with services offered by the cable operator. The
FCC has adopted rules regulating: (1) the maximum reasonable rate a cable
operator may charge for commercial use of the designated channel capacity; (2)
the terms and conditions for commercial use of such channels; and (3) the
procedures for the expedited resolution of disputes concerning rates or
commercial use of the designated channel capacity. As of the Record Date, the
FCC was reviewing comments received pursuant to a recent Notice of Proposed
Rulemaking proposing to change the rate calculation methodology used by cable
operators to determine pricing of commercial leased access channels. Neither
Prime nor Alaskan Cable nor the Company can predict the impact of this proposed
change on future operations of the Cable Companies.
Franchise Procedures. The 1996 Telecom Act reaffirms the right of
franchising authorities (state or local, depending on the practice in individual
states) to award one or more franchises within their jurisdictions and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1996 Telecom Act encourages competition with existing cable
systems by the following: (1) allowing municipalities to operate their own cable
systems without franchises; (2) preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and (3) prohibiting
(with limited exceptions) the common ownership of cable systems and co-located
MMDS or SMATV systems. In January, 1995, the FCC relaxed its restrictions on
ownership of SMATV systems to permit a cable operator to acquire SMATV systems
in the operator's existing franchise area so long as the programming services
provided through the SMATV system are offered according to the terms and
conditions of the cable operator's local franchise agreement. The 1996 Telecom
Act eliminates cross-ownership restrictions in their entirety for cable
operators subject to effective competition.
The 1996 Telecom Act also provides that in granting or renewing
franchises, local authorities may establish requirements for cable-related
facilities and equipment, but not for video programming or information services
other than in broad categories, provided that local franchising authorities may
not prohibit, condition, or restrict a cable system's use of any type of
subscriber equipment or any transmission technology. Among the more significant
changes in the 1996 Telecom Act is a limitation on the payment of franchise fees
to 5% of cable system revenues received from providing cable services. In
addition, the 1996 Telecom Act expressly prohibits a local franchising authority
from collecting fees under the cable television franchise on telecommunication
revenues when provided by a cable operator or its affiliate.
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The 1984 Cable Act contains renewal procedures designed to protect
incumbent franchisees against arbitrary denials of renewal. The 1992 Cable Act
makes several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. A franchising authority's consent is
required for the purchase or sale of a cable system or franchise. Such authority
may attempt to impose more burdensome or onerous franchise requirements in
connection with a request for such consent. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of their franchises.
Various courts have considered whether franchising authorities have the
legal right to limit franchise awards to a single cable operator and to impose
certain substantive franchise requirements, e.g., access channels, universal
service and other technical requirements. These decisions have been somewhat
inconsistent and, until the US Supreme Court rules definitively on the scope of
cable operators' First Amendment protections, the legality of the franchising
process generally and of various franchise requirements specifically are likely
to be in a state of flux. Notwithstanding the ongoing legal battles in this
area, Congress has continued to provide legislation making such requirements
lawful.
Ownership Limitations. Pursuant to the 1992 Cable Act, the FCC adopted
rules prescribing national subscriber limits and limits on the number of
channels that can be occupied on a cable system by a video programmer in which
the operator has an attributable interest. The effectiveness of these FCC
horizontal ownership limits has been stayed because a federal district court
found a statutory limitation to be unconstitutional. An appeal of that decision
is pending. The 1996 Telecom Act eliminates the statutory prohibition on the
common ownership, operation or control of a cable system and a television
broadcast station in the same service area and directs the FCC to eliminate its
regulatory restrictions on cross-ownership of cable systems and national
broadcasting networks and to review its broadcast-cable ownership restrictions
to determine if they are necessary in the public interest.
LEC Ownership of Cable System. The 1984 Cable Act, FCC regulations, and
the 1982 federal court consent decree that settled the antitrust suit against
AT&T regulated the provision of video programming and other information services
by LECs. The statutory provision and corresponding FCC regulations are of
particular competitive importance because LECs already own much of the plant
necessary for cable television operations, such as poles, underground conduit
and associated rights-of-way. The 1996 Telecom Act makes far-reaching changes in
the regulation of LECs that provide cable services. The new law eliminates
current legal barriers to competition in the local telephone and cable
television businesses, preempts legal barriers to competition that previously
existed in state and local laws and regulations, and sets basic standards for
relationships between telecommunications providers (see within this section,
"-The 1996 Telecom Act"). The FCC and, in some cases, states are required to
conduct numerous rulemaking proceedings to implement the 1996 Telecom Act. The
ultimate outcome of these rulemakings, and the ultimate impact of the 1996
Telecom Act or any final regulations adopted pursuant to the new law on the
Company or the Cable Companies or their businesses cannot be determined at this
time.
Pole Attachment. The Communications Act requires the FCC to regulate
the rates, terms and conditions imposed by public utilities for cable systems'
use of utility pole and conduit space unless state authorities can demonstrate
that they adequately regulate pole attachment rates. The State of Alaska has
exercised regulatory authority over pole attachments in the past. However, this
issue had not as of the Record Date been addressed in Alaska under the 1996
Telecom Act. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. In some cases, utility companies have
increased pole attachment fees for cable systems that have installed fiber optic
cables and that are using such cables for the distribution of non-video
services. The FCC concluded that, in the absence of state regulation, it has
jurisdiction to determine whether utility companies have justified their demand
for additional rental fees and that the Communications Act does not permit
disparate rates based on the type
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of service provided over the equipment attached to the utility's pole. The 1996
Telecom Act modifies the current pole attachment provisions of the
Communications Act by immediately permitting certain providers of
telecommunications services to rely upon the protections of the current law and
by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility. Additionally, within two years of enactment of the
1996 Telecom Act, the FCC is required to adopt new regulations to govern the
charges for pole attachments used by companies providing telecommunications
services, including cable operators. These new pole attachment regulations will
become effective five years after enactment of the 1996 Telecom Act, and any
increase in attachment rates resulting from the FCC's new regulations will be
phased-in in equal annual increments over a period of five years beginning on
the effective date of the new FCC regulations.
Other Statutory Provisions. The 1992 Cable Act and the 1996 Telecom Act
preclude video programmers affiliated with cable companies or common carriers
providing video programming directly to subscribers from favoring the affiliated
company over competitors and requires such programmers to sell their programming
to other multichannel video distributors. This provision limits the ability of
cable program suppliers affiliated with cable companies or common carriers
providing video programming to offer exclusive programming arrangements to their
affiliates. The Cable Acts also include provisions, among others, concerning
horizontal and vertical ownership of cable systems, customer service, subscriber
privacy, commercial leased access channels, marketing practices, equal
employment opportunity, franchise renewal and transfer, award of franchises,
obscene or indecent programming, regulation of technical standards and equipment
compatibility. The FCC has adopted regulations implementing many of these
statutory provisions and it has received numerous petitions requesting
reconsideration of various aspects of its rulemaking proceedings.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, syndicated program exclusivity, network program non-duplication,
registration of cable systems, maintenance of various records and public
inspection files, microwave frequency usage, lockbox availability, origination
cablecasting and sponsorship identification, antenna structure notification,
marking and lighting, carriage of local sports programming, application of rules
governing political broadcasts, limitation on advertising contained in
non-broadcast children's programming, consumer protection and customer service,
leased commercial access, ownership of home wiring, indecent programming,
programmer access to cable systems, programming agreements, technical standards,
consumer electronics equipment compatibility and DBS implementation. The FCC has
the authority to enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations.
Other bills and administrative proposals pertaining to cable television
have previously been introduced in Congress or considered by other governmental
bodies over the past several years on matters such as rate regulation, customer
service standards, sports programming, franchising and copyright. It is probable
that further attempts will be made by Congress and other governmental bodies
relating to the regulation of communications services.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals. The nature
and amount of future payments for broadcast signal carriage cannot be predicted
at this time. The possible simplification, modification or elimination of the
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect
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the Cable Companies' (and subsequent to consummation of the Acquisition Plan,
the Company's) ability to obtain suitable programming and could substantially
increase the cost of programming that remained available for distribution to its
subscribers. The Company cannot predict the outcome of this legislative
activity.
Regulation by the Alaska Public Utilities Commission. The State of
Alaska has the authority to regulate telecommunications that originate and
terminate within the state. In 1990 the Alaska legislature introduced intrastate
competition in Alaska. Subsequently, the APUC developed regulations that allow
for the certification of additional carriers for such intrastate
telecommunications and, to varying degrees, require filing of tariffs and
regulation of the rates for such services. Under the APUC's current policy and
regulations, all certified carriers are required to file tariffs for the
provision of intrastate services. When filing for a rate increase, the dominant
carrier is required to file an accompanying rate case. Non-dominant carriers are
not rate regulated. Tariff revisions filed by non-dominant carriers routinely
become effective without intervention by the APUC or third parties. Tariffs can
be filed or revised on 30 days notice.
On March 15, 1996 the Company filed a tariff with the APUC requesting
approval for provision of local services based on the terms of the 1996 Telecom
Act which, in part, requires local exchange carriers to open up their networks
and allow resale of their services. Once APUC approval is obtained, the Company
intends to offer local services through its facilities or resale of local
exchange carrier facilities.
In July 1990, the APUC instituted rate regulation over the Juneau
operations of Alaskan Cable pertaining to basic cable service and installation.
At December 31, 1995, the State of Alaska did not have rate regulation authority
over the other locations comprising Alaskan Cable or over their basic service
rates. Therefore, as of the Record Date, there was no refund liability for basic
service. Since the rate regulation over the Juneau operations began in 1990 and
through December 31, 1995, no refund liability has existed for this location.
Refund liability for cable programming service rates may be calculated from the
date a complaint alleging an unreasonable rate for cable programming service is
filed with the FCC until the rate reduction is implemented. As of the Record
Date, there had been no complaints filed with the FCC for these certain
franchise areas.
RECENT DEVELOPMENTS
As of the Record Date, there had been no material changes in the
Company's affairs which had occurred since December 31, 1995 and that were not
described in the Company's Form 10-Q for the three- and six-month periods ended
June 30, 1996 and which are not otherwise disclosed in this Proxy
Statement/Prospectus.
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DESCRIPTION OF COMPANY CAPITAL STOCK
The Restated Articles of Incorporation for the Company ("Company
Articles") authorize the issuance of Class A common stock, Class B common stock,
and preferred stock. The revised Bylaws of the Company ("Company Bylaws"), among
other things, set forth certain guidelines by which the Company and its board of
directors are governed in dealing with the shareholders of the Company.
Common Stock
The Class A and Class B common stock are essentially identical.
However, on each matter submitted to a vote of shareholders, each holder of
Class A common stock is entitled to one vote for each share held of record on
each matter submitted to a vote of shareholders, while each holder of Class B
common stock is entitled to ten votes for each share held of record. The shares
of both classes are counted equally for purposes of establishing a quorum for a
shareholder meeting. In general and subject to any voting rights applicable to
any shares of preferred stock then outstanding, the approval of proposals
submitted to a vote of shareholders requires a favorable vote of either the
majority of the voting power of the holders of the common stock or the majority
of the voting power of the shares represented and voting at a duly held meeting
at which a quorum is present. Additionally, under Alaska law, certain
fundamental matters affecting the Company may require a favorable vote of a
greater percentage.
Except as may be determined by the Company Board in the context of the
issuance of preferred stock or as required under Alaska law, the holders of
Class A and the holders of Class B common stock must vote with the holders of
voting shares, if any, of the preferred stock as one class with respect to the
election of directors and with respect to all other matters to be voted upon by
shareholders. The Company Articles expressly prohibit cumulative voting for
directors.
The shares of common stock have no conversion rights (other than that
each share of Class B common stock outstanding is convertible into one share of
Class A common stock), and include no preemptive rights or other rights to
subscribe for additional shares. The Company Articles provide that the Company
may redeem and otherwise buy back a portion or all of any or all classes or
series of shares of its stock as allowed by law and as the Company Board in its
sole discretion, will deem advisable. Subject to preferences that may be
applicable to any shares of preferred stock then outstanding, the holder of the
shares of common stock will be entitled to receive such dividends, if any, as
may be declared by the Company Board out of legally available funds and to share
pro rata in any distribution to the shareholders, including any distribution
upon the liquidation of the Company. However, the current policy of the Company
Board is to retain earnings for the operation of the Company's business.
Furthermore, the Company's existing Credit Agreement with its Senior Lenders
contains provisions that prohibit payment of dividends, other than stock
dividends.
All outstanding shares of Class A common stock are, and the shares of
common stock to be issued as Company Stock will be, upon payment for it, validly
issued, fully paid and non-assessable. Each share of Class B common stock is
under the Articles convertible, at the option of its holder, into one share of
Class A common stock. However, under the Company Articles, Class A common stock
is not convertible into Class B common stock.
Preferred Stock
The Company Board may under the Company Articles and subject to Alaska
law, and without further action of the shareholders of the Company, issue shares
of preferred stock in one or more series with such distinctive serial
designations, rights, preferences, and limitations of the shares of each series
as the Company Board will establish, including the number of shares to be
issued, dividend rights, dividend
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rates, conversion rights, voting rights, terms of redemption (including sinking
fund provision), redemption prices, and liquidation, dissolution, or windup of
business preferences. The Company Articles further provide that upon the
occurrence and during the continuation of an event of non-compliance by the
Company with the terms of the issuance of preferred stock, the then holders of
the issued and outstanding preferred stock will have the exclusive right to
elect up to two additional directors to the Company Board. The Company Articles
also provide the Company may agree with the holders of the preferred stock
issued, that without the consent of the holders of at least two-thirds of those
shares the Company will not (1) effect any changes in the rights, privileges or
preferences of that preferred stock, (2) create, designate or issue any class or
series of securities ranking senior to that preferred stock or parity securities
entitled to receive payment of dividends on a parity with the preferred stock or
entitled to receive assets upon liquidation, dissolution, or winding up of the
affairs of the Company; or (3) approve any other action with respect to which,
under applicable law, the vote of the holders of that preferred stock as a
separate series or class is required. The rights of the holders of common stock
will be subject to and may be adversely affected by, the rights of any preferred
stock that may be issued in the future. Issuance of preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding voting
stock of the Company. While the Company has issued preferred stock in the past,
none was outstanding as of the date of this Proxy Statement/Prospectus. The
Company has no present plans to issue any shares of preferred stock.
Limitation of Liability and Indemnification
The present Company Articles and Company Bylaws provide for the
indemnification of a person, who is made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative, or investigative,
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Company or at the request of the Company, served any other
enterprise as an officer, director, employee or agent. The Company Bylaws
further provide for indemnification of a person who was, is, or is threatened to
be made a party to a completed, pending, or threatened action by or in the right
of the Company to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee, or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee,
or agent of another enterprise. The Company Articles further provide that these
requirements are deemed to be a contract between the Company and each director
and officer who serves in such capacity at any time while those requirements of
the Company Articles are in effect. The Company had not as of the date of this
Proxy Statement/Prospectus entered into any express agreement with its officers
and directors setting forth these terms of indemnification.
The Company Bylaws provide, in accordance with Alaska law, that such
indemnification will not be made in respect of any claim, issue, or matter as to
which the person has been adjudged to be liable for negligence or misconduct in
the performance of the person's duty to the Company, with limited exception. The
Company Bylaws also provide to the extent that a director, officer, employee, or
agent of the Company has been successful in a defense of such an action or
proceeding, that person will be indemnified against expenses and attorney fees
actually and reasonably incurred in connection with the defense. The Company
Bylaws provide at the discretion of the Company Board, the Company may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against any liability asserted against that person
and incurred by that person in any such capacity, or arising out of that status,
whether or not the Company would have the power to indemnify that person against
such liability under provisions of the Company Bylaws. However, under Alaska
law, no indemnification applies if the officer, director, employee, or agent is
adjudged to be liable for negligence or misconduct in the performance of the
person's duty to the Company unless the court in which the action or suit was
brought determines upon application that, despite the adjudication of liability,
in view of all circumstances of the case, the
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person is fairly and reasonably entitled to indemnification for such expenses
that the court considers proper. See, "SECURITIES ACT INDEMNIFICATION."
Certain Charter Provisions
The Company Bylaws provide that annual meetings of shareholders will be
held for the purpose of the election of directors and the conduct of such other
business as properly may be brought before the meeting. The Company Bylaws
further provide that special meetings of shareholders may be called at any time
by specified officers, the directors, or by at least one-tenth of all the shares
entitled to vote at such meeting. For such a meeting the notice must be given in
the same manner as notices of the annual meeting and must in addition set forth
the agenda for the special meeting. The Company has followed the policy of
considering shareholder proposals for the agenda of a shareholder meeting only
if received by a date (typically six months before the meeting) as identified in
the previous year's management proxy statement. Under the Company Bylaws only
holders of shares as of the record date established for a shareholder meeting
may nominate and vote upon proposals at the meeting including the nomination and
election of directors.
The Company Articles and Company Bylaws provide for a Company Board
divided into three classes of approximately equal size, with one class elected
for a three-year term at each annual meeting of shareholders. The Company Bylaws
provide that any action that may be taken at a meeting of the Company Board or a
committee of the Company Board may be taken without a meeting if identical
consents in writing describing the action so taken are signed by all of the
directors or members of such committee entitled to vote with respect to the
subject matter of that meeting.
The Company Bylaws incorporate a number of provisions of Alaska law
pertaining to Company transactions with officers, directors, and shareholders.
For example, a contract or other transaction between the Company and one or more
of the directors of the Company and their affiliates is neither void nor
voidable because that person is a party or because the director or directors are
present at the meeting of the Company Board that authorizes, approves, or
ratifies the contract or transaction, if certain procedures are followed. Those
procedures include that the material facts as to the transaction and as to that
person's interest are fully disclosed or known to the Company Board, and the
Company Board authorizes, approves, or ratifies the contract or transaction in
good faith by a sufficient vote without counting the vote of that interested
person, and the person asserting the validity of the contract or transaction
sustains the burden of proving that the transaction was just and reasonable as
to the Company at the time it was authorized, approved, or ratified.
COMPARISON OF SECURITY HOLDER RIGHTS IN THE COMPANY
AND CERTAIN CABLE COMPANIES
The following summary is qualified in its entirety by reference to (1)
the Alaska Corporations Code and the complete set of the Company Articles and
Company Bylaws, and the articles of incorporation and bylaws of Alaskan Cable
(for each of the three corporations comprising Alaskan Cable), (2) the Delaware
Partnership Act, the Prime Partnership Agreement, and the limited partnership
agreements of the other two limited partners of Prime (Prime Growth and Prime
Holdings), and (3) the Delaware General Corporation Law, and the articles of
incorporation and bylaws of Prime General Partner and ACI. See, "AVAILABLE
INFORMATION."
General
Upon the consummation of the Acquisition Plan, the direct or (in the
case of ACI and Prime General Partner) indirect holders of securities of Prime
(a Delaware partnership) will exchange direct or
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(in the case of ACI and Prime General Partner) indirect ownership of Prime for
shares of Company Stock for later distribution by those security holders to the
other Prime Group members, as described more fully elsewhere in this Proxy
Statement/Prospectus (see, "PROPOSED TRANSACTIONS") and the shareholders of
Alaskan Cable (all three corporations of which are Alaska corporations) will
acquire shares of Company Stock. That is, these security holders will become
holders of Class A common stock of the Company, an Alaska corporation. The
rights of these securities holders will then be governed by the laws of the
State of Alaska and the Company Articles and Company Bylaws. The following is a
summary of certain provisions affecting the rights of securities holders of the
Company and a comparison of those provisions to comparable provisions of the
organizing documents of Prime and Alaskan Cable.
Authorized Capitalization
Company. Under the Company Articles, the authorized capitalization of
the Company consists of 61 million shares divided into the following classes:
(1) 50 million shares of Class A common stock; (2) 10 million shares of Class B
common stock; and (3) 1 million shares of preferred stock.
Prime. The Prime Partnership Agreement does not set a specific
authorized capitalization. The partnership was formed with a specific group of
limited partners who were to make specific capital contributions as set forth in
the agreement. The agreement expressly provides that a partner that has made its
specified capital contribution shall not be obligated to make additional capital
contributions to the partnership. The agreement expressly provides that, except
upon transfer of a limited partner's interests, the general partner may not
admit any additional limited partner interests in the partnership without the
consent of all of the seven members of an advisory committee, the membership of
which is controlled by the holders of common stock in ACI.
The initial partner capital contributions totalled $45 million.
Alaskan Cable. The Articles of Incorporation for Alaskan
Cable/Fairbanks authorize a total of 1,000 shares of capital stock and further
provide that the shares are not to be divided up into classes and are not to be
issued in series. The Articles of Incorporation for Alaskan Cable/Juneau
authorize a total of 2,000 shares of common stock. The Articles of Incorporation
for Alaska Cable/Ketchikan authorize a total of 10,000 shares of one class.
Voting
Company. The Company Articles provide that all of the Company common
stock is voting stock. Each share of Class A common stock is identical in all
respects with the Class B common stock, except that each holder of Class A
common stock is entitled to one vote for each share of such stock held, and each
holder of Class B common stock is entitled to ten votes for each share of such
stock held. The preferred stock may be issued by series with all shares in a
series having the same rights and conditions. The preferred stock in a given
series may or may not have voting rights at the discretion of the Company Board
in establishing the terms and conditions of that series. The Company Articles
expressly prohibit cumulative voting for election of directors.
Prime. The Prime Partnership Agreement provides that the general
partner, acting on behalf of the partnership under the terms of the agreement,
shall have the full and exclusive power to manage and conduct the business of
the partnership, subject only to the general partner's obligation to seek
consent or ratification of Prime's advisory committee with respect to certain
specified matters. The agreement confers limited voting rights upon the limited
partners based upon their limited partner interests in the following areas only:
(1) at any time, by consent or approval of limited partners holding not less
than a majority of the outstanding limited partner interests (a) to remove any
or all of the general partners with or without cause, and (b) to replace any
general partner so removed; and (2) upon the occurrence of an event of
withdrawal of a general partner, as defined in the Delaware Revised Uniform
Limited Partnership
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Act, as amended ("Delaware Partnership Act"), from the partnership where at the
time of such event of withdrawal only one general partner exists, the limited
partners, should they choose to continue the partnership, must by unanimous vote
within 90 days of that event appoint another general partner in order to prevent
the dissolution of the partnership and the liquidation or distribution of its
assets. The agreement provides that any matter requiring the consent,
ratification or approval of all or any portion of the limited partners may be
considered at a meeting of the partners. At such a meeting, a quorum shall
consist of limited partners owning at least a majority of the outstanding
limited partner interests in the partnership. Limited partners are entitled
under the agreement to give a consent at such meeting or may do so by proxy. The
agreement provides for its immediate dissolution and the liquidation or
distribution of assets upon the expiration of the partnership term, i.e., 30
years after the effective date. The Prime Partnership Agreement expressly
provides that limited partners shall not be allowed to take part in the
management or control of the partnership business or to sign for or bind the
partnership, such power being vested solely and exclusively in the general
partner.
The Prime Partnership Agreement provides that any consent, ratification
or approval required or permitted to be given by the limited partners pursuant
to the agreement may be given without a meeting of the partners if a writing
(including the use of counterparts) setting forth the matters as to which such
action is requested is signed by the limited partners that would be entitled to
consent, ratify, or approve such matter at a meeting of partners called for that
purpose representing the necessary percentage of outstanding limited partner
interests. The agreement further provides that the general partner is obligated
to give prompt notice of any action to be taken pursuant to the written consent
of less than all the partners to each partner that did not give such consent or
approval. The other Prime limited partnership entities associated with the Prime
Sellers may also take action without a meeting or otherwise provide for
amendment of the corresponding partnership agreement.
Alaskan Cable. The Bylaws of Alaskan Cable/Fairbanks provide that each
outstanding share shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Those Bylaws also provide that action may be
taken by shareholders without a meeting if a consent in lieu of meeting in
writing setting forth the action so taken is signed by all of the shareholders
entitled to vote with respect to that subject matter. Such consent is to have
the same force and effect as a unanimous vote of shareholders. The Articles of
Incorporation for both Alaskan Cable/Fairbanks and Alaskan Cable/Juneau are
silent on cumulative voting, and so under the Alaska Corporations Code
cumulative voting is allowed for both corporations for the election of
directors. The Bylaws of Alaskan Cable/Juneau provide that each outstanding
share shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders. Those Bylaws also provide that action may be taken by
shareholders without a meeting if a consent in lieu of meeting in writing
setting forth the action so taken is signed by all of the shareholders entitled
to vote with respect to that subject matter. Such consent is to have the same
force and effect as a unanimous vote of shareholders. The Bylaws of Alaska
Cable/Ketchikan provide that each outstanding share shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders. Those
Bylaws also provide that action may be taken by shareholders without a meeting
if a consent in writing, setting forth the action so taken, is signed by all of
the shareholders entitled to vote with respect to that subject matter. Such
consents are to have the same force and effect as a unanimous vote of
shareholders. The Bylaws but not the Articles of Incorporation for Alaskan
Cable/Ketchikan expressly prohibit cumulative voting for the election of
directors. However, to be effective under the Alaska Corporation Code, such
prohibition must be contained in the corporation's articles of incorporation.
The Bylaws of each of the three corporations comprising Alaskan Cable
provide that each share is to have one vote on matters addressed to the
shareholders at a meeting. Those Bylaws also provide that any action required by
law to be taken at a shareholder meeting or which may be taken at such a meeting
may be taken without a meeting if a consent in lieu of meeting in writing
setting forth the action
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so taken is signed by all of the shareholders entitled to vote with respect to
the subject matters in question. Such consent is to have the same force and
effect as a unanimous vote of shareholders.
Annual and Special Meetings of Securities Holders
Company. The Company Bylaws provide that the Company shall hold an
annual meeting of shareholders at a place designated by the Company Board. The
date of the annual meeting is to be May 15 of each year or at such other date as
is designated by the Company Board. Under the Company Bylaws a special meeting
of shareholders of the Company may be called at any time by the president, the
chairman of the board, the Company Board, or the holders of not less than
one-tenth of all of the outstanding shares entitled to vote at such meeting. A
request for such a special meeting and the notice of it must specify the purpose
of the proposed meeting.
Prime. The Prime Partnership Agreement does not provide for established
annual meetings of the partners. However, any matter requiring the consent,
ratification or approval of all or a portion of the limited partners may be
considered at a meeting of the partners upon not less than 10 days nor more than
60 days' notice from the general partner. A meeting of limited partners may also
be requested by submitting a request to a general partner signed by limited
partners owning at least 10% of the outstanding limited partnership interests in
the partnership. A request for such a special meeting and the notice of it must
give the purpose of the proposed meeting.
Alaskan Cable. The Bylaws of Alaskan Cable/Fairbanks provide that the
corporation shall hold an annual meting of shareholders on March 1 at a place
designated in the Bylaws or as otherwise fixed by the chairman of the board, the
president, or the board of directors. Those Bylaws further provide that a
special meeting of the shareholders may be called by the chairman or the holders
of not less than one-tenth of all the shares entitled to vote at the meeting,
with the place, day, and hour of the meeting to be fixed by the caller of the
meeting. The Bylaws of Alaskan Cable/Juneau provide that the corporation shall
hold an annual meeting of shareholders on December 1 or as otherwise fixed by
the chairman of the board, president, or the board of directors. Those Bylaws
further provide that a special meeting of the shareholders may be called by the
chairman of the board, president, or the board of directors or the holders of
the not less than one-tenth of all the shares entitled to vote at the meeting,
with the place, day, and time of the meeting to be fixed by the caller of the
meeting. The Bylaws of Alaskan Cable/Ketchikan provide that the corporation
shall hold an annual meeting of shareholders on November 1 at a place designated
in the Bylaws or as otherwise fixed by the chairman of the board, the president,
or the board of directors. Those Bylaws further provide that a special meeting
of the shareholders may be called by the chairman, the president, the board, or
the holders of not less than one-tenth of all of the shares entitled to vote at
the meeting, with the place, day, and time of the meeting to be fixed by the
caller of the meeting.
Board of Directors or Governing Body
Company. The Company Articles provide that the Company is to be
governed by the Company Board. The Company Articles state that the number of
directors on the Company Board is to be determined in a manner as provided in
the Company Bylaws, but it is not to be less than three. The Company Bylaws
state that the number is not to be less than three nor more than twelve and is
to be fixed by vote of at least a simple majority of the board.
Prime. Prime is governed by Prime General Partner, a Delaware
corporation with a three member board of directors.
Alaskan Cable. The Articles of Incorporation for Alaskan
Cable/Fairbanks provide for an initial board of directors to consist of five
members. The Bylaws of the corporation provide that the number of
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directors is to be not less than three nor more than nine, with the exception
that should all the shares of stock of the corporation be owned beneficially and
of record by one or two shareholders, the number of directors may be less than
three but not less than the number of shareholders. The Articles of
Incorporation for Alaskan Cable/Juneau provide for an initial board of directors
to consist of three members. The Bylaws of the corporation provide that the
number of directors is to be not less than three directors nor more than nine
directors, with the exception that should all the shares of stock of the
corporation be owned beneficially and of record by one or two shareholders, the
number of directors may be less than three but not less than the number of
shareholders. The Articles of Incorporation for Alaskan Cable/Ketchikan provide
for an initial board of directors to consist of four members. The Bylaws of the
corporation provide that the number of directors is to be four.
Removal of Directors or Governing Body
Company. Under the Company Bylaws, a director may be removed only as
follows: (1) the entire Company Board or any individual director may be removed
from office, at the annual meeting or a special meeting of the shareholders
called for that purpose, by at least, a majority vote of a quorum of
shareholders for that meeting; (2) if, after the filling of a vacancy by the
Company Board, the directors who have been elected by the shareholders
constitute less than a majority of the directors, a holder or holders of an
aggregate of 10% or more of the shares outstanding at the time may call a
special meeting of shareholders to elect the entire board; (3) the Company Board
may declare vacant the office of a director who has been declared of unsound
mind by a court order; or (4) the superior court may, at the suit of the Company
Board or of shareholders holding at least 10% of the number of outstanding
shares of any class, remove from office a director for fraudulent or dishonest
acts, gross neglect of duty, or gross abuse of authority or discretion with
reference to the Company and may bar from reelection a director removed in that
manner for a period prescribed by the court.
Prime. The Prime Partnership Agreement provides that the limited
partners are entitled, at any time, by consent or approval of limited partners
holding not less than a majority of the outstanding limited partnership
interests to do the following: (1) remove any or all of the general partners
with or without cause; and (2) replace any general partner so removed.
Alaskan Cable. In the case of each of the three corporations comprising
Alaskan Cable, the corporation in being incorporated under and subject to the
Alaska Corporations Code is limited in the manner in which a director may be
removed from its board. The allowable means by which such a director may be
removed are as described elsewhere in this section. See, "--Removal of Directors
or Governing Body-Company."
Vacancies on the Board of Directors or Other Governing Body
Company. Vacancies may be filled by action of the Company Board or by
action of the shareholders at an annual or special meeting. Should there be a
vacancy on the Company Board, the board may by motion reduce the number of
director positions on the Company Board and eliminate the vacancy. However, the
Company Board is prohibited from reducing the number of director positions where
a sitting director's position on the board is terminated.
Prime. The Prime Partnership Agreement provides upon the occurrence of
an event of withdrawal of the last remaining general partner of the partnership,
the limited partners may appoint a successor general partner but such vote must
be unanimously in favor of that successor general partner as further described
elsewhere in this section. See, "--Voting-Prime." The agreement further provides
that the general partner may not admit additional general partners to the
partnership without the consent of the
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advisory committee as further described elsewhere in this section. See,
"--Authorized Capitalization-Prime."
Alaskan Cable. In the case of each of the three corporations comprising
Alaskan Cable, the corresponding bylaws provide that vacancies on the board of
directors may be filled by action of the corporation's board or by action of the
shareholders at an annual or special meeting. Under the Alaska Corporations
Code, should there be a vacancy on that board, the board may by motion reduce
the number of director positions and eliminate the vacancy. However, under the
Alaska Corporations Code the board is prohibited from reducing the number of
director positions where a sitting director's position on the board is thereby
terminated.
Mergers, Consolidations and Sale of Assets
Company. Under the Alaska Corporations Code, any merger or
consolidation of an Alaska corporation, e.g., the Company, with or into another
corporation, any statutory exchange of the corporation shares for shares of
another corporation, or any sale of all or substantially all of the assets of
the corporation not in the ordinary course of business requires the following:
(1) the adoption and recommendation of the proposed transaction by the board of
directors of the corporation; and (2) the approval of such transaction by each
voting group entitled to vote on the issue by at least a two-thirds majority
vote of the outstanding shares.
Prime. The Prime Partnership Agreement does not expressly provide for
the reorganization of the partnership through merger, consolidation, or sale of
assets but does provide for amendment of the agreement by the partners. The
agreement provides for the dissolution and termination of the partnership as
described elsewhere in this section. See, "--Voting-Prime."
Alaskan Cable. The case of each of the three corporations comprising
Alaskan Cable, the corporation in being incorporated under and subject to the
Alaska Corporations Code is limited in the manner in which the corporation may
be merged or consolidated, or the manner in which all of its assets may be sold.
The provisions of that code in this regard are as described elsewhere in this
section. See, "--Mergers, Consolidations, and Sale of Assets-Company."
Amendment to Articles of Incorporation or Other Organizing Documents
Company. Under the Alaska Corporations Code, the articles of
incorporation of a corporation may be amended only by approval of at least a
simple majority of the shares outstanding, but only if that majority vote is
specified in the corporation's articles of incorporation should the corporation
have been incorporated prior to the enactment of the Alaska Corporations Code.
The Company was incorporated prior to the enactment of the Alaska Corporations
Code, and the Company Articles do provide for the simple majority vote in this
instance.
Prime. The Prime Partnership Agreement provides that all amendments to
the agreement must be proposed by a general partner or by limited partners
owning the right to not less than 25% of the outstanding limited partner
interests in the partnership. An amendment proposed by the general partner shall
be effective if approved in writing by limited partners owning in the aggregate
interests of at least 50% of the outstanding limited partner interests in the
partnership. An amendment proposed by a limited partner shall be effective if
approved in writing by the general partner and by limited partners owning an
aggregate interest of at least 50% of the outstanding limited partner interests
in the partnership, within 90 days of its proposal. The agreement provides that
no amendment to it that would adversely affect the interest of any limited
partner in partnership profits or capital or remove any voting rights granted to
the limited partner under the agreement may be adopted without the written
consent of each limited partner
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affected by that amendment. However, the general partner may amend the agreement
to remove or correct any inconsistency, ambiguity or error contained in the
agreement, provided such amendment does not adversely affect the limited
partners in any manner. Notwithstanding these provisions, Prime has chosen to
require an affirmative consent of at least 66-2/3% of the interests held by its
limited partners to approve the Prime Proposed Transaction.
Alaskan Cable. In the case of each of the three corporations comprising
Alaskan Cable, the corporation in being incorporated under the precursor
corporate code and as of the Record Date subject to the Alaska Corporations Code
is limited in the manner in which the corporation may amend its articles of
incorporation. The corporation's articles of incorporation may be amended only
by approval of at least a two-thirds majority of the outstanding shares.
Amendment to Bylaws
Company. Under the Company Articles, the Company Board is expressly
authorized and empowered to adopt, alter, amend, or repeal any provision or all
of the Company Bylaws, to the exclusion of the outstanding shares of the
Company.
Prime. Prime has no bylaws. The Prime Partnership Agreement and
applicable Delaware law govern the internal affairs of Prime.
Alaskan Cable. Under the Alaska Corporations Code, the bylaws of a
corporation may be amended by the board of directors or by a majority of the
outstanding shares, unless in the corporation's articles of incorporation the
power is expressly given to one to the exclusion of the other. The Articles of
Incorporation for Alaskan Cable/Fairbanks provide that the initial Bylaws of the
corporation are to be adopted by the board of directors. These articles are
silent as to who is to have the power, exclusive or otherwise, to alter, amend,
or repeal any provision of the Bylaws. The Articles of Incorporation for Alaskan
Cable/Juneau provide that the board of directors of the corporation is to have
the power to adopt, amend, alter and repeal bylaws not inconsistent with its
articles or Alaska law. However, those articles also provide that the
shareholders may at a regular or special meeting called for that purpose, amend,
alter, or repeal the corporation's bylaws by an affirmative vote of at least 51%
of the common stock of the corporation then issued and outstanding. Thereafter
that Bylaw so altered, amended, or repealed by shareholder action is not to be
subject to any subsequent amendment, alteration, or repeal by the board. The
Articles of Incorporation of Alaskan Cable/Ketchikan provide that the board of
directors of the corporation is to have the power to adopt, alter, amend, or
repeal the bylaws of the corporation. Those articles further provide that such
bylaws and amendments of them are to be in full force and effect as the bylaws
of the corporation unless the shareholders should at a regular or special
meeting amend, alter, or repeal those bylaws. Once the shareholders alter,
amend, or repeal a portion of those bylaws, that portion is not to be subject to
subsequent alteration, amendment, or repeal by the board.
Limitation on Liability of Directors and Officers
Company. Under the Company Bylaws, the Company shall indemnify any
person who was or is made a party to an action, suit or proceeding by reason of
or arising from the fact that the person is or was a director, officer,
employee, or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation or
entity. Amounts paid in settlement actually and reasonably incurred by that
person in connection with that action, suit, or proceeding may include
reimbursement of expenses, attorney fees, judgment, fines, and amounts paid in
settlement actually and reasonably incurred by that person if that person acted
in good faith and in a manner that that person reasonably believed to be in or
not opposed to the best interests of the Company. Under the Company Bylaws, the
Company shall also indemnify any person who was or is a party to any
REGISTRATION STATEMENT
Page 136
<PAGE>
action or suit by or in the right of the Company to procure a judgment in its
favor by reason or arising from the fact that that person is or was a director,
officer, employer, or agent of the Company or is or was serving at the request
of the Company as a director, officer, employee, or agent of another entity.
This indemnification is to cover reimbursement for expenses including attorney
fees actually and reasonably incurred by the person in connection with the
defense or settlement of that action or suit if that person acted in good faith
and in a manner that that person reasonably believed to be in or not opposed to
the best interests of the Company.
Under the Alaska Corporations Code, an officer shall perform the duties
of the office in good faith and with that degree of care, including reasonable
inquiry, that an ordinarily prudent person in a like position would use under
similar circumstances. An officer is entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data
in each case prepared or presented by legal counsel or public accountants,
except that an officer is not acting in good faith if the officer has knowledge
concerning the matter in question that makes reliance otherwise permitted
unwarranted.
Under the Alaska Corporations Code a director shall perform his or her
duties as a director, including duties to serve as a member of a committee of
the board, in good faith, in a manner the director reasonably believes to be in
the best interests of the corporation, and with the care, including reasonable
inquiry, that an ordinarily prudent person in a like position would use under
similar circumstances. A director is entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by (1) officers or employees of the
corporation whom the director reasonably believes to be reliable and competent
in the matters, (2) counsel, public accountants, or other persons as to matters
that the director reasonably believes to be within the person's professional or
expert competence, or (3) a committee of the board upon which the director does
not serve, designated in accordance with a provision of the articles or the
bylaws, as to matters within the authority of the committee if the director
reasonably believes the committee to merit confidence; provided that a director
is not acting in good faith if the director has knowledge concerning the matter
in question that makes reliance otherwise permitted unwarranted.
Prime. The Prime Partnership Agreement provides for indemnification by
the partnership of the general partner and its officers, employees, directors,
and affiliates from and against any and all claims, demands, liabilities, costs,
losses, judgments, fines, penalties, settlements, damages, and other amounts
arising out of or resulting from any claims, demands, actions, suits, or
proceedings (whether civil, criminal, administrative or investigative) or causes
of action of any nature arising out of or incidental to the partnership's
affairs and the execution of certain documents related to it, including without
limitation, reasonable attorneys' fees, accountants' fees, and experts' fees
incurred in connection with the agreement. However, to the extent that the claim
at issue is based upon a matter unrelated to the general partner's management of
the partnership affairs or the involvement of such officer, employee, director
or affiliate in it, or proven gross negligence or willful misconduct of the
general partner or such other persons, or the proven material breach of that
general partner of any material provision of the agreement, then the general
partner or such other persons as the case may be shall not be entitled to such
indemnification. The agreement does not indemnify limited partners.
Alaskan Cable. Under the Alaska Corporations Code, provision for
indemnification of officers and directors is limited as set forth in the code
and as generally described for the Company elsewhere in this section. See,
"--Limitations on Liability of Directors and Officers-Company." In the case of
each of the three corporations comprising Alaskan Cable, the corresponding
bylaws provide for indemnification of officers and directors similar to that set
forth for the Company.
REGISTRATION STATEMENT
Page 137
<PAGE>
Preferred Stock
Company. As of the Record Date, the Company had no outstanding
preferred stock issued.
Prime. The Prime Partnership Agreement does not provide for a preferred
return or any preferred equity.
Alaskan Cable. In the case of each of the three corporations comprising
Alaskan Cable, the corresponding articles of incorporation are silent on
authorizing preferred stock or any other stock other than common stock.
MANAGEMENT OF THE COMPANY
General
The Company Board is classified into three classes: Class I, Class II,
and Class III. As of the Record Date, the Company Bylaws provided that the
number of directors was to be not less than three nor more than twelve and could
be changed from time to time by action of the Board. As of the Record Date the
number of directors constituting the Board was seven.
At the Annual Meeting, three individuals will be elected to positions
in Class I of the Company Board for three-year terms. The individuals so elected
will serve subject to the provisions of the Company Bylaws and until the
election and qualification of their respective successors.
Management believes that its proposed nominees for election as
directors are willing to serve as directors, and it is intended that the proxy
holders named in the accompanying form of Company Proxy or their substitutes
will vote for the election of these nominees unless specifically instructed to
the contrary. However, if any nominee at the time of the election is unable,
unavailable or, for good cause, unwilling to serve and, as a consequence other
nominees are designated, the proxy holders named in the Company Proxy or their
substitutes will have discretion and authority to vote or refrain from voting in
accordance with their judgment with respect to other nominees.
Business Background of Directors, Nominees, and Executive Officers of the
Company
The following table provides business background information on the
directors, nominees and executive officers of the Company. All executive
officers are elected for annual terms, subject to their earlier death,
resignation or removal in accordance with the Company Articles and Company
Bylaws, until their successors are chosen and qualify. There are no family
relations of first cousin or closer, among the persons named in the table, by
blood, marriage, or adoption. The Company Board is unaware of any legal
proceedings which may have occurred during the past five years and which would
be material to an evaluation of the integrity or ability of any director or
executive officer of the Company to serve. Furthermore, the Company Board is
unaware of any legal proceedings which may have occurred in which any director
or executive officer of the Company was or is a party adverse to the Company or
any of its subsidiaries or has a material interest adverse to the Company or any
of its subsidiaries.
REGISTRATION STATEMENT
Page 138
<PAGE>
<TABLE>
====================================================================================================================
DIRECTORS, NOMINEES, AND EXECUTIVE OFFICERS OF THE COMPANY
<CAPTION>
Name Age Positions, Business Experience
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald A. Duncan (1) 44 Director, President and Chief Executive Officer of
the Company since January 1, 1989. Prior to that,
Mr. Duncan was the Executive Vice President and a
director of the Company from 1979 through December,
1988.
Donne F. Fisher (1) 58 Nominee. Director of the Company since 1980. Mr.
Fisher has been a consultant to Tele-Communications,
Inc. ("TCI") since January, 1996 and has been a
director of TCI since 1980. Prior to becoming a
consultant to TCI, he was Executive Vice President of
TCI from December, 1991 to December, 1995 and had
been a Senior Vice President of TCI from 1982 to
December, 1995. He has served as Vice President,
Treasurer and Chief Financial Officer of most of
TCI's subsidiaries. TCI is a cable television
company which owns and operates cable television
systems primarily located in the United States.
John W. Gerdelman (1) 43 Nominee. Director of the Company since July, 1994.
Mr. Gerdelman has been President, Network Services
for MCI Telecommunications Corporation, a wholly
owned subsidiary of MCI Communications Corporation in
Washington, D.C., since September, 1994. Prior to
that, he was Senior Vice President for MCI
Telecommunications Corporation from July, 1992 to
September, 1994. Prior to that, he was President of
MCI Services, Inc. in Sergeant Bluff, Iowa from July,
1989 to July, 1992. MCI through its subsidiaries
provides telecommunication and related services
throughout the country and internationally.
Carter F. Page (1) 64 Director and Chairman of the Board of the Company
since 1980. From December, 1987 to December, 1989,
Mr. Page served as a consultant to WestMarc
Communications, Inc., a wholly owned subsidiary of
TCI ("WSMC"), in matters related to the Company. He
served as President and director of WSMC from 1972 to
December, 1987. Since then and to the present, he has
been managing general partner of Semaphore Partners,
a general partnership and investment vehicle in the
communications industry.
Larry E. Romrell(1) 56 Director of the Company since 1980. Mr. Romrell has
been an Executive Vice President of TCI since 1994,
President and director of TCI Technology Ventures,
Inc. since 1994, and Senior Vice President of TCI
since 1991, is the President of WSMC, and has been
employed by WSMC in various capacities from 1961.
REGISTRATION STATEMENT
Page 139
<PAGE>
James M. Schneider (1) 43 Nominee. Director of the Company since July, 1994.
Mr. Schneider has been Senior Vice President Finance
for MCI Communications Corporation in Washington,
D.C. since August, 1995. Prior to that, he was
Senior Vice President Finance Consumer Markets for
MCI Telecommunications Corporation since November,
1993. Prior to that, he was Corporate Controller for
MCI from September, 1993. Prior to that, Mr.
Schneider was with the accounting firm of Price
Waterhouse from 1973 to September, 1993 and was a
partner in that firm from October, 1983 to September,
1993.
Robert M. Walp (1) 68 Director, Vice Chairman of the Company since January
1, 1989. Prior to that, Mr. Walp served as President
and Chief Executive Officer and a Director of the
Company from 1979.
William C. Behnke 38 Senior Vice President Marketing and Sales for the
Company since January, 1994. Prior to that Mr.
Behnke was Vice President of the Company and
President of GCI Network Systems, Inc. from February,
1992 to January, 1994 when that corporation, a
subsidiary of GCC (a wholly-owned subsidiary of the
Company), was merged into GCC. Prior to that, he was
Vice President of the Company and General Manager of
GCI Network Systems, Inc. from June, 1989 to
February, 1992. Prior to that, he was Senior Vice
President for TransAlaska Data Systems, Inc. from
August, 1984 to June, 1989.
Richard P. Dowling 52 Senior Vice President - Corporate Development for the
Company since December, 1990. Prior to that, Mr.
Dowling was Senior Vice President-Operations and
Engineering for the Company from December, 1989 to
December, 1990. Prior to that he was Vice
President-Operations and Engineering for the Company
from 1981 to December, 1989.
G. Wilson Hughes 50 Executive Vice President and General Manager of the
Company since June, 1991. Prior to that, Mr. Hughes
was President and a member of the board of directors
of Northern Air Cargo, Inc. from March, 1989 to June,
1991. Prior to that, he was President and a member
of the board of directors of Enserch Alaska Services,
Inc. from June, 1984 to December, 1988.
John M. Lowber 46 Senior Vice President and Chief Financial Officer for
the Company since December, 1989. Prior to that, Mr.
Lowber was Vice President-Administration for the
Company from 1985 to December, 1989. He has been
Chief Financial Officer for the Company since
January, 1987 and Secretary/Treasurer of the Company
since July, 1988. Prior to joining the Company, Mr.
Lowber was a senior manager at KPMG Peat Marwick.
REGISTRATION STATEMENT
Page 140
<PAGE>
Dana L. Tindall 34 Senior Vice President-Regulatory Affairs since
January, 1994. Prior to that Ms. Tindall was Vice
President-Regulatory Affairs for the Company from
January, 1991 to January, 1994. Prior to that, she
was Director Regulatory Affairs for the Company from
October, 1989 through December, 1990, and prior to
that she was Manager Regulatory Affairs for the
Company from 1985 to October, 1989.
====================================================================================================================
<FN>
- ----------------
1 Messrs. Gerdelman, Page, and Walp were, as of the Record Date, Class I
directors whose terms will expire at the time of the 1996 annual
shareholder meeting. Messrs. Duncan and Romrell were, as of the Record
Date, Class II directors whose terms will expire at the time of the
1997 annual shareholder meeting. Messrs. Fisher and Schneider were, as
of the Record Date, Class III directors whose terms will expire at the
time of the 1998 annual shareholder meeting.
- ----------------
</FN>
</TABLE>
In addition, one of the directors, Mr. Fisher, serves on the boards of
directors of most of TCI's subsidiaries, and the boards of directors of DMX and
United Video Satellite Group, Inc.
Compliance with Section 16(a) of the Exchange Act
Based upon a review of Exchange Act Forms 3, 4, and 5 completed and
furnished to the Company by shareholders, the Company is unaware of any
director, officer, or beneficial owner of more than 10% of any class of common
stock of the Company who failed to file on a timely basis, as provided in those
forms, reports required under Section 16(a) of that act during the year ended
December 31, 1995.
Remuneration of Directors and Executive Officers
Summary Compensation. The following table sets forth a summary of the
compensation paid by the Company to its chief executive officer for services in
all capacities for each of the years ended December 31, 1993, 1994, and 1995,
respectively. It also sets forth similar information for the four most highly
compensated executive officers of the Company aside from the chief executive
officer rendering services to the Company and its subsidiaries, whose aggregate
salary and bonuses exceeded $100,000 for the year ended December 31, 1995 (Mr.
Duncan and these four executive officers, collectively, "Named Executive
Officers").
REGISTRATION STATEMENT
Page 141
<PAGE>
<TABLE>
==============================================================================================================================
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
------------------------- ---------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Securities All Other
Name & Compensa- Stock Underlying LTIP Compen-
Principal Salary (1) Bonus (1) tion (2),(3) Awards Options/SARs Payouts (4) sation (5)
Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------------------- ---------- ---------- ---------- ------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald A. Duncan President 1995 89,550 -0- 14,736 -0- -0- -0- 144,470
and Chief Exec. Officer (6) 1994 89,550 99,960 41,322 -0- -0- -0- 110,400
1993 89,550 27,830 536,970 -0- -0- -0- 103,500
William C. Behnke 1995 110,002 -0- 41,931 -0- 50,000 -0- 20,000
Senior Vice President, 1994 109,168 136,194 90,049 -0- -0- -0- -0-
Marketing and Sales (7) 1993 90,000 41,900 64,569 -0- -0- -0- -0-
G. Wilson Hughes 1995 150,002 -0- 16,305 -0- 260,000 -0- 76,586
Executive Vice President 1994 150,003 89,698 15,843 -0- -0- -0- 61,059
and General Manager (8) 1993 149,547 31,666 9,342 -0- -0- -0- 58,074
John M. Lowber 1995 125,000 -0- 15,321 -0- 100,000 -0- 65,000
Senior Vice President, 1994 125,514 117,757 12,814 -0- -0- -0- 65,000
Administration, Chief 1993 125,000 32,746 177,792 -0- -0- -0- 65,000
Financial Officer,
Secretary/Treasurer (9)
Dana L. Tindall 1995 103,699 24,000 14,949 -0- -0- -0- -0-
Senior Vice President, 1994 93,555 97,467 30,208 -0- -0- -0- -0-
Regulatory Affairs (10) 1993 90,220 38,349 42,299 -0- 50,000 -0- -0-
==============================================================================================================================
<FN>
- -------------
1 Amounts shown include cash and non-cash compensation earned and
received by executive officers as well as amounts earned but deferred
at the election of those officers, including employee base salary and
contributions to the Stock Purchase Plan (included in column (c) of
this table) and bonuses (included in column (d) of this table). Does
not include Company contributions to the Stock Purchase Plan for the
account of the participating employee (included in column (e) of this
table). Does not include value of options granted as shown in column
(g) of this table in that they were not in-the-money at the time of
grant. Mr. Lowber was as of December 31, 1995, the only employee of the
Company. The other individuals named in this table were as of that date
employees of GCC. Management of the Company anticipated that this
arrangement would continue. See, "OWNERSHIP OF THE COMPANY: Changes in
Control -- Pledges of Stock of Subsidiaries."
2 Perquisites and other personal benefits, securities and property for
each Named Executive Officer did not exceed the lesser of either
$50,000 or 10% of the total of annual salary and bonus reported for
that individual.
3 During the years ended December 31, 1993 through 1995, Messrs. Duncan,
Lowber, and Hughes and Ms. Tindall participated in the Company's Stock
Purchase Plan through which those persons contributed funds under a
payroll deduction arrangement, and the Company matched those
contributions on a dollar-for-dollar basis. The contributions by the
Company were made to all employees of the Company and its subsidiaries
who participated in the plan, including the
REGISTRATION STATEMENT
Page 142
<PAGE>
identified persons. Contributions identified in this column (e) are
those of the Company to the plan only. Prior to July 1, 1995 employee
and Company contributions were invested in Company common stock, and
employee contributions received up to 100% matching, as determined by
the Company each year, in Company common stock. On and after that date,
employees could direct their contributions to be invested by the plan
in Company common stock, MCI common stock, TCI common stock or various
identified mutual funds. Also on and after that date, employee
contributions directed into investments other than Company common stock
are to receive Company matching contributions of up to 50 cents on the
dollar as determined by the Company Board. The contributions are
invested in the name of the plan and for the benefit of the respective
participants in the plan. All securities were purchased or otherwise
acquired at fair market value on the date of purchase or acquisition.
See, "MANAGEMENT OF THE COMPANY: Remuneration of Directors and
Executive Officers -- Stock Purchase Plan."
4 The Company had no long-term incentive plan during the three-year
period ended December 31, 1995.
5 All incidental compensation to each Named Executive Officer did not for
the years ended December 31, 1993 through 1995, exceed the lesser of
$50,000 or 10% of total annual salary and bonus reported for the
officer.
6 For 1995, column (e) includes $10,756 of Company matching contributions
to the Stock Purchase Plan.
For 1994, column (e) includes prepaid portion of salary for 1995 of
$30,000 and $9,240 of Company matching contributions to the Stock
Purchase Plan. For 1993, column (e) includes the value of options
exercised (income derived), calculated as the fair market value less
the exercise price of the options at $1.25 per share for 247,947 shares
of Class A common stock granted in April, 1988, in the amount of
$495,894 and includes prepaid portion of salary for 1994 of $30,000 and
$8,994 of Company matching contributions to the Stock Purchase Plan.
For 1993, 1994, and 1995 column (i), includes the deferred compensation
agreement entered into between Mr. Duncan and the Company dated August
13, 1993 ("Second Duncan Deferred Compensation Agreement"). Under the
Second Duncan Deferred Compensation Agreement, the Company is to pay to
Mr. Duncan deferred compensation in an amount not to exceed $625,000
plus interest in addition to the regular compensation he now earns or
may in the future earn. This deferred compensation is to be credited to
Mr. Duncan each July 1 that he is employed by the Company in amounts as
follows:
Year Amount
---- ------
1993 $100,000
1994 100,000
1995 125,000
1996 150,000
1997 150,000
-------
Total $625,000
=======
The full amount of deferred compensation plus accrued interest will be
due and payable to Mr. Duncan upon the termination of his employment
with the Company, provided that, should he voluntarily terminate his
employment or his employment is terminated for cause, only that portion
of the deferred compensation credited as of the December 31 immediately
preceding that termination plus interest will be due and payable and
the remainder of the deferred compensation will be canceled. No
compensation was received by Mr. Duncan under this agreement during the
years ended December 31, 1993, 1994, or 1995. See, "MANAGEMENT OF THE
COMPANY: Employment Contracts and Termination of Employment and Change
of Control Arrangements."
7 For 1995, column (e) includes the value of options exercised (income
derived) calculated as the fair market value less the exercise price of
the options at $0.001 per share for 10,000 shares of Class A common
stock granted in June, 1989 in the amount of $41,865.
For 1994, column (e) includes the value of options exercised (income
derived), calculated as the fair market value less the exercise price
of the options at $.001 per share for 17,500 shares of Class A common
stock granted in June, 1989 in the amount of $89,983. For 1993, column
(e) includes the value of options exercised (income derived),
calculated as the fair market value less the exercise price of the
options at $.001 per share for 15,000 shares of Class A common stock
granted in June, 1989 in the amount of $64,516.
For 1995, column (i) include an allocation pursuant to a deferred
compensation plan with Mr. Behnke of $20,000 of deferred compensation
vesting over the five year period beginning in 1995.
REGISTRATION STATEMENT
Page 143
<PAGE>
8 For 1995, column (e) includes the Company's contributions to the Stock
Purchase Plan for the benefit of Mr. Hughes in the amount of $12,750.
For 1994, column (e) includes the Company's contributions to the Stock
Purchase Plan for the benefit of Mr. Hughes in the amount of $15,000.
For 1993, column (e) includes the Company's contributions to the Stock
Purchase Plan for the benefit of Mr. Hughes in the amount of $8,994.
For 1993 through 1995, column (i), represents the amount accrued
through a deferred compensation agreement entered into between Mr.
Hughes and the Company dated April 30, 1991 ("Hughes Deferred
Compensation Agreement") during and for the years ended December 31,
1993, 1994, and 1995. The Company entered into the Hughes Deferred
Compensation Agreement, a five year deferred bonus agreement, with Mr.
Hughes dated April 30, 1991. Under the Hughes Deferred Compensation
Agreement, Mr. Hughes will receive deferred compensation of $50,000 per
year accrued annually on December 31 of each year of the agreement. The
agreement further provides that accumulated balances on Mr. Hughes
deferred compensation will accrue interest at 10% per year, compounded
annually. The plan was amended to provide for deferred compensation of
$65,000 in 1995 and $75,000 per year in 1996 and in subsequent years.
Each contribution vests over the following three years after the
corresponding contribution. The agreement provides that after five
years, or upon termination of his employment with the Company, Mr.
Hughes may elect to have the full balance of the deferred compensation
paid in cash, in a lump sum or in monthly installments for up to ten
years. The agreement provides that in the event of a deferred payment,
the residual balance will continue to accrue interest. Interest accrued
under the agreement in the amounts of $8,074, $11,059, and $11,585
during the years ended December 31, 1993, 1994, and 1995, respectively.
The agreement is part of an employment agreement described further
elsewhere in this section. See, "MANAGEMENT OF THE COMPANY: Employment
Contracts and Termination of Employment and Change of Control
Arrangements."
9 For 1995, column (e) includes $12,852 of Company matching contributions
to the Stock Purchase Plan.
For 1994, column (e) includes $11,844 of Company matching contributions
pursuant to the Company's Stock Purchase Plan.
For 1993, column (e), includes the value of options exercised (income
derived), calculated as the fair market value less the exercise price
of the option at $1.00 per share for 75,000 shares granted in April,
1988, in the amount of $168,750 and $8,500 of Company matching
contributions to the Stock Purchase Plan.
For 1993, 1994, and 1995, column (i), the amount accrued through the
Lowber Deferred Compensation Agreement ("Lowber Deferred Compensation
Agreement") during and for the years ended December 31, 1993 through
1995, respectively. The Company entered into the Lowber Deferred
Compensation Agreement providing for deferred compensation of $65,000
per year in each year of a seven year term and accruing annually on
July 1 of each year of the term, the proceeds of which were used to
purchase a life insurance policy which has been collaterally assigned
to the Company to the extent of premiums paid by the Company. At the
earlier of termination of employment or upon election by Mr. Lowber
subsequent to the end of the seven year term of the agreement, the
collateral assignment will be terminated with the Company. The
agreement provides that if Mr. Lowber leaves the employment of the
Company voluntarily, he will lose the unvested portion of the
compensation. The Lowber Deferred Compensation Agreement is a part of
Mr. Lowber's employment agreement with the Company described further
elsewhere in this section. See, "MANAGEMENT OF THE COMPANY:
Compensation Committee Report on Executive Compensation."
10 For 1995, column (e) includes $12,802 of Company matching contributions
pursuant to the Stock Purchase
Plan.
For 1994, column (e) includes $13,190 of Company matching contributions
pursuant to the Stock Purchase Plan and the value of options exercised
(income derived), calculated as the fair market value less the exercise
price of $2.25 per share for 5,000 shares of Class A common stock
granted December, 1989, in the amount of $15,312.
For 1993, column (e) includes $6,145 of Company matching contributions
pursuant to the Stock Purchase Plan and the value of options exercised
(income derived), calculated as the fair market value less the exercise
price of $.75 per share for 9,917 shares and $2.25 for 83 shares of
Class A common stock granted in March, 1987 and December, 1989,
respectively, in the total amount of $36,125.
- --------------
</FN>
</TABLE>
REGISTRATION STATEMENT
Page 144
<PAGE>
<TABLE>
Option/SAR Grants. The following table sets forth information on the
individual grants of stock options (whether or not in tandem with stock
appreciation rights ("SARs")), and freestanding SARs made during the Company's
fiscal year ended December 31, 1995 to the Named Executive Officers. There were
no tandem SARs or freestanding SARs associated with the Company during this
period.
====================================================================================================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value of Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term
- ---------------------------------------------------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total
Underlying Options/SARs
Option/SARs Granted to Exercise or Expiration
Granted (1) Employees Base Price (2) Date
Name (#) in Fiscal Year ($/Sh) 5% ($) (3) 10% ($) (3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Duncan -0- -0- --- --- --- ---
William C. Behnke 50,000 (4) 8.2 4.00 3/1/05 126,000 319,000
G. Wilson Hughes 260,000 (5) 42.6 4.00 3/1/05 654,000 1,657,000
John M. Lowber 100,000 (6) 16.4 4.00 3/1/05 252,000 638,000
Dana L. Tindall -0- -0- --- --- --- ---
====================================================================================================================
<FN>
- ---------------
1 Options in Class A common stock.
2 The exercise price of the options was equal to the market price of the
Class A common stock at the time of grant.
3 The potential realizable dollar value of a grant is calculated as the
product of the following: (1) the difference between (i) the product of
the per-share market price at the time of grant and the sum of 1 plus
the adjusted stock price appreciation rate (the assumed rate of
appreciation compounded annually over the term of the option) and (ii)
the per-share exercise price of the option; and (2) the number of
securities underlying the grant at fiscal year end.
4 The option is for 50,000 shares at $4.00 per share vesting in the
following amounts on the indicated dates: (1) 5,000 shares on March 1,
1998; (2) 15,000 shares on March 1, 1999; (3) 15,000 shares on March 1,
2000; and (4) 15,000 shares on March 1, 2001. The options were granted
pursuant to the Stock Option Plan and will expire if not exercised
before March 1, 2005.
5 The option is for 260,000 shares at $4.00 per share vesting in the
following amounts on the indicated dates: (1) 60,000 shares on June 1,
1997; (2) 60,000 shares on June 1, 1998; (3) 60,000 shares on June 1,
1999; and (4) 80,000 shares on June 1, 2000. The options were granted
pursuant to the Stock Option Plan and will expire if not exercised
before March 1, 2005.
6 The option is for 100,000 shares at $4.00 per share vesting in the
following amounts on the indicated dates: (1) 10,000 shares on March 1,
1998; (2) 30,000 shares on March 1, 1999; (3) 30,000 shares on March 1,
2000; and (4) 30,000 shares
REGISTRATION STATEMENT
Page 145
<PAGE>
on March 1, 2001. The options were granted pursuant to the Stock Option
Plan and will expire if not exercised before March 1, 2005.
- ----------------
</FN>
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises and Year-End Option/SAR Value. The
following table sets forth information concerning each exercise of stock options
during the year ended December 31, 1995, by each of the Named Executive Officers
and the fiscal year-end value of unexercised options. There were no tandem SARs
or freestanding SARs associated with the Company during this period.
=====================================================================================================================
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($) (1),(2)
Shares Acquired Value
on Exercise Realized (1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ronald A. Duncan -0- -0- 90,000/110,000 180,000/220,000
William C. Behnke 10,000 41,865 160,190/75,000 575,865/100,000
G. Wilson Hughes -0- -0- 200,000/310,000 650,000/422,500
John M. Lowber -0- -0- 167,500/182,500 560,000/265,000
Dana L. Tindall -0- -0- 71,400/85,000 155,600/170,000
=====================================================================================================================
<FN>
- -------------
1 The dollar values in columns (c) and (e) of the table are calculated by
determining the difference between the fair market value of the
securities underlying the options and the exercise price of the options
at exercise or fiscal year-end, respectively.
2 An option is "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the option.
- -------------
</FN>
</TABLE>
Long-Term Incentive Plan Awards. The Company had no long-term incentive
plan in operation during the year ended December 31, 1995.
Stock Purchase Plan. The Company adopted the Qualified Employee Stock
Purchase Plan in December, 1986, and the plan has subsequently been amended
several times by shareholder and board of director actions ("Stock Purchase
Plan"). The Stock Purchase Plan is qualified under Section 401 of the Code. The
plan has been allocated 2.4 million shares of Class A and 240,000 shares of
Class B common stock of the Company for issuance to or acquisition by the plan.
Of those amounts, as of the Record Date, 553,644 shares of Class A and 67,037
shares of Class B common stock remain available for issuance or acquisition by
the plan.
REGISTRATION STATEMENT
Page 146
<PAGE>
The Stock Purchase Plan permits each employee of the Company, each
employee of a subsidiary of the Company, and each employee of a subsidiary of a
subsidiary of the Company, who has completed one year of service and is at least
21 years of age to elect to participate in it. Eligible employees may elect to
reduce their compensation in any even dollar amount up to 10% of such
compensation through contributions to the plan up to a maximum of $9,500 for
1996. This limit is adjusted annually based upon inflation, at the direction of
the Internal Revenue Service. An eligible employee may contribute up to 10% of
the employee's compensation with after-tax dollars, or the employee may elect a
combination of salary reductions and after-tax contributions.
The Company may under the plan match employee salary reductions and
after tax contributions in any amount up to 100% as elected by the Company each
year. However, no more than 10% of any one employee's compensation will be
matched in any year. The combination of salary reductions, after tax
contributions, and Company matching contributions cannot exceed 25% of any
employee's compensation (determined after salary reduction) for any year. The
Company's contributions will vest over six years. Prior to July 1, 1995,
employee and Company contributions were invested in Company common stock and
employee contributions received up to 100% matching, as determined by the
Company each year, in Company common stock. On and after that date, employees
could direct their contributions to be invested by the plan in Company common
stock, MCI common stock, TCI common stock or various identified mutual funds.
Also on and after that date, employee contributions directed into investments
other than Company common stock are to receive Company matching contributions of
up to 50 cents on the dollar as determined by the Company Board. The
contributions are invested in the name of the plan for the benefit of the
respective participants in the plan.
The Stock Purchase Plan is administered through a plan committee whose
chair is the plan administrator. The assets of the plan are invested from time
to time by the plan administrator under the direction of the trustee which as of
the Record Date was National Bank of Alaska. As of the Record Date, the plan
administrator was Alfred J. Walker. The plan administrator and members of the
committee were all employees of the Company or its subsidiaries. The plan
administrator and committee members are appointed by the Company Board. The
committee has broad administrative discretion under the terms of the plan.
The purpose of the Stock Purchase Plan is to provide employees of the
Company, its subsidiaries, and their subsidiaries a convenient means of
investing in the Company. The plan provides an incentive to employees as
shareholders of the Company to redouble their efforts to make the Company
successful and thereby increase the value of their investments. Through
discretionary contributions by the Company to the plan which in turn increase
the stock ownership in the Company by participants in the plan, the plan
provides further incentive to employees of the Company.
Stock Option Plan. The Company adopted its 1986 Stock Option Plan in
December, 1986, and the plan has subsequently been amended several times by
shareholder and Company Board action ("Stock Option Plan"). The Stock Option
Plan is a non-qualified plan under the Code.
The Stock Option Plan has been allocated 3,200,000 shares of Class A
common stock of the Company to be subject to options granted under the plan and
further subject to adjustment upon the occurrence of stock dividends, stock
splits, mergers, consolidations, or certain other changes in corporate structure
or capitalization. Of that amount, as of the Record Date, 2,193,617 shares were
subject to outstanding options, 639,539 shares had been issued upon the exercise
of options under the plan, and 366,844 shares of that stock remained available
for subsequent granting of options under the plan.
Through the Stock Option Plan, the Company acting through its board may
provide special incentives to officers, non-employee directors, and other key
employees by offering them an opportunity
REGISTRATION STATEMENT
Page 147
<PAGE>
to acquire an equity interest in the Company. An option granted under the Stock
Option Plan may have an option exercise price less than, equal to, or greater
than the fair market value on the date of grant of the option. Options granted
pursuant to the Stock Option Plan are only exercisable if at the time of
exercise the option holder is an employee, or non-employee director, of the
Company.
The Stock Option Plan provides that all options granted under the plan
must expire not later than ten years after the date of grant. If an option
expires or terminates, the shares subject to the option will be available for
future grants of options under the Stock Option Plan. The plan provides that it
shall continue until such time as the Company Board's adoption, by a simple
majority vote, of a resolution suspending or terminating the plan or
discontinuing granting options under the plan. However, any such suspension,
termination, or discontinuance will not affect options then outstanding under
the plan. No options may be granted after termination of the plan.
The Stock Option Plan is administered by a committee composed of the
Company Board. Key employees (including officers and directors who are
employees) and non-employee directors of the Company, are eligible to
participate in the plan. The committee selects the eligible employees to whom
options are granted and, subject to the terms of the Stock Option Plan, the
number of shares subject to each option. Subject to the provisions of the Stock
Option Plan, the committee has broad discretion in administering the plan, and
is authorized to determine the times at which options will be granted and
exercisable and the fair market value of the shares covered by each option at
the time of grant, to prescribe the form evidencing options, to interpret the
plan, and to prescribe, amend, and rescind rules and regulations relating to the
plan.
Unfunded Deferred Compensation Plan. In February, 1995 the Company
established a non-qualified, unfunded deferred compensation plan to provide a
means by which certain employees of the Company and its subsidiaries may elect
to defer receipt of designated percentages or amounts of their compensation and
to provide a means for certain other deferrals of compensation. Employees
eligible to participate in the plan are determined by the Company Board.
The Company may, at its discretion, contribute matching deferrals in
amounts selected by the Company. Participants immediately vest in all elective
deferrals and all income and gain attributable to that participation. Matching
contributions and all income and gain attributable to them vest over a six-year
period. Participants may elect to be paid in either a single lump sum payment or
annual installments over a period not to exceed 10 years. Vested balances are
payable upon termination of employment, unforeseen emergencies, death and total
disability. Participants are general creditors of the Company with respect to
deferred compensation benefits of the plan.
Compensation To Directors. In July, 1995, each director of the Company
(with the exceptions of Messrs. Schneider and Gerdelman) received $2,000 in
director fees for the 12 month period July, 1995 -June, 1996. Messrs. Schneider
and Gerdelman, as a matter of MCI Communications Corporation policy, declined to
accept such remuneration for serving on a board outside of MCI and its
subsidiaries. During the year ended December 31, 1995, the directors on the
Company Board received no other direct compensation for serving in those
capacities but were reimbursed for travel and out-of-pocket expenses incurred in
connection with attendance at meetings of the board. The same policy was
followed during calendar year 1996 up through the Record Date, and management
anticipated that such policy would continue through the balance of 1996. It is
anticipated that the directors will receive similar director fees in the fourth
quarter of 1996 for the 12-month period July, 1996 - June, 1997.
REGISTRATION STATEMENT
Page 148
<PAGE>
Employment Contracts and Termination of Employment and Change of Control
Arrangements
The Company entered into employment agreements with Mr. Hughes in
April, 1991 and with Mr. Lowber in July, 1992 and has deferred compensation
agreements with Messrs. Duncan, Hughes, Behnke and Lowber, the terms of which
are described elsewhere in this Proxy Statement. See footnotes 6 through 9 to
the Summary Compensation Table in "MANAGEMENT OF THE COMPANY: Remuneration of
Directors and Executive Officers -- Summary Compensation." The Company has no
employment agreements with Ms. Tindall, the other Named Executive Officer.
The Company entered into a deferred compensation agreement with Mr.
Duncan in June, 1989 ("First Duncan Deferred Compensation Agreement"). Under the
First Duncan Deferred Compensation Agreement as of June 12, 1989, the Company
credited an account on its books with $325,000 for the benefit of Mr. Duncan as
a deferred bonus for Mr. Duncan's past service to the Company. Amounts in the
account were to accrue interest at 10% per annum unless there was an investment
election by Mr. Duncan to have the balance in the account treated as though it
was invested in the common stock of the Company. In July, 1989, Mr. Duncan made
the investment election, and the Company purchased a total of 105,111 shares of
Class A common stock in its name for the benefit of Mr. Duncan. The stock is not
voted. The full amount of the deferred compensation will be due and payable to
Mr. Duncan upon the termination of his employment with the Company.
The Company entered into a Second Duncan Deferred Compensation
Agreement with Mr. Duncan as further described in footnote 6 to the Summary
Compensation Table found elsewhere in this Proxy Statement. See, "MANAGEMENT OF
THE COMPANY: Remuneration of Directors and Executive Officers -- Summary
Compensation." In September, 1995, the Company agreed to buy back 100,000 shares
of its Class A common stock to fund the vested portion subject to that second
agreement. However, with the concurrence of Mr. Duncan, the Company subsequently
during September-October, 1995 bought a total of only 13,750 shares under that
second agreement for a total of $47,880, i.e., at a weighted average of $3.48
per share. Effective July 8, 1996, and at the prior request of Mr. Duncan, the
Company purchased from Mr. Duncan 76,470 shares of Company Class A common stock
at the then market price of $8.125 per share. The Company used funds that would
have accrued pursuant to the Second Duncan Deferred Compensation Agreement
through July 1, 1997 and that would otherwise have been payable to Mr. Duncan
following termination of his employment with the Company. Accordingly, the
balance owed Mr. Duncan pursuant to the Second Duncan Deferred Compensation
Agreement is now denominated in 90,220 shares of Company Class A common stock.
The Company is holding the shares in its name in treasury until such time as the
shares are distributed to Mr. Duncan whereupon the accrued obligation will be
extinguished.
Mr. Hughes' employment agreement provides for base compensation and in
addition deferred compensation of $50,000 per year for five years accruing
interest at 10% per annum, compounded annually. The plan was amended to provide
for deferred compensation of $65,000 in 1995 and $75,000 per year in 1996 and in
subsequent years. Each contribution vests over the following three years after
the corresponding contributions. In September, 1995, the Company agreed to buy
back 3,750 shares of its Class A common stock to fund certain of the vested
portions subject to the Hughes Deferred Compensation Agreement. The total
purchase price was $12,658, i.e., at $3.375 per share. Mr. Hughes' compensation
is tied to achievement of the Company's cash flow objectives with the
opportunity for significant increases in the level of compensation if the
Company exceeds those objectives. Mr. Hughes has also been granted stock options
for 250,000 shares of Class A common stock at $1.75 per share which vested over
a period of five years.
Mr. Lowber's employment agreement provides for base compensation and in
addition deferred compensation of $450,000 to vest over seven years at the rate
of $65,000 per year, with full vesting to
REGISTRATION STATEMENT
Page 149
<PAGE>
occur should he die, his position in the Company be terminated, or the Company
terminate his employment. In addition, Mr. Lowber is to receive an annual cash
bonus of $30,000 based upon Company and individual performance.
The Company entered into a deferred compensation agreement with Mr.
Behnke in February, 1995 ("Behnke Deferred Compensation Agreement'). Under the
Behnke Deferred Compensation Agreement Mr. Behnke is to receive $20,000 per
year, to vest over a five year period including the year of the allocation, and
accruing interest at 10% per annum. The first allocation under the plan was made
in December, 1995.
Except as disclosed in this Proxy Statement, as of December 31, 1995
and the Record Date, there were no compensatory plans or arrangements including
payments to be received from the Company with respect to the Named Executive
Officers for the year ended December 31, 1995 where such a plan or arrangement
resulted in or will result from the resignation, retirement, or any other
termination of such individual's employment with the Company or its subsidiaries
or from a change of control of the Company or a change in the individual's
responsibilities following a change in control and where the amount involved,
including all periodic payments or installments, exceeded $100,000.
Report on Repricing of Options/SARs
During the year ended December 31, 1995, the Company did not adjust or
amend the exercise price of stock options or SARs previously awarded to any of
the Named Executive Officers, whether through amendment, cancellation or
replacement grants, or any other means.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of the members of the Company
Board, and the identity and relationships of the members of the committee to the
Company are described elsewhere in this Proxy Statement. See, "MANAGEMENT OF THE
COMPANY: Business Background of Directors, Nominees, and Executive Officers of
the Company," "OWNERSHIP OF THE COMPANY" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." During the year ended December 31, 1995, both Messrs. Walp and
Duncan, executive officers of the Company, participated in deliberations of the
Compensation Committee concerning executive officer compensation but not
including their respective compensations.
Compensation Committee Report on Executive Compensation
In January, 1994, the Company Board established a compensation
committee composed of all of the members of the board ("Compensation
Committee"). The Company Board established the duties of the Compensation
Committee as follows:
(1) Preparing, on an annual basis for the review of and action
by the Company Board, a statement of policies, goals, and plans for
executive officer and Company Board member compensation, if any, and,
specifically a statement of expected performance and compensation of
and the criteria on which compensation is based for the chief executive
officer and such other executive officers of the Company as the board
may designate for this purpose;
(2) Monitoring the effect of ongoing events on and the
effectiveness of existing compensation policies, goals, and plans,
including but not limited to the status of the premise that all pay
systems correlate with the compensation goals and policies of the
Company, and, at its own direction or at the direction of the Company
Board;
REGISTRATION STATEMENT
Page 150
<PAGE>
(3) Monitoring compensation-related publicity and public and
private sector developments on executive compensation;
(4) Familiarizing itself with and monitoring the tax,
accounting, corporate, and securities law ramifications of the
compensation policies of the Company, including but not limited to
comprehending a senior executive officer's total compensation package,
its total cost to the Company and its total value to the recipient,
paying close attention to salary, bonuses, individual insurance and
health benefits, perquisites, loans made or guaranteed by the Company,
special benefits to specific executive officers, individual pensions,
and other retirement benefits;
(5) Establishing the overall cap on executive compensation,
the measure of performance for executive officers, either by
predetermined measurements or by a subjective evaluation; and
(6) Striving to make the compensation plans of the Company
simple, fair, and structured so as to maximize shareholder value.
For the year ended December 31, 1995, the duties of the Compensation
Committee in the area of executive compensation specifically included addressing
the reasonableness of compensation paid to executive officers. In doing so, the
committee took into account how compensation compared to compensation paid by
competing companies as well as the Company's performance and available
resources.
The compensation policy of the Company as established by the
Compensation Committee is that a portion of the annual compensation of senior
executive officers relates to and is contingent upon the performance of the
Company. In addition, executive officers participating in deferred compensation
agreements established by the Company are under those agreements unsecured
creditors of the Company.
In February, 1995 the Compensation Committee established compensation
levels for all corporate officers including the Named Executive Officers. Also
at that time the Compensation Committee established structured annual incentive
bonus agreements with Mr. Duncan and with each of several of its executive
officers, including Messrs. Behnke, Hughes and Lowber, and Ms. Tindall. The
agreements included the premise that the Company's performance, or that of a
division or subsidiary, as the case may be, for purposes of compensation would
be measured by the Compensation Committee against goals established at that time
and were reviewed and approved by the Company Board. The goals included targets
for revenues and cash flow standards for the Company or the relevant division or
subsidiary. Targeted objectives were set and measured from time to time by the
Compensation Committee. Other business achievements of the Company obtained
through the efforts of an executive officer were also taken into consideration
in the evaluation of performance. See, "MANAGEMENT OF THE COMPANY: Remuneration
of Directors and Executive Officers -- Summary Compensation."
During the year ended December 31, 1995 the Compensation Committee
monitored and provided direction for the Company's Stock Purchase Plan and Stock
Option Plan. Because the incentive bonus standards set by the committee for the
Company for that year were not met, no incentive bonuses tied to Company
performance were awarded to the Named Executive Officers and other executive
officers of the Company or to the officers of the subsidiaries of the Company.
In addition, the Compensation Committee reviewed compensation levels of members
of management, evaluated the performance of management, and considered
management succession and related matters. The Compensation Committee reviewed
in detail all aspects of compensation for the Named Executive Officers and other
executive officers of the Company. Corresponding duties were carried out by the
boards of directors of the subsidiaries of the
REGISTRATION STATEMENT
Page 151
<PAGE>
Company with respect to employees of those entities, and the same individuals
served as directors of each of these boards.
The practice of the Compensation Committee in future years will likely
be to review directly the compensation and performance of Mr. Duncan as chief
executive officer and to review recommendations by Mr. Duncan for the
compensation of other senior executive officers.
Performance Graph
The following graph includes a line graph comparing the yearly
percentage change in the Company's cumulative total shareholder return on its
Class A common stock during the five year period from December 31, 1990 through
December 31, 1995. This return is measured by dividing (1) the sum of (a) the
cumulative amount of dividends for the measurement period (assuming dividend
reinvestment, if any) and (b) the difference between the Company's share price
at the end and the beginning of the measurement period, by (2) the share price
at the beginning of that measurement period. This line graph is compared in the
following graph with two other line graphs during that five year period: (1) a
market index and (2) a peer index. The market index is the Center for Research
in Securities Prices Index for the Nasdaq Stock Market for United States
companies. It presents cumulative total returns for a broad based equity market
assuming reinvestment of dividends and is based upon companies whose equity
securities are traded on the Nasdaq Stock Market. The peer index is the Center
for Research in Securities Prices Index for Nasdaq Telecommunications Stock. It
presents cumulative total returns for the equity market in the
telecommunications industry segment assuming reinvestment of dividends and is
based on companies whose equity securities are traded on the Nasdaq Stock
Market. The line graphs represent monthly index levels derived from compounding
daily returns.
In constructing each of the line graphs in the following graph, the
closing price at the beginning point of the five year measurement period has
been converted into a fixed investment, stated in dollars, in the Company's
Class A common stock (or in the stocks represented by a given index in the cases
of the two comparison indexes), with cumulative returns for each subsequent
fiscal year measured as a change from that investment. Data for each succeeding
fiscal year during the five-year measurement period are plotted with points
showing the cumulative total return as of that point. The value of a
shareholder's investment as of each point plotted on a given line graph is the
number of shares held at that point multiplied by the then prevailing share
price.
The Company's Class B common stock is traded over-the-counter on a more
limited basis, and therefore comparisons similar to those previously described
for the Class A common stock are not directly available. However, the
performance of Class B common stock may be analogized to that of the Class A
common stock in that the Class B common stock is readily convertible to Class A
common stock by request to the Company.
REGISTRATION STATEMENT
Page 152
<PAGE>
<TABLE>
=============================================================================================================
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH
FOR GENERAL COMMUNICATION, INC., NASDAQ STOCK MARKET INDEX FOR
UNITED STATES COMPANIES, AND NASDAQ TELECOMMUNICATIONS STOCK
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Nasdaq Stock Market Index Nasdaq
Measurement Period Index for U.S. Telecommunication
(Fiscal Year Covered) Company Companies Stock
Measurement Point -
<S> <C> <C> <C>
FYE 12/31/90 $ 100.0 100.0 100.0
FYE 12/31/91 90.5 160.6 137.9
FYE 12/31/92 123.8 186.9 169.4
FYE 12/31/93 241.3 214.5 261.2
FYE 12/31/94 196.8 209.7 216.0
FYE 12/31/95 260.3 296.3 259.9
=============================================================================================================
</TABLE>
OWNERSHIP OF THE COMPANY
Principal Shareholders
So far as is known to management of the Company, as of the Record Date,
the following persons each owned beneficially more than 5% of the outstanding
shares of Class A common stock or Class B common stock of the Company. A
beneficial owner includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise, has or shares
the following powers within 60 days of the Record Date: (1) voting power, which
includes the power to vote or to direct the voting of shares of common stock of
the Company; or (2) investment power, which includes the power to dispose of or
to direct the disposition of, such shares of common stock of the Company. So far
as is known to the Company, the persons named in the table had sole voting and
investment power with respect to the shares indicated as owned by them except as
otherwise stated in the footnotes to the table. Shares issuable upon exercise of
outstanding options and warrants are deemed to be outstanding for the purpose of
computing the percentage of ownership of persons owning such options or warrants
but have not been deemed to be outstanding for the purpose of computing the
percentage of ownership of any other person.
REGISTRATION STATEMENT
Page 153
<PAGE>
<TABLE>
====================================================================================================================
SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
<CAPTION>
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership of Class
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Ronald A. Duncan 1,281,971 (1) 6.4
Class B 2550 Denali St., Suite 1000 248,062 (1) 6.1
Anchorage, Alaska 99503
Class A General Communication, Inc. 1,680,971 8.4
Class B Employee Stock Purchase Plan 142,828 3.5
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Class A Bufka & Rodgers, Inc. 1,099,800 5.5
Class B 425 North Martingale Road, -0- ---
Suite 750
Schaumburg, Illinois 60173
Class A Kearns-Tribune Corporation 300,200 1.5
Class B 400 Tribune Building 225,000 5.5
Salt Lake City, Utah 84111
Class A Bob Magness 273,992 (2) 1.4
Class B Chairman of the Board 815,048 (2) 20.0
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Class A MCI Telecommunications 6,251,509 (3) 31.5
Class B Corporation 1,275,791 (3) 31.2
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Class A Robert M. Walp 572,845 (4) 2.9
Class B 804 P Street, No. 4 303,457 (4) 7.4
Anchorage, Alaska 99501
Class A Voting Agreement 7,562,430 (5) 38.1
Class B c/o General Communication, Inc. 2,400,591 (5) 58.8
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Attn: Ronald A. Duncan
Class A Wellington Management Co. 1,347,500 (6) 6.8
Class B 75 State Street -0- ---
Boston, Massachusetts 02109
Class A TCI GCI, Inc. -0- ---
Class B 5619 DTC Parkway 590,043 (7) 14.4
Englewood, Colorado 80111
====================================================================================================================
<FN>
- -------------
1 Includes 18,560 shares of Class A and 8,242 shares of Class B common
stock gifted by Mr. Duncan to the Amanda Miller Trust, where Ms. Miller
is the daughter of Mr. Duncan's spouse, Dani Bowman, and Mr. Duncan has
a reversionary interest in those shares. Includes 105,111 shares of
Class A common stock of the Company held by the Company in its name but
for the benefit of Mr. Duncan pursuant to the terms of the First Duncan
Deferred Compensation Agreement and 90,220 shares of Class A common
stock of the Company held by the Company in its name but for the
benefit of Mr. Duncan pursuant to the terms of the Second Duncan
Deferred Compensation Agreement. See "MANAGEMENT OF THE
REGISTRATION STATEMENT
Page 154
<PAGE>
COMPANY: Remuneration of Directors and Executive Officers - Summary
Compensation." Includes 776,305 shares of Class A and 233,708 shares of
Class B common stock of the Company owned by Mr. Duncan but subject to
a Voting Agreement. See, "OWNERSHIP OF THE COMPANY: Changes in Control
-- Voting Agreement." Does not include 5,760 shares of Class A or
27,020 shares of Class B common stock held by Ms. Bowman, to which Mr.
Duncan disavows any interest.
Mr. Duncan had as of the Record Date the following interests in the
shares beneficially owned by him: (1) sole power to vote or to direct
the vote - no shares of Class A or Class B common stock; (2) shared
power to vote or to direct the vote -776,305 shares of Class A and
233,708 shares of Class B common stock; (3) sole power to dispose or to
direct the disposition - 103,341 shares of Class A and no shares of
Class B common stock; and (4) shared power to dispose or to direct the
disposition - 764,739 shares of Class A and 239,820 shares of Class B
common stock.
2 Includes 177,324 shares of Class A common stock of the Company and
194,440 shares of Class B common stock of the Company from the Estate
of Betsy Magness, in which Mr. Magness is beneficial owner and
executor.
Mr. Magness owns 25 percent, beneficially and of record, and another 25
percent, beneficially as executor of the Estate of Betsy Magness, of
the stock of KGBB, Inc., a Colorado corporation which holds 40,000
shares of Class A common stock of the Company, and as a result may be
deemed to have shared voting and investment power over those 40,000
shares. The number of shares in the table includes 20,000 shares of
Class A common stock of the Company directly and beneficially owned by
Mr. Magness due to his shareholdings in KGBB, Inc.
3 All of these shares are subject to a Voting Agreement. See, "OWNERSHIP
OF THE COMPANY: Changes in Control -- Voting Agreement."
MCI Telecommunications Corporation had as of the Record Date the
following interests in the shares beneficially owned by it: (1) sole
power to vote or to direct the vote - no shares of Class A or Class B
common stock; (2) shared power to vote or to direct the vote -
6,251,509 shares of Class A common stock and 1,275,791 shares of Class
B common stock; (3) sole power to dispose or to direct the disposition
- 6,251,509 shares of Class A and 1,275,791 shares of Class B common
stock; (4) shared power to dispose or to direct the disposition - no
shares of Class A or Class B common stock.
4 Includes 534,616 shares of Class A and 301,049 shares of Class B common
stock of the Company owned by Mr. Walp but subject to a Voting
Agreement. See, "OWNERSHIP OF THE COMPANY: Changes in Control -- Voting
Agreement."
Mr. Walp had as of the Record Date the following interests in the
shares beneficially owned by him: (1) sole power to vote or to direct
the vote - no shares of Class A or Class B common stock; (2) shared
power to vote or to direct the vote - 534,616 shares of Class A and
301,049 shares of Class B common stock; (3) sole power to dispose or to
direct the disposition- 534,616 shares of Class A and 301,049 shares of
Class B common stock; and (4) shared power to dispose or to direct the
disposition - 38,229 shares of Class A and 2,408 shares of Class B
common stock.
5 The Voting Agreement is described elsewhere in this Proxy
Statement/Prospectus. Does not include shares to be issued to the Prime
Sellers. See "OWNERSHIP OF THE COMPANY: Changes in Control -- Voting
Agreement."
6 Number of shares beneficially owned by the reporting person with shared
dispositive power. Number of shares beneficially owned by the reporting
person with shared voting power was 720,800 shares.
7 All of these shares are subject to the Voting Agreement. See,
"OWNERSHIP OF THE COMPANY: Changes in Control --Voting Agreement."
TCI GCI, Inc. had as of the Record Date the following interests in the
shares beneficially owned by it: (1) sole power to vote or to direct
the vote - no shares of Class A or Class B common stock; (2) shared
power to vote or to direct the vote - no shares of Class A common stock
and 590,043 shares of Class B common stock; (3) sole power to dispose
or to direct the disposition - no shares of Class A common stock and
590,043 shares of Class B common stock; (4) shared power to dispose or
to direct disposition - no shares of Class A or Class B common stock.
- ----------------
</FN>
</TABLE>
Management
<TABLE>
The following table sets forth information with respect to the
beneficial ownership of shares of the Company's Class A and Class B common stock
as of the Record Date by each director and nominee of the Company, by the Named
Executive Officers and by all directors and executive officers of the Company
REGISTRATION STATEMENT
Page 155
<PAGE>
as a group. Shares issuable upon exercise of outstanding options and warrants
are deemed to be outstanding for the purpose of computing the percentage of
ownership of the individual owning such options or warrants but have not been
deemed to be outstanding for the purpose of computing the percentage of
ownership of any other individual. So far as is known to the Company, the
individuals identified in the table had sole voting and investment power with
respect to the shares indicated as owned by them except as otherwise stated in
the footnotes to the table.
====================================================================================================================
SHAREHOLDINGS OF MANAGEMENT OF THE COMPANY
<CAPTION>
Amount and Nature
Title of Beneficial Percent
Class Name of Beneficial Owner Ownership (1),(2) of Class (3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A William C. Behnke 235,274 1.2
Class B -0- ---
Class A Ronald A. Duncan 1,281,971 (4) 6.4
Class B 248,062 (4) 6.1
Class A Donne F. Fisher 211,307 (5) 1.1
Class B 27,688 (5) *
Class A John W. Gerdelman -0- (6) ---
Class B -0- (6) ---
Class A G. Wilson Hughes 545,726 (7) 2.7
Class B 2,642 *
Class A John M. Lowber 413,488 2.1
Class B 6,140 *
Class A Carter F. Page 207,327 1.0
Class B 25,246 *
Class A Larry E. Romrell -0- (5) *
Class B 328 (5) *
Class A James M. Schneider -0- (6) ---
Class B -0- (6) ---
Class A Dana L. Tindall 190,760 1.0
Class B 3,697 *
Class A Robert M. Walp 572,845 (8) 2.9
Class B 303,457 (8) 7.4
Class A All Directors and 4,113,175 (5),(6) 19.3
Class B Executive Officers as a 699,378 (5),(6) 17.1
Group
(13 Persons)
====================================================================================================================
<FN>
- -------------
1 Includes interests of executive officers and directors in shares of
common stock of the Company held as of December 31, 1995 by the
trustees the Company's Stock Purchase Plan in that allocations under
the plan are made quarterly on March 31, June 30, September 30, and
December 31. These shares are not immediately accessible to
participants in that plan. See, "MANAGEMENT OF THE COMPANY:
Remuneration of Directors and Executive Officers -- Summary
Compensation and Stock Purchase Plan."
2 Includes options and warrants granted to individual directors and
executive officers as of the Record Date.
3 An asterisk (*) means the person is the beneficial owner of less than
1% of the corresponding class of common stock.
REGISTRATION STATEMENT
Page 156
<PAGE>
4 Includes 18,560 shares of Class A and 8,242 shares of Class B common
stock gifted by Mr. Duncan to the Amanda Miller Trust, where Ms. Miller
is the daughter of Mr. Duncan's spouse Dani Bowman, and Mr. Duncan has
a reversionary interest in those shares. Includes 105,111 shares of
Class A common stock of the Company held by the Company in its name but
for the benefit of Mr. Duncan pursuant to the terms of the First Duncan
Deferred Compensation Agreement and 90,220 shares of Class A common
stock of the Company held by the Company in its name but for the
benefit of Mr. Duncan pursuant to the terms of the Second Duncan
Deferred Compensation Agreement. See, "MANAGEMENT OF THE COMPANY:
Remuneration of Directors and Executive Officers -- Summary
Compensation." Includes 776,305 shares of Class A and 233,708 shares of
Class B common stock of the Company owned by Mr. Duncan but subject to
a Voting Agreement. See, "OWNERSHIP OF THE COMPANY: Changes in Control
-- Voting Agreement." Does not include 5,760 shares of Class A or
27,020 shares of Class B common stock held by Ms. Bowman, to which Mr.
Duncan disavows any interest.
Mr. Duncan had as of the Record Date the following interest in the
shares beneficially owned by him: (1) sole power to vote or to direct
the vote - no shares of Class A or Class B common stock; (2) shared
power to vote or to direct the vote -776,305 shares of Class A and
233,708 shares of Class B common stock; (3) sole power to dispose or to
direct the disposition - 103,341 shares of Class A and no shares of
Class B common stock; and (4) shared power to dispose or to direct the
disposition - 764,739 shares of Class A and 239,780 shares of Class B
common stock.
5 Does not include holdings of TCI GCI, Inc. in the Company, where TCI
GCI, Inc. is a subsidiary of TCI and Mr. Fisher is a consultant for and
Mr. Romrell is an officer of TCI.
6 Does not include holdings of MCI in the Company, where Messrs.
Gerdelman and Schneider are officers of that corporation.
7 Includes 3,750 shares of Class A common stock of the Company held by
the Company in its name but for the benefit of Mr. Hughes pursuant to
the terms of the Hughes Deferred Compensation Agreement. See,
"MANAGEMENT OF THE COMPANY: Remuneration of Directors and Executive
Officers -- Summary Compensation."
8 Includes 534,616 shares of Class A and 301,049 shares of Class B common
stock of the Company owned by Mr. Walp but subject to a Voting
Agreement. See, "OWNERSHIP OF THE COMPANY: Changes in Control -- Voting
Agreement."
Mr. Walp had as of the Record Date the following interests in the
shares beneficially owned by him: (1) sole power to vote or to direct
the vote - no shares of Class A or Class B common stock; (2) shared
power to vote or to direct the vote - 534,616 shares of Class A and
301,049 shares of Class B common stock; (3) sole power to dispose or to
direct the disposition - 534,616 shares of Class A and 301,049 shares
of Class B common stock; and (4) shared power to dispose or to direct
the disposition - 38,229 shares of Class A and 2,408 shares of Class B
common stock.
- -------------
</FN>
</TABLE>
Changes in Control
Acquisition Plan. Under the Acquisition Plan, the Company will issue
Company Stock to the Prime Sellers, Alaskan Cable, and MCI Company Stock to MCI.
In addition, should Alaska Cablevision exercise its right to convert all of the
Cablevision Company Notes to Class A common stock, a total of as much as
1,538,461 shares would be issued to it. Should the Acquisition Plan be
consummated and all of those notes converted as of the Record Date, there would
be a material change in control of the Company. The percentage shareholdings in
the Company Class A and Class B common stock just before and just after the
consummation of the Acquisition Plan, should it have occurred on the Record
Date, would be as follows: (1) Prime Sellers (prior to any distributions to
their securities holders, including other members of the Prime Group) - from 0%
to 29%; (2) MCI -- from 31% to 23%; (3) the Company's employees and management
combined -- from 17% to 10%; (4) Alaskan Cable -- from 0% to 7%; (5) others --
from 52% to 31%. The shareholdings of MCI, the Cable Companies, and certain
other persons are subject to the Voting Agreement described elsewhere in this
Proxy Statement. See, "OWNERSHIP OF THE COMPANY:
Changes in Control -- Voting Agreement."
Voting Agreement. As a part of the agreement for the issuance of
6,251,509 shares of Class A and 1,275,791 shares of Class B common stock of the
Company to MCI in 1993 ("MCI Stock"), the Company agreed to assure the
corporation that it may appoint a minimum of two members to the Company's
expanded seven member Company Board. On May 28, 1993, three principal
shareholders,
REGISTRATION STATEMENT
Page 157
<PAGE>
including two officers and directors of the Company (Messrs. Duncan and Walp and
WSMC), entered into a voting agreement ("Voting Agreement") with MCI which
provides in part, that the voting stock of these persons will be voted at
shareholder meetings as a block in favor of no more than two nominees by the
corporation for no more than two positions on the Company Board at any one time.
The Voting Agreement similarly commits MCI and the other three parties to vote
their shares for four board nominees proposed by and allocated between the other
parties. Upon consummation of the Acquisition Plan, the Voting Agreement will be
replaced by the New Voting Agreement described elsewhere in this Proxy
Statement/Prospectus. See, "THE PROPOSED TRANSACTIONS: New Voting Agreement."
As of the Record Date, Mr. Gerdelman remained as one of the recommended
MCI Telecommunications Corporation selections for the Company Board. It is
anticipated that the parties to the Voting Agreement will cast all of their
votes for Messrs. Gerdelman, Page, and Walp at the Annual Meeting. As of the
Record Date, the voting stock of the parties to the Voting Agreement (in April,
1995 WSMC transferred its shareholdings in the Company to TCI GCI, Inc., and TCI
GCI, Inc. became subject to the Voting Agreement) constituted in excess of a
simple majority of the outstanding voting power of the Company.
Pledges of Stock of Subsidiaries. Should the Company default on its
obligations under the Credit Agreement with its present Senior Lender, that
lender may exercise the pledge of stock provisions of that agreement pertaining
to the subsidiaries of the Company and thereby gain direct control of the
essential operating assets through which the Company and its subsidiaries
provide telecommunication services. See, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS: Certain Transactions with Management and Others -- Credit
Agreement."
DISTRIBUTION OF COMPANY STOCK
Principal Security Holders
General. The Proposed Transactions provide for a distribution of the
Company Stock to certain of the Cable Companies. Those companies will, in turn,
pursuant to resolutions or other appropriate action distribute their pro rata
portions of the Company Stock to their security holders according to their
interests under the applicable limited partnership agreements or then ownership
of shares of the applicable corporation, as the case may be. The table below set
forth the names and addresses of certain parties who will receive shares of
Company Stock, the nature of beneficial ownership, the number of shares of
Company Stock to be received by each and the percent of Company Class A common
stock outstanding, assuming the Company Stock and the MCI Company Stock were
issued and outstanding on the Record Date. The definition of a beneficial owner
is as defined elsewhere in this Proxy Statement/Prospectus. See, "OWNERSHIP OF
THE COMPANY: Principal Shareholders." So far as is known to the Company, the
persons named in the table are to have sole voting and investment power with
respect to the securities indicated as owned by them except as otherwise stated
in the footnotes to the table.
Prime. The allocation of the shares of Company Stock constituting the
Prime Company Shares is based on the assumption that all such Prime Company
Shares will be distributed to the partners and equity participation interest
holders of Prime in liquidation of Prime pursuant to the allocation provisions
of the Prime Partnership Agreement. Some of the Prime Company Shares will
ultimately be distributed to the Prime Group. The allocation of the Prime
Company Shares to be distributed to the Prime Group is also based on the
assumption that all such Prime Company Shares were distributed to them by the
Prime Sellers in accordance with the distribution provisions of the respective
limited partnership agreements of the Prime Sellers. There was no need to
separately value each Prime Sellers entity, since the Prime Company Shares will
be distributed in accordance with the allocation provisions of the respective
limited partnership agreements, and such separate values were not considered in
connection with
REGISTRATION STATEMENT
Page 158
<PAGE>
determining the number of Prime Company Shares that would be issued and
delivered pursuant to the Prime Proposed Transaction.
<TABLE>
=======================================================================================================================
DISTRIBUTION OF COMPANY STOCK
AMONG SECURITY HOLDERS OF
CERTAIN CABLE COMPANIES
<CAPTION>
Amount and Nature
of Beneficial
Name and Address Ownership of
of Recipient of Company Stock (Relation to Company Stock to
Name of Cable Company Cable Company) Be Received Percent of Class (1),(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime: (7)
Shareholders of
Alaska Cable, Inc. (3) 5,691,404 (3) 15.6%
(limited partner of Prime)
Prime Cable Limited Partnership (4) 2,227,071 (4) 6.1%
(sole shareholder of Prime General Partner)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Prime Cable Growth Partners, L.P. (5) 2,725,649 (5) 7.5%
(limited partner of Prime)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Prime Venture I Holdings, L.P. (6) 2,290,510 (6) 6.3%
(limited partner of Prime)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Banc Boston Capital, Inc. 332,323 *
(equity participation interest holder of
Prime)
100 Federal Street
Boston, Massachusetts 02110
First Chicago Investment Corporation 301,407 *
(equity participation interest holder of
Prime)
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
Madison Dearborn Partners V 30,916 *
(equity participation interest holder of
Prime)
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
Alaskan Cable: (8) 2,923,077 8.0%
Alaskan Cable/Fairbanks Alaskan Cable Network, Inc. --- ---
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
REGISTRATION STATEMENT
Page 159
<PAGE>
Alaskan Cable/Juneau Alaskan Cable Network/Juneau --- ---
Holdings, Inc.
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
Alaskan Cable/Ketchikan Jack Kent Cooke Incorporated --- ---
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
=========================================================================================================================
<FN>
- ----------------
1 Asterisk (*) means less than 1% of class.
2 After giving effect to the issuance of all of the Company Stock and the
MCI Company Stock.
3 To be distributed to seven shareholders of ACI as shown below, pursuant
to the ACI Merger. These shareholders will either hold the Company
Stock acquired by them in that merger or distribute such stock to their
investors, consistent with the escrow holdback provisions of the Prime
Proposed Transaction and with the restrictions on transfer in the Prime
Proposed Transaction. See, "PROPOSED TRANSACTIONS: Cable Company
Purchase Agreements--Escrow and Holdback Agreements-Prime." The seven
shareholders of ACI, their addresses and the number of shares of
Company Stock to be acquired by them in connection with the merger, are
as follows: (1) PVII, 3000 One American Center, 600 Congress Avenue,
Austin, Texas 78701 - 1,237,262 shares; (2) William Blair Venture
Partners III Limited Partnership, 222 West Adams, Chicago, Illinois
60606 - 1,237,262 shares; (3) Austin Ventures, L.P., 114 West Seventh
Street, #1300, Austin, Texas 78701 - 989,809 shares; (4) Prime
Holdings, 3000 One American Center, 600 Congress Avenue, Austin, Texas
78701 - 742,357 shares; (5) Centennial Fund III, L.P., 1999 Broadway,
#2100, Denver, Colorado 80202 - 742,357 shares; (6) Centennial Business
Development Fund, Ltd., 1999 Broadway, #2100, Denver, Colorado 80202 -
494,905 shares; and (7) Centennial Fund II, L.P., 1999 Broadway, #2100,
Denver, Colorado 80202 - 247,452 shares. Based on Company Class A
common stock outstanding as of the Record Date, and assuming the Prime
Company Shares, the Alaskan Cable Company Shares and the MCI Company
Stock had been issued on that date, none of the ACI shareholders will
acquire 5% or more of the Company Class A common stock.
4 To be distributed to the approximately 300 partners of PCLP, consistent
with the escrow holdback provisions of the Prime Proposed Transaction
and with the restrictions on transfer. See, "PROPOSED TRANSACTIONS:
Cable Company Purchase Agreements--Escrow and Holdback
Agreements-Prime." Based on Company Class A common stock outstanding as
of the Record Date, and assuming the Prime Company Shares, the Alaskan
Cable Company Shares and the MCI Company Stock had been issued on that
date, none of the partners of PCLP will acquire 5% or more of the
Company Class A common stock.
5 Includes 2,721,974 shares to be received by Prime Growth as a limited
partner of Prime, to be distributed among the partners of Prime Growth,
consistent with the escrow holdback provisions of the Prime Proposed
Transaction with the restrictions on transfer. See, "PROPOSED
TRANSACTIONS: Cable Company Purchase Agreements--Escrow and Holdback
Agreements-Prime." Based on Class A common stock outstanding as of the
Record Date, and assuming the Prime Company Shares, the Alaskan Cable
Company Shares and the MCI Company Stock had been issued on that date,
none of the partners of Prime Growth will acquire 5% or more of the
Company Class A common stock. In addition to the 2,721,974 shares
described above, Prime Growth will ultimately receive 3,675 shares as a
limited partner of the general partner of PVII (also a shareholder of
ACI). As a result, Prime Growth will acquire a total of 2,725,649
shares of Company Stock in the Prime Proposed Transaction.
6 Includes 494,905 shares to be received by Prime Holdings as a limited
partner of Prime, to be distributed among the partners of Prime
Holdings, consistent with the escrow holdback provisions of the Prime
Proposed Transaction and with the restrictions on transfer. See,
"PROPOSED TRANSACTIONS: Cable Company Purchase Agreements--Escrow and
Holdback Agreements-Prime." Based on Company Class A common stock
outstanding as of the Record Date, and assuming the Prime Company
Shares, the Alaskan Cable Company Shares and the MCI Company Stock had
been issued on that date, none of the partners of Prime Holdings will
acquire 5% or more of the Company Class A common stock. In addition to
the 494,905 shares of Company Stock shown above to be acquired by Prime
Holdings as limited partner of Prime, Prime Holdings will also receive
742,357 shares of Prime Company Shares as a shareholder of ACI (see
footnote 3 above) and will ultimately receive 3,675 shares as a limited
partner of the general partner of PVII (also a shareholder of ACI) and
approximately 1,049,573 shares of Company Stock as general partner of
Prime Growth. As a result, Prime Holdings will acquire a total of
approximately 2,290,510 shares of Company Stock in the Prime Proposed
Transaction.
REGISTRATION STATEMENT
Page 160
<PAGE>
7 A total of 11,800,000 shares of Company Stock are being issued in the
Prime Proposed Transaction. The total number of shares to be
distributed to the various entities shown in this table with respect to
Prime is greater than 11,800,000 shares for the reason that some of the
shares to be received by the shareholders of ACI will be received by
(and are included in the number of shares shown opposite) the following
other entities shown in this table with respect to Prime: Prime Growth
and Prime Holdings.
8 Includes all of the Alaskan Cable Company Shares to be issued in the
Alaskan Cable Proposed Transaction. The three corporations comprising
Alaskan Cable have been treated as a combined group for purposes of the
sale of their assets to the Company under the Alaskan Cable Purchase
Agreement. As of the Record Date, Alaskan Cable had not determined the
allocation of the purchase price, including the Alaskan Cable Company
Shares, among those three corporations. The allocation between the
three corporations will be done in amounts acceptable to those
corporations and to the Company. All three corporations comprising
Alaskan Cable are ultimately controlled by Jack Kent Cooke
Incorporated, of which Jack Kent Cooke is a controlling shareholder.
- ----------------
</FN>
</TABLE>
Management
<TABLE>
Prime. The following table sets forth information with respect to the
beneficial ownership of shares of the Prime Company Shares and Alaskan Cable
Company Shares as of the Record Date (assuming the Prime Company Shares, the
Alaskan Cable Company Shares, and the MCI Company Stock had been issued as of
that date) by each director and by each of the four most highly compensated
executive officers and by the chief executive officer of the general partner of
PIIM (PMI) and by all directors and executive officers of that general partner
as a group, assuming that all shares distributable to them upon liquidation of
each corporation and partnership in which they have a direct or indirect
interest, were so distributed. No shares of such stock were subject to options
or warrants held by these individuals. So far as is known to the Company, the
individuals identified in the table would as of the Record Date have sole voting
and investment power with respect to the shares indicated owned by them except
as otherwise stated in the footnotes to the table, assuming the distributions
were made as described in the preceding sentence.
REGISTRATION STATEMENT
Page 161
<PAGE>
====================================================================================================================
SHAREHOLDINGS OF MANAGEMENT
OF PMI TO BE HELD IN PRIME COMPANY SHARES AS A RESULT OF PRIME PROPOSED TRANSACTION
<CAPTION>
Amount and Nature of
Beneficial Ownership (1), (2) Percent of
Name of Beneficial Owner and Office Held Class (3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert W. Hughes, Chairman of the Board and Director 203,362 (4) *
William P. Glasgow, President 51,071 *
Paul-Henri Denuit, Director -0- (5) -0-
Brian Greenspun, Director -0- -0-
Gregory S. Marchbanks, Chief Executive Officer and
Director 164,990 *
Michael Sherwin, Director 18,673 (6) *
Jerry D. Lindauer, Senior Vice President 106,047 (7) *
Allan Barnes, Senior Vice President and Chief *
Operating Officer 13,924 (8)
Daniel Pike, Senior Vice President-Science & Technology
59,083 *
====================================================================================================================
<FN>
- ------------
1 As of the Record Date, none of the individuals identified in the table
owned any shares of Company Class B common stock, none had rights to
acquire any shares of that class pursuant to the Prime Proposed
Transaction, and, to the knowledge of the Company, none had other
rights to acquire any shares of that class.
2 Assumes an ultimate distribution of the Prime Company Shares to be
received by the Prime Sellers in the Prime Proposed Transaction by each
Prime Seller to its partners and by such partners (and any other
intervening entities) to the above-named individuals, and that any such
shares held in escrow pursuant to the Prime Escrow Holdback as
described elsewhere in this Proxy Statement/Prospectus will be
released. Certain of the individuals named in the table are also
directors, officers and owners of various entities related to Prime and
its partners. See "ACQUISITION PLAN: Interests of Certain Persons in
the Acquisition Plan--Prime Security Ownership and Officer/Director
Relations" and "PROPOSED TRANSACTIONS: Cable Company Purchase
Agreements--Escrow and Holdback Agreements-Prime."
3 An asterisk (*) means the person is the beneficial owner of less than
1% of the corresponding class of common stock.
4 Mr. Hughes may also be deemed to be the beneficial owner of an
aggregate of 595,936 shares of Company Stock upon the acquisition of
such shares by several family trusts that are direct or indirect
investors in one or more of the Prime Seller entities. Mr. Hughes or
his spouse is either trustee or co-trustee or income beneficiary, as
the case may be, of such trusts. Mr. Hughes disclaims beneficial
ownership of such 595,936 shares, and such shares are excluded from the
number of shares of Company Stock shown in the above table as being
beneficially owned by him.
5 Mr. Denuit is president of Coditel, US, Inc. and is director of Coditel
Invest B.V. which will ultimately acquire 230,085 and 405,137 shares of
Company Stock as direct or indirect investors in various of the Prime
Sellers entities. Such shares are excluded from the number shown above
as being beneficially owned by Mr. Denuit, and he disclaims beneficial
ownership of such shares.
6 Mr. Sherwin is the general partner of Mid-West Holdings, L.P., which
will ultimately acquire 14,159 shares of Company Stock as a direct or
indirect investor in one or more of the Prime Sellers entities. Such
shares are excluded in the number shown above as being beneficially
owned by Mr. Sherwin. Mr. Sherwin disclaims beneficial ownership of
such shares.
REGISTRATION STATEMENT
Page 162
<PAGE>
7 Mr. Lindauer is trustee of a trust which will ultimately acquire 40,553
shares of Company Stock as a direct or indirect investor in one or more
of the Prime Sellers entities. Such shares are excluded in the number
shown above as being beneficially owned by Mr. Lindauer. Mr. Lindauer
disclaims beneficial ownership of such 40,553 shares.
8 Excludes 12,817 shares to be acquired by Mr. Barnes' spouse as a direct
or indirect investor in one or more of the Prime Sellers entities, as
to which shares Mr. Barnes disclaims beneficial ownership.
- ----------------
</FN>
</TABLE>
Alaskan Cable. Jack Kent Cooke, the president of each of the three
corporations comprising Alaskan Cable, controls, directly or indirectly, all of
the shareholders of these corporations. Under the terms of the Alaskan Cable
Proposed Transaction, all of the Alaskan Cable Company Shares will be issued to
the sole shareholder in the case of each of those three corporations and not to
the officers or directors of them. The shares of the Alaskan Cable Company
Shares allocated to Alaskan Cable/Fairbanks and Alaskan Cable/Juneau may be
distributed to Jack Kent Cooke, Inc., the sole shareholder of Alaskan
Cable/Ketchikan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions with Management and Others
Acquisition Plan. The Acquisition Plan includes Proposed Transactions
providing that the Prime Sellers will have the right to select individuals for
nominees to two positions on the Company Board. The Acquisition Plan also
provides registration rights to owners of certain of the Cable Companies who
acquire the Company Stock. The Acquisition Plan requires the Company to enter
into the Prime Management Agreement with an affiliate of the Prime Sellers.
These transactions are further described elsewhere in this Proxy Statement. See,
"OWNERSHIP OF THE COMPANY: Changes in Control -- Acquisition Plan; Changes in
Control -- Voting Agreement"; "ACQUISITION PLAN"; and "PROPOSED TRANSACTIONS."
MCI Agreements. In December, 1992, MCI and the Company entered into a
letter of intent outlining the general terms and conditions of several proposed
arrangements between them to be subsequently reduced to separate agreements
("MCI Agreements"). Under the MCI Agreements, in addition to MCI acquiring a
substantial portion of the outstanding common stock of the Company and entering
into the Voting Agreement to ensure that it would be able to appoint or
otherwise elect at least two members to the Company Board, MCI and the Company
have established or will establish various business arrangements between them.
These arrangements include the following: (1) providing telecommunications
services by each party to the other; (2) licensing of certain MCI service marks
to the Company for use in Alaska; (3) leasing by MCI from the Company and the
subleasing back by the Company of one-ninth of the undersea fiber optic cable
linking Seward, Alaska with Pacific City, Oregon; (4) purchasing by MCI of
certain service marks of the Company; (5) other communication network sharing;
and (6) sharing of various marketing, engineering, and operating resources. As
of the Record Date, the Company had executed access service, carrier, 1-800
collect service mark and product, and undersea fiber optic cable agreements with
MCI pertaining to items (1)-(3) and was in the process of negotiating agreements
pertaining to items (4)-(6). These arrangements have during the year ended
December 31, 1995 resulted in revenues to MCI and its subsidiaries of
approximately $8.4 million and revenues to the Company of approximately $24
million.
In March, 1996, the Company and MCI amended the Contract for Alaska
Access Services and the MCI Carrier Agreement, both of which agreements the
parties had initially entered into effective January 1, 1993. The access
agreement addresses transmission services provided by the Company to MCI for its
traffic and the charges for such services. The carrier agreement addresses
transmission services provided by MCI to the Company for its traffic and the
charges for such services. The carrier agreement amendment is the fifth
effective amendment to the agreement and extends the term of the agreement by
REGISTRATION STATEMENT
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<PAGE>
three years. The prior amendments provided for new, expanded, or revised
services by MCI to the Company and adjustments of charges for those services.
The access agreement amendment is the first effective amendment to the
agreement. It extends the term of the agreement by three years and reduces the
rate in dollars to be charged by the Company for certain MCI traffic for the
time period April 1, 1996 through July 1, 1999 and thereafter. The rate
reduction, if applied to the number of minutes to be carried by the Company in
1996 and 1997, based upon minutes carried by the Company during 1995, would
reduce the Company's 1996 and 1997 revenue by approximately $322,000 and
$399,000, respectively. Those recent amendments to the two agreements do not
otherwise change the agreements. The Company considered the amendments of both
agreements together as in its best interest. With these amendments, the Company
is assured that MCI, the Company's largest customer, will continue to make use
of the Company's services during the extended term.
As a part of the Acquisition Plan, MCI has agreed to purchase the MCI
Company Stock, subject to the preparation of a formal Purchase Agreement for
review and approval by the board of directors of MCI. See, "PROPOSED
TRANSACTIONS: MCI Purchase Agreement" and "OWNERSHIP OF THE COMPANY: Changes in
Control-- Acquisition Plan."
Credit Agreement. In April, 1996, the Company entered into a new $62.5
million senior credit facility ("Credit Agreement") with NationsBank of Texas,
N.A. in Dallas, Texas, Toronto-Dominion Bank in New York, New York, National
Bank of Alaska in Anchorage, Alaska, and Credit Lyonnais in New York, New York
("Senior Lenders") to replace the previous facility. The Credit Agreement
continues a number of conditions imposed under previous credit agreements
entered into by the Company. In compliance with one of those conditions, the
Company previously formed GCC, i.e., GCI Communication Corp., an Alaska
corporation and wholly owned subsidiary of the Company. On November 30, 1990 all
of the Company's operating assets were transferred to GCC and the outstanding
capital stock of GCC was pledged to the then senior lenders of the Company. This
reorganization proposal was approved by the shareholders of the Company at the
June 7, 1990 annual shareholders meeting. That pledge is now made to the Senior
Lenders and will remain in place for so long as the Credit Agreement remains in
effect. As of the Record Date, the outstanding common stock of GCC remained
pledged to the Senior Lenders. Throughout the year ended December 31, 1995 and
from that date through the Record Date, the Company was in full compliance with
all terms of the Credit Agreement and its precursor agreement, the terms of
which are further described elsewhere in this Proxy Statement/Prospectus. See,
"RISK FACTORS: Company Common Stock Inherent Factors--Pledge of Securities" and
"ANNUAL REPORT."
WSMC Agreements. The Company purchased services and used certain
facilities of WSMC to allow the Company to provide its telecommunication
services in other states in the country. The total of such purchases from WSMC
by the Company during the year ended December 31, 1995 was approximately
$245,000.
Duncan Lease. The Company entered into a long-term capital lease
agreement in 1991 with a partnership of which Mr. Duncan, the Company's
president, was a 50% owner. Mr. Duncan sold his interest in the partnership in
1992 but remained a guarantor on the note used to finance acquisition of the
property. During 1993, Mr. Duncan married Dani Bowman, the individual to whom he
sold his interest in the partnership, and as of the Record Date, the property
was owned in its entirety by the president's spouse. The property under lease
consists of a building presently occupied by the Company. The lease term is 15
years with monthly payments of $14,400, increasing in $800 increments at each
two year anniversary of the lease. The first incremental increase occurred in
1993. If the owner sells the premises prior to the end of the tenth year of the
lease, the owner will rebate to the Company one-half of the net sales price
received in excess of $900,000. If the property is not sold prior to the tenth
year of the lease, the owner will pay the Company the greater of one-half of the
appreciated value of the property over $900,000, or $500,000. The leased asset
was capitalized in 1991 at the owner's cost of $900,000 and
REGISTRATION STATEMENT
Page 164
<PAGE>
the related obligation was recorded in the financial statements of the Company
as reflected in the Annual Report. See, "ANNUAL REPORT."
Indebtedness of Management
On August 13, 1993 Mr. Duncan obtained a loan of $500,000 from the
Company ("Duncan Loan") and executed a non-recourse promissory note to the
Company which bears an interest rate equal to the variable rate paid by the
Company on its Credit Agreement with its Senior Lender. Mr. Duncan is to pay off
the Duncan Loan in one payment of principal and accrued interest 90 days after
the termination of his employment with the Company or July 30, 1998, whichever
is earlier. The money was used to pay down a portion of the indebtedness of Mr.
Duncan on certain loans that he assumed and is obligated to pay to WSMC,
allowing for the release to Mr. Duncan of 223,000 shares of Class A common stock
used as collateral on that loan. Those shares were then pledged as collateral to
secure the Duncan Loan. The largest outstanding balance of principal and
interest on the Duncan Loan during the year ended December 31, 1995 was $585,966
on that date. As of the Record Date the outstanding balance of principal and
interest on the Duncan Loan was $610,091.
During 1995, the Company made payments to others on behalf of Mr.
Duncan in the amount of $592. These payments, when added to advances made to Mr.
Duncan in prior years totalled $15,594. Mr. Duncan reimbursed the Company
$14,144 during 1995, which left a total of $1,450 outstanding at December 31,
1995. During 1996 through the Record Date, the Company made payments to others
on behalf of Mr. Duncan in the amount of $86. Mr. Duncan reimbursed the Company
$1,511 during 1996, which left a total of $25 outstanding as of the Record Date.
In May, 1994, Mr. Duncan received additional loans totalling $55,000
from the Company and executed two promissory notes totalling that amount. The
terms were for interest to accrue at 7% per annum with principal to be paid in
August, 1994. The notes were extended, and the full principal and interest in
the amount of $55,686 was paid on March 6, 1995.
In September, 1995, Mr. Duncan received an additional loan in the
amount of $70,000. The terms were for interest to accrue at the variable rate
paid by the Company on its Credit Agreement with its then senior lender. The
full principal and interest owed in the amount of $71,486 were paid in full on
December 29, 1995.
In June and July, 1996, Mr. Duncan received additional loans in the
amount of $100,000, $60,000 and $50,000 from the Company. The terms were for
interest to accrue at the variable interest rate paid by the Company on its
Credit Agreement with its Senior Lender, and the loans were secured by Company
Class A common stock. The notes and accrued interest were repaid on September 9,
1996. Accrued interest on the notes totaled $2,474 on the Record Date.
In April, 1993, Mr. Behnke obtained a loan from the Company in the
amount of $48,000 and executed a promissory note. The note bears interest at 9%
per annum, is secured by options to purchase 85,190 shares of Class A common
stock of the Company, and was due on December 31, 1995. The Company extended the
due date on the note to June 30, 1997. Accrued interest on the note totalled
$11,540 at December 31, 1995 and $14,274 on the Record Date. In September, 1995,
Mr. Behnke obtained another loan from the Company in the amount of $50,000 and
executed a promissory note. The note bears interest at a rate equal to that paid
by the Company to its then Senior Lender pursuant to the Credit Agreement. The
note is secured by the same options to purchase those 85,190 shares of Class A
common stock and is due on June 30, 1997. Accrued interest on the note totalled
$1,150 at December 31, 1995 and $3,563 on the Record Date.
REGISTRATION STATEMENT
Page 165
<PAGE>
In August, 1994 and April, 1995, Mr. Dowling received loans from the
Company of $224,359 and $86,000 respectively, and executed promissory notes
secured by 160,297 shares of Company Class A and 74,028 shares of Class B common
stock. The notes bear interest at 10% per annum and are payable in ten equal
installments of principal and interest. Payment has not been made on the notes.
The Company has extended the term of the notes with ten equal installments of
principal and interest payable over a period of ten years due in August of each
year with the first payment on each note due in August, 1996. Accrued interest
totalled $36,476 at December 31, 1995 and $56,119 on the Record Date.
In January, 1996, Ms. Tindall received a loan in the amount of $70,000
from the Company and executed a promissory note. The terms were for interest to
accrue at the variable interest rate paid by the Company on its Credit Agreement
with its Senior Lender and is secured by options to purchase 165,917 shares of
Company Class A common stock and the deferred compensation agreement dated
August 15, 1994 between the Company and Ms. Tindall. The note and accrued
interest are due on or before January 16, 1999. Accrued interest on the note
totaled $3,099 on the Record Date.
Except as disclosed in this Proxy Statement/Prospectus, neither as a
group nor individually did any director, executive officer, nominee for election
as a director, any member of the immediate family of these persons, or any
corporation or organization of which such director, executive officer, or
nominee is an executive officer or partner and is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities of that
corporation, or any trust or other estate in which such director, executive
officer, or nominee of the Company has a substantial beneficial interest or as
to which such person serves as a trustee or in a similar capacity have during
the year ended December 31, 1995 nor during the portion of calendar year 1996
ended on the Record Date, any indebtedness to the Company in an amount in excess
of $60,000.
SECURITIES ACT INDEMNIFICATION
The Company Articles and Company Bylaws provide for the indemnification
of a person, who is made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative, or investigative, by reason
of the fact that he or she is or was a director, employee or agent at the
request of the Company. The Company Bylaws further provide for indemnification
of a person who was, is, or is threatened to be made a party to a completed,
pending, or threatened action by or in the right of the Company to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee, or agent of another
enterprise. These indemnifications, apply to liabilities arising under the
Securities Act. However, no indemnification applies if the officer, director,
employee, or agent is adjudged to be liable for negligence or misconduct in the
performance of the person's duty to the Company unless the court in which the
action or suit was brought determines upon application that, despite the
adjudication of liability, in view of all circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses that the court
considers proper.
The Company has been informed insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, or persons controlling the Company pursuant to the aforementioned
provisions, that in the opinion of the SEC such indemnification is against
public policy as expressed in that act and is therefore unenforceable.
LITIGATION AND REGULATORY MATTERS
The Company was, as of the Record Date, involved in several
administrative matters primarily related to its long distance markets in Alaska
and the remaining 49 states and other regulatory matters. These actions are
discussed in the Company's Annual Report. See, "ANNUAL REPORT."
REGISTRATION STATEMENT
Page 166
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company Board retained KPMG Peat Marwick LLP as the independent
certified public accountants for the Company during the fiscal year ended
December 31, 1995. It is anticipated that the Board will appoint KPMG Peat
Marwick LLP as the Company's independent, certified public accountants for the
fiscal year ending December 31, 1996. A representative of KPMG Peat Marwick LLP
is expected to be present at the Annual Meeting. The representative will have
the opportunity to make a statement, if so desired, and will be able to respond
to appropriate questions.
ANNUAL REPORT
The Annual Report to shareholders of the Company in the form of Form
10-K, as amended by Form 10-K/A, for the year ended December 31, 1995 is
enclosed with this Proxy Statement/Prospectus. Also enclosed with this Proxy
Statement/Prospectus is the Company's unaudited quarterly report on Form 10-Q
for the quarter ended June 30, 1996.
SUBMISSION OF SHAREHOLDER PROPOSALS
Certain matters are required to be considered at an annual meeting of
shareholders of the Company, e.g., the election of directors. From time to time,
the board of directors of the Company may wish to submit to those shareholders
other matters for consideration. Additionally, those shareholders may be asked
to consider and take action on proposals submitted by shareholders who are not
members of management that cover matters deemed proper under regulations of the
Securities and Exchange Commission and applicable state laws.
Shareholder eligibility to submit proposals, proper subjects and the
form of shareholder proposals are regulated by Rule 14a-8 under Section 14(a) of
the Exchange Act. Each proposal submitted should be sent to the Secretary of the
Company at the corporate offices of the Company. Such proposals should include
the full and correct registered name and address of the shareholders making the
proposal, the number of shares owned and their date of acquisition. If
beneficial ownership is claimed, proof of it should be submitted with the
proposal. Such shareholders or their representatives must appear in person at
the annual meeting and must present the proposal, unless they can show good
cause for not doing so.
Shareholder proposals must be received by the Secretary of the Company
not later than December 27, 1996 for such proposals to be included in proxy
materials for the 1997 annual meeting of shareholders of the Company.
Management carefully considers all proposals and suggestions from
shareholders. When adoption of a suggestion or proposal is clearly in the best
interest of the Company and the shareholders generally, and does not require
shareholder approval, it is usually adopted by the Company Board, if
appropriate, rather than being included in the proxy statement.
EXPERTS
The financial statements and schedules of the Company as of December
31, 1995 and 1994, and for each of the years in the three-year period ended
December 31, 1995, have been incorporated by reference in this Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference in this Registration
Statement, and upon the authority of that firm as experts in accounting and
auditing.
REGISTRATION STATEMENT
Page 167
<PAGE>
The audited combined financial statements of Alaskan Cable at December
31, 1995 and 1994, and for each of the three years in the period ended December
31, 1995, appearing in this Proxy Statement/Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The audited financial statements of Alaska Cablevision at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, appearing in this Proxy Statement/Prospectus and Registration Statement
have been audited by Carl & Carlsen, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Prime at December 31, 1995 and 1994, and
for each of the two years in the period ended December 31, 1995, appearing in
this Proxy Statement/Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The statements of operations, changes in partners' capital deficiency
and cash flows of Prime for the year ended December 31, 1993, included in this
Registration Statement and Proxy Statement/Prospectus have been audited by
Coopers & Lybrand L.L.P., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The audited combined financial statements of Alaskan Cable at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, appearing in this Proxy Statement/Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of Alaska Cablevision at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Proxy Statement/Prospectus and Registration Statement have
been audited by Carl & Carlsen, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Prime at December 31, 1995 and 1994, and for
each of the two years in the period ended December 31, 1995, appearing in this
Proxy Statement/Prospectus and Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The statements of operations, changes in partners' capital deficiency and
cash flows of Prime for the year ended December 31, 1993, included in this
Registration Statement and Proxy Statement/Prospectus have been audited by
Coopers & Lybrand L.L.P., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
REGISTRATION STATEMENT
Page 168
OTHER INFORMATION
The following information has been extracted from the Company's Forms
10-K, as amended, for the year ended December 31, 1995. See, "ANNUAL REPORT" and
"AVAILABLE INFORMATION."
Business
Products. The Company offers a broad spectrum of telecommunication
services to residential, commercial and government customers primarily
throughout Alaska. The Company operates in two industry segments and offers five
primary product lines. The message and data transmission services industry
segment offers message toll, private line and private network services, and the
system sales and service industry segment offers data communication equipment
sales and technical services.
The Company's message and data transmission services industry segment
is engaged in the transmission of interstate and intrastate switched message
toll service ("MTS") and private line and private network communication service
between the major communities in Alaska, and the remaining United States and
foreign countries. The Company's message toll services include intrastate,
interstate and international direct dial, 800, calling card, operator and
enhanced conference calling, as well as termination of northbound toll service
for MCI, U.S. Sprint ("Sprint") and several large resellers without facilities
in Alaska. The Company also provides origination of southbound calling card and
800 toll services. Private line and private network services utilize voice and
data transmission circuits, dedicated to particular subscribers, which link a
device in one location to another in a different location. Regulated telephone
relay services for the deaf, hard-of-hearing and speech impaired are provided
through the Company's operator service center. The Company offers its message
services to commercial and residential subscribers. Subscribers may cancel
service at any time. Toll related services account for approximately 93%, 90%
and 90% of the Company's 1995, 1994 and 1993 total revenues, respectively.
The Company has positioned itself as the price leader in the Alaska
telecommunication market and, as such, rates charged for the Company's
telecommunication services are designed to be equal to or below those for
comparable services provided by the only other significant competitor in the
Alaska telecommunications market, AT&T Alascom.
In addition to providing communication services, the Company sells,
services and operates, on behalf of certain customers, dedicated communication
and computer networking equipment and provides field/depot, third party,
technical support, consulting and outsourcing services through its systems sales
and service industry segment.
The Company also supplies integrated voice and data communication
systems incorporating interstate and intrastate digital private lines,
point-to-point and multipoint private network and small earth station services
operating at data rates up to 1.544 mbs. In addition, the Company designs,
installs and maintains data communication systems for commercial and government
customers throughout Alaska. Presently, there are five companies in Alaska that
actively sell and maintain data and voice communication systems. The Company's
unique ability to integrate telecommunication networks and data communication
equipment has allowed it to maintain its dominant market position on the basis
of "value added" support rather than price competition.
The Company has expanded its technical services business to include
outsourcing, onsite technical contract services and telecommunication
consulting. The Company was awarded a five year contract, effective April 1,
1992, to assume management responsibility for all of BP Exploration (Alaska)
("BP") telecommunication and computer networking assets in Alaska. BP is the
largest oil company presently operating in Alaska. The Company was awarded a
five year contract, effective October 31, 1995, to
REGISTRATION STATEMENT
Page 169
<PAGE>
assume management responsibility for all of National Bank of Alaska
telecommunication and computer networking assets in Alaska.
Expenditures of approximately $2.5 million were made in 1994 developing
new demand assigned multiple access ("DAMA") satellite communication technology.
A four-module demonstration system was constructed in 1994 and was integrated
into the Company's telecommunication network in 1995. Existing satellite
technology relies on fixed channel assignments to a central hub. DAMA technology
assigns satellite capacity on an as needed basis. The digital DAMA system allows
calls to be made between remote villages using only one satellite hop thereby
reducing satellite delay and capacity requirements while improving quality.
The Company obtained the necessary APUC and FCC approvals waiving
current prohibitions against construction of competitive facilities in rural
Alaska, allowing for deployment of DAMA technology in 56 sites in rural Alaska
on a demonstration basis. Construction and deployment will occur in 1996, with
services expected to be provided during the fourth quarter of 1996. Total
construction and deployment costs are expected to total $18 to $20 million.
The FCC concluded an auction of spectrum to be used for the provision
of PCS in March, 1995. The Company was named by the FCC as the high bidder for
one of the two 30 megahertz blocks of spectrum, with Alaska statewide coverage.
Acquisition of the license for a cost of $1.65 million will allow the Company to
introduce new PCS services in Alaska. The Company began developing plans for PCS
deployment in 1995 with technology service trials expected to take place in 1996
and service to be offered as early as 1997 or 1998.
Neither the Company or any of its subsidiaries has revenues that are
materially affected by seasonality. The Company has not expended material
amounts during the last three fiscal years on customer-sponsored research
activities.
Markets. The dominant carrier and the Company 's primary competition in
the Alaska market for interstate and intrastate MTS, private line and private
network telecommunication services continues to be AT&T Alascom. Other carriers,
such as MCI and Sprint can enter the market by constructing their own facilities
in Alaska. At the present time, however, MCI, Sprint and several other carriers
interconnect with the Company in Seattle and Dallas for delivery of their Alaska
bound interstate traffic. Sprint and MCI also originate 800 services in Alaska
on the Company 's facilities.
Five companies in Alaska actively sell and service data and voice
communication systems. Other companies can enter the market at any time.
Foreign and Domestic Operations and Export Sales. Although the Company
has several agreements to facilitate the origination and termination of
international toll traffic, it has neither foreign operations nor export sales.
The Company conducts operations throughout the western contiguous United States,
Alaska and Hawaii and believes that any subdivision of its operations into
distinct geographic areas would not be meaningful. Revenues associated with
international toll traffic were $5,643,000, $4,427,000 and $3,734,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Financial Information About Industry Segments. The Company is engaged in the
design, development, sale and service of telecommunication services and products
in two principal industries: (1) message and data transmission services and (2)
telecommunication systems sales and service.
REGISTRATION STATEMENT
Page 170
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Net sales
Message and data transmission svcs. $122,086 107,843 93,914
Systems sales and service 7,193 9,138 8,299
-------- ------- -------
Total net sales $129,279 116,981 102,213
======== ======= =======
Operating income
Message and data transmission svcs. $ 25,183 24,952 18,707
System sales and service 1,847 2,112 428
Corporate (13,526) (14,067) (10,331)
-------- -------- -------
Total operating income $ 13,504 12,997 8,804
======== ======== =======
Identifiable assets
Message and data transmission svcs. $ 69,715 60,335 59,277
Systems sales and service 2,554 2,838 4,306
Corporate 12,496 11,076 8,027
-------- -------- -------
Total identifiable assets $ 84,765 74,249 71,610
======== ======== =======
Capital expenditures
Message and data transmission svcs. $ 5,946 10,003 4,457
Systems sales and service --- --- 369
Corporate 2,992 601 918
--------- -------- -------
Total capital expenditures $ 8,938 10,604 5,744
========= ======== =======
Depreciation and amortization expense
Message and data transmission svcs. $ 5,385 6,194 6,572
Systems sales and service 84 103 132
Corporate 754 442 274
---------- -------- -------
Total depreciation and
amortization expense $ 6,223 6,739 6,978
========= ======== =======
</TABLE>
Intersegment sales approximate market and are not significant. Identifiable
assets are assets associated with a specific industry segment. General corporate
assets consist primarily of cash, temporary cash investments and other assets
and investments which are not specific to an industry segment. Goodwill and the
related amortization associated with the acquisition of GCI Network Systems,
Inc. is allocated to the message and data telephone services segment. Goodwill
and the related amortization related to the acquisition of the Transalaska Data
Systems, Inc. assets is allocated to the systems sales and service segment.
Revenues derived from leasing operations are allocated to the message and data
transmission services segment.
The Company provides message telephone service to MCI and Sprint, major
customers. Pursuant to the terms of a contract with MCI, the Company earned
revenues of approximately $23,939,000, $19,512,000 and $16,068,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Amounts receivable from
MCI totaled $4,256,000 and $3,257,000 at December 31, 1995 and 1994,
respectively. The Company earned revenues pursuant to a contract with Sprint
totaling approximately $14,885,000, $12,412,000 and $10,123,000 for the years
ended December 31, 1995, 1994 and 1993 respectively. Amounts receivable from
Sprint totaled $2,362,000 and $981,000 at December 31, 1995 and 1994,
respectively.
Market Price of and Dividends on the Company's Common Equity
and Related Stockholder Matters
Market Information for Common Stock. Shares of Company Class A common
stock are traded on the Nasdaq national narket system of the Nasdaq Stock Market
under the symbol GNCMA. Shares
REGISTRATION STATEMENT
Page 171
<PAGE>
of Company Class B common stock are traded on the over-the-counter market.
Company Class B common stock is convertible into Company Class A common stock.
The following table sets forth the high and low sales price for the
above-mentioned common stock for the periods indicated. The prices, rounded up
to the nearest eighth, represent prices between dealers, do not include retail
markups, markdowns, or commissions, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Class A Class B
----------------------------------- -----------------------------------
High Low High Low
<S> <C> <C> <C> <C>
1994:
First Quarter 5 7/8 4 1/8 5 7/8 4 1/8
Second Quarter 4 5/8 3 1/8 4 5/8 3 1/8
Third Quarter 5 3 1/2 5 3 1/2
Fourth Quarter 5 4 1/8 5 4 1/8
1995:
First Quarter 4 5/8 3 3/4 4 5/8 3 3/4
Second Quarter 4 1/4 3 7/8 4 1/4 3 7/8
Third Quarter 4 1/8 3 1/4 4 1/8 3 1/4
Fourth Quarter 5 1/8 3 3/4 5 1/8 3 3/4
</TABLE>
Holders. As of March 5, 1996 there were approximately 1,830 holders of
record of Company Class A common stock and approximately 750 holders of record
of Company Class B common stock (amounts do not include the number of
shareholders whose shares are held of record by brokers, but do include the
brokerage house as one shareholder).
Dividends. The Company has never paid cash dividends on its Class A or
Class B common stock and has no present intention of doing so. Payment of cash
dividends in the future, if any, will be determined by the Company's Board of
Directors in light of the Company's earnings, financial condition and other
relevant considerations. The Company's existing bank loan agreements contain
provisions that prohibit payment of dividends, other than stock dividends.
Selected Financial Data
<TABLE>
The following table presents selected historical information relating to
financial condition and results of operations over the past five years.
REGISTRATION STATEMENT
Page 172
<PAGE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $129,279 116,981 102,213 96,499 75,522
Net earnings (loss) before income taxes $12,601 11,681 6,715 1,524 (1,422)
Net earnings (loss) $7,502 7,134 3,951 890 (1,092)
Earnings (loss) per share $0.31 0.30 0.17 0.02 (0.12)
Total assets $84,765 74,249 71,610 72,351 70,167
Long-term debt, including current portion (1) $9,980 12,554 20,823 37,235 24,850
Obligations under capital leases, including current portion (2) $1,047 1,297 1,522 1,720 10,975
Preferred stock (3) $0 0 0 3,282 3,282
Total stockholders' equity (4) $43,016 35,093 27,210 14,870 13,554
Dividends declared per Common share (5) $0.00 0.00 0.00 0.00 0.00
Dividends declared per Preferred share (6) $0.00 0.00 0.44 1.78 1.69
<FN>
- ------------
1 The Company exercised the purchase option described in footnote (2)
below in December 1992 to acquire capacity on a fiber optic undersea
cable from Seward, Alaska to Pacific City, Oregon. Long-term debt
associated with this purchase is recorded in long-term debt and current
portion of long-term debt in the Consolidated Financial Statements. See
Part II of the Company's Form 10-K for the year ended December 31,
1995.
2 The Company entered into a capital lease agreement in May 1991 for
access to capacity on an undersea fiber optic cable from Seward, Alaska
to Pacific City, Oregon. The lease term was ten years with monthly
payments including maintenance of approximately $230,000 per month
commencing August 22, 1991, the date the fiber optic cable become
operational. The Company had an option expiring December 31, 1992 to
purchase the leased capacity for $10.12 million, less the prior six
months' lease payments, excluding maintenance. The lease was
capitalized in 1991 at the underlying asset's fair market value and the
related obligation was recorded in the Company's Consolidated Financial
Statements.
3 In January, 1991, the Company sold 347,047 shares of non-voting Series
A 15% Convertible Cumulative Preferred Stock to WestMarc
Communications, Inc. for $9.5088 per share. The preferred stock accrued
dividends on each share in cash or stock at the Company's discretion.
The accrued dividends were payable semi-annually at the rate of 15% per
annum if paid in cash or at the rate of 18.75% if paid in Class B
Common Stock. Pursuant to an agreement with WestMarc Communications,
Inc. the Company acquired and retired the preferred stock in 1993.
4 The 1993 increase in stockholders' equity is primarily attributed to
the Company's issuance of common stock to MCI.
5 The Company has never paid a cash dividend on its common stock and does
not anticipate paying any dividends in the foreseeable future. The
Company intends to retain its earnings, if any, for the development of
its business. Payment of cash dividends in the future, if any, will be
determined by the board of directors of the Company in light of the
Company's earnings, financial condition, credit agreements and other
relevant considerations. The Company's existing bank loan agreements
contain provisions that prohibit payment of dividends, other than stock
dividends, as further described in Note (5)(a) to the financial
statements included in Part II of the Company's Form 10-K for the year
ended December 31, 1995.
6 The Company declared and issued stock dividends of approximately
304,000 and 286,000 shares of Class B common stock in 1992 and 1991,
respectively, and paid dividends totaling $153,000 in 1993 on its
non-voting Series A 15% Convertible Cumulative Preferred Stock.
</FN>
</TABLE>
<TABLE>
Supplementary Financial Data
<CAPTION>
Three months ended
Dec. 31, 1995 Sept. 30, 1995 June 30, 1995 Mar. 31, 1995
------------- -------------- ------------- -------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total revenues $34,363 33,363 31,860 29,693
Contribution $15,808 15,548 14,026 13,676
Net earnings $1,807 2,252 1,836 1,607
Net earnings per share $.07 .09 .08 .07
</TABLE>
REGISTRATION STATEMENT
Page 173
<PAGE>
<TABLE>
<CAPTION>
Three months ended
Dec. 31, 1994 Sept. 30, 1994 June 30, 1994 Mar. 31, 1994
------------- -------------- ------------- -------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total revenues $29,143 30,685 28,962 28,191
Contribution $14,061 14,740 14,387 12,897
Net earnings $1,320 1,994 2,122 1,698
Net earnings per share $.06 .08 .09 .07
</TABLE>
Management's Discussion and Analysis of Financial Condition and Result of
Operations
Liquidity and Capital Resources. Year ended December 31, 1995 ("1995"),
compared with year ended December 31, 1994 ("1994"), compared with year ended
December 31, 1993 ("1993").
The Company's liquidity (ability to generate adequate amounts of cash
to meet the Company's need for cash) was affected by a net increase in the
Company's cash and cash equivalents of $2.4 million from 1994 to 1995. Sources
of cash in 1995 included the Company's operating activities which generated
positive cash flow of $14.3 million net of changes in the components of working
capital, proceeds from the sale of investment securities held for sale totaling
$832,000, repayments of notes receivable totaling $184,000, and proceeds from
the issuance of common stock of $82,000. Uses of cash during 1995 included
repayment of $2.8 million of long-term borrowings and capital lease obligations,
investment of $8.9 million in distribution and support equipment, and payment of
the final installment for a PCS spectrum license totaling approximately
$521,000.
Net receivables increased $4.8 million from 1994 to 1995 resulting from
increased sales and receipt of a payment from a major customer in January 1996,
beyond the cutoff date for recording in the current year.
Payments of approximately $1.9 million of accrued payroll and payroll
related obligations resulted in reduced balances at 1995 as compared to 1994.
Working capital totaled $5.1 million and $1.8 million at December 31,
1995 and 1994, respectively. Working capital generated by operations exceeded
expenditures for property, equipment and other assets, repayment of long-term
borrowings and capital lease obligations, and the additional investment in the
PCS license resulting in the $3.3 million increase at December 31, 1995 as
compared to 1994.
Cash flow from operating activities, as depicted in the Consolidated
Statements of Cash Flows, decreased $4.2 million in 1995 as compared 1994. Cash
flow generated from operating activities was reduced by payment of current
obligations. Cash flow from operating activities increased $6.8 million during
1994 as compared to 1993 primarily as a result of revenue growth and decreased
distribution costs as a percentage of revenues as further described below.
The Company's expenditures and other additions to property and
equipment totaled $8.9 million, $10.6 million, and $5.7 million during 1995,
1994 and 1993, respectively. Management's capital expenditures plan for 1996
includes approximately $30 to $50 million in capital necessary to pursue
strategic initiatives, to maintain the network and to enhance transmission
capacity to meet projected traffic demands.
The two wideband transponders the Company owned reached the end of
their expected useful life in August, 1994, at which time the Company leased
replacement capacity. The cost of the leased capacity contributed to an increase
in distribution costs during 1995 as compared to 1994. The existing leased
REGISTRATION STATEMENT
Page 174
<PAGE>
capacity is expected to meet the Company's requirements until such time that
capacity is available pursuant to the terms of a new long-term agreement
described below.
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 amount of the down payment
required in 1996 and the balance payable upon delivery of the transponders as
early as the fourth quarter of 1997 are dependent upon a number of factors
including the number of transponders required and the timing of their delivery
and acquisition. The Company does not expect the down payment to exceed $10.1
million and the remaining balance payable coinciding with a staged delivery to
exceed $46 million. The Company amended its existing senior credit facility to
provide a letter of credit to accommodate the required down payment in 1996 and
expects to further amend or refinance its credit agreement to fund its remaining
commitment.
The Company continues to evaluate the most effective means to integrate
its telecommunications network with that of MCI. Such integration will require
capital expenditures by the Company in an amount yet to be determined. Any
investment in such capital expenditures is expected to be recovered by increased
revenues from expanded service offerings and reductions in costs resulting from
integration of the networks.
The FCC concluded an auction of spectrum to be used for the provision
of PCS in March, 1995. The Company was named by the FCC as the high bidder for
one of the two 30 megahertz blocks of spectrum, with Alaska statewide coverage.
Acquisition of the license for a cost of $1.65 million will allow the Company to
introduce new PCS services in Alaska. The Company began developing plans for PCS
deployment in 1995 with limited technology service trials planned for 1996 and
service to be offered as early as 1997 or 1998. Expenditures for PCS deployment
could total $50 to $100 million over the next 10 year period. The estimated cost
for PCS deployment is expected to be funded through income from operations and
additional debt and perhaps, equity financing. The Company expects to arrange
additional debt financing capacity in 1996. The Company's ability to deploy PCS
services will be dependent on its available resources.
Expenditures of approximately $2.5 million were made in 1994 developing
new DAMA satellite communication technology. A four-module demonstration system
was constructed in 1994 and was integrated into the Company's telecommunication
network in 1995. Existing satellite technology relies on fixed channel
assignments to a central hub. DAMA technology assigns satellite capacity on an
as needed basis. The digital DAMA system allows calls to be made between remote
villages using only one satellite hop thereby reducing satellite delay and
capacity requirements while improving quality.
The Company obtained the necessary APUC and FCC approvals waiving
current prohibitions against construction of competitive facilities in rural
Alaska, allowing for deployment of DAMA technology in 56 sites in rural Alaska
on a demonstration basis. Construction and deployment will occur in 1996, with
services expected to be provided during the fourth quarter of 1996. Construction
and deployment costs are expected to total $18 to $20 million, and are expected
to be funded through a combination of cash generated from operations and bank
financing.
The Company announced March 15, 1996 that it has signed letters of
intent to acquire three Alaska cable companies that offer cable television
service to more than 101,000 subscribers serving 74% of households throughout
the state of Alaska. The Company intends to acquire Prime Cable of Alaska,
Alaska Cablevision, Inc. of Kirkland, Washington and Alaskan Cable Network.
Prime Cable operates the state's largest cable television system including
stations in Anchorage, Bethel, Kenai and Soldotna, Alaska. Alaska Cablevision
owns and operates cable stations in Petersburg, Wrangell, Cordova, Valdez,
Kodiak, Homer, Seward, Nome and Kotzebue, Alaska. Alaskan Cable Network operates
stations in Fairbanks,
REGISTRATION STATEMENT
Page 175
<PAGE>
Juneau, Ketchikan and Sitka, Alaska. This acquisition will allow the Company to
integrate cable services to bring more information not only to more customers,
but in a manner that is quicker, more efficient and more cost effective than
ever before. The purchase will facilitate consolidation of the cable operations
and will provide a platform for developing new customer products and services
over the next several years.
The total purchase price is $280.7 million. According to terms of the
agreements, the Company will issue 16.3 million shares of Class A Common stock
to the owners of the three cable companies valued at $105.7 million. The balance
of the purchase will be provided by approximately $175 million of bank
financing. Additional capital will be provided from the sale of 2 million shares
of the Company 's Class A Common Stock to MCI Telecommunications Corporation for
$6.50 per share.
Definitive agreements are expected to be executed in April 1996 at
which time the Company will apply to the APUC to transfer the licenses of the
cable companies. Once all regulatory approvals are granted, the cable companies
will be consolidated into a single organization owned by the Company.
Management expects that cash flow generated by the Company will be
sufficient to meet no less than the minimum required for maintenance level
capital expenditures and scheduled debt repayment. The Company's ability to
invest in discretionary capital and other projects will depend upon its future
cash flows and access to additional debt and/or equity financing.
Results of Operations. Year ended December 31, 1995 ("1995"), compared
with year ended December 31, 1994 ("1994"), compared with year ended December
31, 1993 ("1993").
The Company's message data and transmission services industry segment
provides interstate and intrastate long distance telephone service to all
communities within the state of Alaska through use of its facilities and
interconnect agreements with other carriers. The Company's average rate per
minute for message transmission during 1995, 1994, and 1993 was 19.1(cent),
18.6(cent), and 18.2(cent), respectively. Total revenues for 1995 were $129.3
million, an approximate 10.5% increase over 1994 revenues of $117.0 million,
which revenues increased 14.4% over 1993 revenues of $102.2 million. Revenue
growth is attributed to the increase in the average rate per minute and to four
fundamental factors, as follows:
(1) Growth in interstate telecommunication services which resulted in
billable minutes of traffic carried totaling 465, 415 and 365 million minutes in
1995, 1994 and 1993, respectively, or 83.2, 83.9 and 83.9% of total 1995, 1994
and 1993 minutes, respectively.
(2) Provision of intrastate telecommunication services which resulted
in billable minutes of traffic carried totaling 93.4, 79.6 and 70.1 million
minutes in 1995, 1994 and 1993, respectively, or 16.8, 16.1, and 16.1% of total
1995, 1994 and 1993 minutes, respectively.
(3) Increases in revenues derived from other common carriers ("OCC")
including MCI and Sprint. OCC traffic accounted for $38.8 million or 30.0%,
$31.9 million or 27.3%, $26.2 million or 25.6% of total revenues in 1995, 1994
and 1993, respectively. Both MCI and Sprint are major customers of the Company.
Loss of one or both of these customers would have a significant detrimental
effect on revenues and on contribution. There are no other individual customers,
the loss of which would have a material impact on the Company's revenues or
gross profit.
(4) Increased revenues associated with private line and private network
transmission services, which increased 8% in 1995 as compared to 1994, increased
6% in 1994 as compared to 1993, and increased 8% in 1993 as compared to 1992.
REGISTRATION STATEMENT
Page 176
<PAGE>
System sales and service revenues totaled $7.2 million, $9.1 million
and $8.3 million in 1995, 1994 and 1993, respectively. The decrease in system
sales and service revenues is attributed to fewer larger dollar equipment sales
orders received during 1995 as compared to 1994 as well as a reduction of the
company's outsourcing services provided to the oil field services industry.
Transmission access and distribution costs, which represent cost of
sales for transmission services, amounted to approximately 56.5%, 55.4%, 58.9%
of transmission revenues during 1995, 1994 and 1993, respectively. The increase
in distribution costs as a percentage of transmission revenues for 1995 as
compared to 1994 results primarily from increases in costs associated with the
Company's lease of transponder capacity as previously described. The decrease in
distribution costs as a percentage of transmission revenues during 1994 as
compared to 1993 results from proportionate increases in revenues as compared to
costs and decreases in access tariff charges commencing July 1993, offset by
increases in costs associated with the Company's lease of replacement
transponder capacity as previously described. Changes in distribution costs as a
percentage of revenues will occur as the Company's traffic mix changes. The
Company is unable to predict if or when access charge rates will change in the
future and the impact of such changes on the Company's distribution costs.
Sales and service cost of sales as a percentage of sales and service
revenues amounted to approximately 73.3%, 70.4% and 65.7% during 1995, 1994 and
1993, respectively. Increases in cost of sales as a percentage of sales and
service revenues result from reduced margins associated with equipment sales and
service contracts.
Contribution increased 5.3% during 1995 as compared to 1994, and
increased 22.5% during 1994 as compared to 1993. Increases in distribution costs
associated with the Company's lease of transponder capacity as previously
described reduced the rate of growth in 1995 contribution as compared to 1994.
Proportionate decreases in distribution costs during 1994 as compared to 1993
coupled with proportionate increases in revenues during the same period resulted
in the 1994 increase.
Total operating costs and expenses increased 5.7% during 1995 as
compared to the same period in 1994, and increased 16.5% during 1994 as compared
to the same period in 1993. 1995 and 1994 increases in operating and
engineering, service, sales and communications, and general and administrative
costs were necessary to support the Company's expansion efforts and the increase
in minutes of traffic carried. During 1995 the Company incurred approximately
$450,000 for what is expected to be nonrecurring costs related to breaks in the
undersea fiber optic cable and promotion of its new DAMA technology. Additional
costs were incurred during the fourth quarter of 1995 attributed to the
promotion of the Company's calling plans. Significant marketing, telemarketing,
and promotional expenditures were incurred in 1994 to promote the Company's
introduction of new services and programs resulting from its strategic alliance
with MCI, including MCI's Friend's and Family calling plan, 1-800-COLLECT,
PhoneCash prepaid calling cards, and an Amway distributor resale program.
Additional general and administrative costs were incurred in 1994 resulting from
the Company's performance based bonus and incentive compensation plans which are
funded from incremental operating cash flow. Increases in 1994 expenses were
offset in part by reductions in bad debt and depreciation and amortization
costs. In general, the Company has dedicated additional resources in certain
areas to pursue longer term opportunities. It must balance the desire to pursue
such opportunities with the need to continue to improve current performance.
Continuing legal and regulatory costs are, in large part, associated
with regulatory matters involving the FCC, the APUC, and the Alaska Legislature.
Interest expense decreased 25.5% during 1995 as compared to 1994 and
decreased 31.7% during 1994 as compared to 1993. The decreases in interest
expense result primarily from reduction in the Company's outstanding
indebtedness.
REGISTRATION STATEMENT
Page 177
<PAGE>
Income tax expense totaled $5,099,000, $4,547,000 and $2,764,000 in
1995, 1994 and 1993, respectively, resulting from the application of statutory
income tax rates to net earnings before income taxes
The Company has capital loss carryovers totaling approximately $56,000
which expire in 1997. Tax benefits associated with recorded deferred tax assets,
net of valuation allowances, are considered to be more likely than not
realizable through taxable income earned in carryback years, future reversals of
existing taxable temporary differences, and future taxable income exclusive of
reversing temporary differences and carryforwards.
The Alaska economy is supported in large part by the oil and gas
industry. ARCO announced a 715 person downsizing in July 1994. Similar
downsizing was announced in 1994 by other companies operating in the oil and gas
industry in Alaska for 1995.
The Alaska economy is also supported by the United States armed
services and the United States Coast Guard which maintain bases in Anchorage,
Fairbanks, Adak, Kodiak, and other communities in Alaska. The military presence
in the state of Alaska provides a significant source of revenues to the economy
of the state. The Company provides message telephone services in a variety of
ways to the United States government and its armed forces personnel. The Company
provides private lines for secured point-to-point data and voice transmission
services and long distance services individually to military personnel.
A reduction in federal military spending or closure of a major facility
in Alaska would have a substantial adverse impact on the state and would both
directly and indirectly affect the Company. A reduction in the number of
military personnel served by the Company and a reduction in the number of
private lines required by the armed forces would have a direct effect on
revenues. Indirect effects would include a reduction of services provided across
the state in support of the military community and as a result, a reduction in
the number of customers served by the Company and volume of traffic carried.
On July 13, 1995, the president approved and Congress subsequently
accepted the independent Defense Base Closure and Realignment Commission report
to close 79 military bases and downsize 26 others. The commission estimates its
list would save $19.3 billion over 20 years, at a cost nationwide of 43,742
military and civilian jobs and 49,823 indirect jobs. Since its first round of
action in 1991, the Defense Base Closure and Realignment Commission has claimed
more than $5 billion in savings by closing or realigning military bases.
The following military installations located in Alaska were recommended
for closure or realignment in the 1995 report: Fort Greely (realign, estimated
loss of 438 military and 286 civilian jobs), Fort Wainwright (realign, estimated
gain of 205 military and 56 civilian jobs), NAF Adak (closure, estimated loss of
540 military and 138 civilian jobs).
The loss of jobs and associated revenues attributed to oil and gas
industry and military workforce reductions is not expected to have a material
effect on the Company's operations. No assurance can be given that funding for
existing military installations in Alaska will not be adversely affected by
reprioritization of needs for military installations or federal budget cuts in
the future.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instrument" ("SFAS No. 119").
SFAS No. 119 requires disclosures regarding amount, nature and terms of
derivative financial instruments, for instance futures, forward, swap and option
contracts and other
REGISTRATION STATEMENT
Page 178
<PAGE>
instruments with similar characteristics. The Company anticipates that the
adoption of SFAS No. 119 in 1996 will not have a material effect on its
consolidated financial statements.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). This statement sets forth new standards for determining when
long-lived assets are impaired and requires such impaired assets to be written
down to fair value. The Company anticipates that the adoption of SFAS No. 121 in
1996 will not have a material effect on its consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. The Company anticipates that the
adoption of SFAS No. 123 in 1996 will not have a material effect on its
consolidated financial statements.
The Company generally has experienced increased costs in recent years
due to the effect of inflation on the cost of labor, material and supplies, and
plant and equipment. A portion of the increased labor and material and supplies
costs directly affects income through increased maintenance and operating costs.
The cumulative impact of inflation over a number of years has resulted in higher
depreciation expense and increased costs for current replacement of productive
facilities. However, operating efficiencies have partially offset this impact,
as have price increases, although the latter have generally not been adequate to
cover increased costs due to inflation. Competition and other market factors
limit the Company's ability to price services and products based upon
inflation's effect on costs.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There were no changes in or disagreements between the Company and its
accountants on accounting and financial disclosure during the year ended
December 31, 1995 nor during the period 1996 up through the Record Date.
REGISTRATION STATEMENT
Page 179
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements
<CAPTION>
Prime Page
<S> <C>
Three and six months ended June 30, 1996:
Balance Sheets, June 30, 1996
(unaudited) and
December 31, 1995.............................................................................F-5
Statements of Operations, Three and six months
ended June 30, 1996 and 1995
(unaudited)...................................................................................F-6
Statements of Changes in Partners'
Capital Deficiency, Six months
ended June 30, 1996 and 1995 (unaudited)......................................................F-7
Statements of Cash Flows, Six months
ended June 30, 1996 and 1995
(unaudited)...................................................................................F-8
Notes to Financial Statements
(unaudited)...................................................................................F-9
Years ended December 31, 1995, 1994 and 1993:
Report of Independent Auditors (1994 and 1995)........................................................F-11
Report of Independent Accountants (1993)..............................................................F-12
Balance Sheets, December 31, 1995 and 1994............................................................F-13
Statements of Operations, Years ended
December 31, 1995, 1994, and 1993............................................................F-14
Statements of Changes in Partners' Capital
Deficiency, Years ended December 31,
1995, 1994, and 1993.........................................................................F-15
Statements of Cash Flows, Years ended
December 31, 1995, 1994, and 1993............................................................F-16
Notes to Financial Statements.........................................................................F-17
Alaskan Cable (Combined for Alaskan Cable/Fairbanks,
Alaskan Cable/Juneau, and Alaskan Cable/Ketchikan)
Three and six months ended June 30, 1996:
Combined Balance Sheets, June 30, 1996 (unaudited)
and December 31, 1995........................................................................F-26
Combined Statements of Income, Three and six months
ended June 30, 1996 and 1995
(unaudited)..................................................................................F-27
Combined Statements of Cash Flows, Six
months ended June 30, 1996 and
1995 (unaudited).............................................................................F-28
Notes to Combined Financial Statements
(unaudited)..................................................................................F-29
REGISTRATION STATEMENT
F-1
<PAGE>
Years ended December 31, 1995, 1994 and 1993:
Report of Independent Auditors........................................................................F-30
Combined Balance Sheets, December 31,
1995 and 1994................................................................................F-31
Combined Statements of Income, Years
ended December 31, 1995, 1994
and 1993.....................................................................................F-32
Combined Statements of Shareholders'
Equity, Years Ended
December 31, 1995, 1994 and 1993.............................................................F-33
Combined Statements of Cash Flows,
Years ended December 31,
1995, 1994, and 1993.........................................................................F-34
Notes to Combined Financial Statements................................................................F-35
Alaska Cablevision
Three and six months ended June 30, 1996:
Balance Sheets, June 30, 1996 (unaudited) and
December 31, 1995............................................................................F-42
Statements of Income, Three and six months ended
June 30, 1996 and 1995
(unaudited)..................................................................................F-43
Statements of Stockholders' Equity,
Six months ended June 30, 1996
and 1995 (unaudited).........................................................................F-44
Statements of Cash Flows, Six months
ended June 30, 1996 and 1995
(unaudited)..................................................................................F-45
Notes to Financial Statements
(unaudited)..................................................................................F-46
Years ended December 31, 1995, 1994 and 1993:
Report of Independent Auditors........................................................................F-47
Balance Sheets, December 31, 1995 and 1994............................................................F-48
Statements of Income, Years ended
December 31, 1995, 1994, and 1993............................................................F-49
Statements of Stockholders' Equity, Years ended
December 31, 1995, 1994, and 1993............................................................F-50
Statements of Cash Flows, Years ended
December 31, 1995, 1994, and 1993............................................................F-51
Notes to Financial Statements.........................................................................F-52
Pro Forma Combined Condensed Financial Statements (Unaudited)
Company (Pursuant to the Proposed Transactions)
Pro Forma Combined Condensed Balance
Sheet As of June 30,
1996 (unaudited).............................................................................F-57
REGISTRATION STATEMENT
F-3
<PAGE>
Pro Forma Combined Condensed Statement of
Operations for the Six Months Ended
June 30, 1996 (unaudited)....................................................................F-59
Pro Forma Combined Condensed Statement of Operations,
for the Year Ended December
31, 1995 (unaudited).........................................................................F-61
Notes to Pro Forma Combined
Financial Statements, June 30,
1996 and December 31, 1995 (unaudited).......................................................F-63
</TABLE>
REGISTRATION STATEMENT
F-3
<PAGE>
HISTORICAL FINANCIAL INFORMATION
REGISTRATION STATEMENT
F-4
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
BALANCE SHEETS
June 30, 1996 and December 31, 1995
(thousands of dollars)
<CAPTION>
June 30, December 31,
--------------------------
1996 1995
----------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents ................................ $ 803 $ 9,477
Accounts receivable, net ................................. 956 1,221
Prepaid expenses ......................................... 196 166
Inventories .............................................. 854 833
Property, plant and equipment, at cost:
Cable television distribution systems ................. 69,695 68,090
Transportation equipment .............................. 910 848
Furniture and fixtures ................................ 2,306 1,864
Land and buildings .................................... 487 487
--------- ---------
73,398 71,289
Less accumulated depreciation ............................ (45,770) (42,114)
--------- ---------
Net property, plant and equipment ..................... 27,628 29,175
Intangible assets, net ................................... 28,397 33,080
Deferred debt issuance costs, net ........................ 2,209 125
Other assets ............................................. 181 64
--------- ---------
Total assets ........................................ $ 61,224 $ 74,141
========= =========
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Accounts payable ......................................... $ 583 $ 773
Accounts payable, affiliates ............................. 907 186
Accrued interest ......................................... 2,061 1,368
Other accrued expenses ................................... 2,086 1,639
Subscriber deposits and unearned income .................. 2,060 2,043
Term debt ................................................ 103,000 82,565
Subordinated debt ........................................ 4,320 34,041
--------- ---------
Total liabilities .................................. 115,017 122,615
--------- ---------
Commitments and Contingencies
Partners' capital deficiency:
General partners ....................................... 9,000 9,000
Limited partners ....................................... 36,000 36,000
Accumulated deficit ...................................... (98,793) (93,474)
--------- ---------
Total partners' capital deficiency .................. (53,793) (48,474)
--------- ---------
Total liabilities and partners' capital deficiency .. $ 61,224 $ 74,141
========= =========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-5
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF OPERATIONS
for the three and six months ended June 30, 1996 and 1995
(thousands of dollars)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ......................... $ 8,525 $ 8,054 $ 17,276 $ 16,100
Operating expenses:
Cable television system expenses 4,239 4,098 8,668 8,150
Management fees and expenses ... 460 410 924 817
Depreciation and amortization .. 4,298 4,066 8,410 8,208
-------- -------- -------- --------
Loss from operations ............. (472) (520) (726) (1,075)
Interest income .................. 1 99 131 207
Interest expense ................. (2,260) (2,635) (4,736) (5,349)
Gain on disposal of assets ....... 12 4 12 4
-------- -------- -------- --------
Net loss ......................... $ (2,719) $ (3,052) $ (5,319) $ (6,213)
======== ======== ======== ========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-6
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
for the six months ended June 30, 1996 and 1995
(thousands of dollars)
<CAPTION>
General Limited
Partners Partners Total
--------- -------- --------
<S> <C> <C> <C>
Balances, December 31, 1994 ........ $(32,147) $ -- $(32,147)
Net loss for the six months ended
June 30, 1995 (unaudited) ....... (6,213) -- (6,213)
-------- --------- --------
Balances, June 30, 1995 (unaudited) $(38,360) $ -- $(38,360)
======== ========= ========
Balances, December 31, 1995 ........ (48,474) -- (48,474)
Net loss for the six months ended
June 30, 1996 (unaudited) ....... (5,319) -- (5,319)
-------- --------- --------
Balances, June 30, 1996 (unaudited) $(53,793) $ -- $(53,793)
======== ========= ========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-7
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
<CAPTION>
Six Months
Ended June 30,
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................... $ (5,319) $ (6,213)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .............. 8,410 8,208
Amortization of deferred debt issuance
costs .................................... 170 352
Deferred interest on subordinated debt ..... 401 985
Gain on disposal of assets ................. (12) (4)
--------- ---------
3,650 3,328
Net decrease in accounts receivable ........... 265 262
Net (increase) decrease in prepaid expenses
and other assets ........................... (147) 76
Net increase (decrease) in accounts payable and
accounts payable-affiliates ................ 531 (298)
Net increase in accrued interest, other
accrued expenses, unearned income and
subscriber deposits ........................ 1,157 284
--------- ---------
Net cash provided by operating activities ..... 5,456 3,652
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
and inventories ............................ (2,201) (2,821)
Proceeds from sale of assets ................. 12 54
--------- ---------
Net cash used in investing activities ......... (2,189) (2,767)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank debt borrowings ............ 105,000 --
Repayment of term debt ........................ (84,565) --
Prepayment of subordinated debt ............... (30,122) --
Increase in deferred debt issuance cost ....... (2,254) --
--------- ---------
Net cash used in financing activities ......... (11,941) --
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: .......................... (8,674) 885
Cash and cash equivalents,
beginning of period ...................... 9,477 8,375
--------- ---------
Cash and cash equivalents,
end of period ............................ $ 803 $ 9,260
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid ......................... $ 3,472 $ 3,912
========= =========
The accompanying notes are an integral
part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-8
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS
1. General
Prime Cable of Alaska, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on January 30, 1989 to acquire and operate cable
television systems serving the municipality of Anchorage and its
environs, Fort Richardson, Elmendorf Air Force Base, the city of Bethel
and its environs, and the city of Kenai and the Kenai Peninsula Borough,
all in the state of Alaska (the "Alaska Systems"). The Partnership was
capitalized with contributions totaling $9,000,000 from the general
partners, Prime Cable Fund I, Inc., Prime Cable Fund II, Inc. and Prime
Cable Fund III, Inc., and contributions from the limited partners, Alaska
Cable Inc. ("Alaska Cable"), Prime Cable Growth Partners, L.P. and Prime
Venture I Holdings, L.P. in the amounts of $23,000,000, $11,000,000 and
$2,000,000, respectively.
The partnership agreement calls for losses to be allocated 97% to the
general partners and 3% to the limited partners until the general
partners' capital accounts have been reduced to zero. Thereafter, losses
are allocated entirely to the limited partners until sufficient losses
have been allocated to reduce limited partner capital accounts to zero.
Finally, remaining losses are allocated to the general partners.
Profits will be allocated first to those partners with capital account
deficits, in proportion to their respective deficit balances. Second,
profits will be allocated to all partners based on respective capital
contributions until the capital accounts have been restored to the amount
of each partner's capital contribution less any distributions. Profits in
excess of capital contributions less distributions remaining from the
sale of all, or substantially all, of the assets of the Partnership will
be allocated to the partners in proportion to their respective capital
contributions after first being reduced by amounts paid to the corporate
limited partner and to the subordinate debt holders.
As of June 30, 1995, certain shareholders of Alaska Cable had the right
to require the sale of the Partnership for any reason.
The Partnership has a $10 investment, representing a 0.165% limited
partnership capital interest in Prime Video, L.P. ("PVLP"). PVLP was
organized to acquire, develop and operate Blockbuster Video Superstores,
and has 21 stores in operation at June 30, 1996. The Partnership's
investment is accounted for using the cost method, the results of which
do not differ significantly from the equity method.
The accompanying unaudited 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. In the opinion of
management of the Partnership, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto
included in the Partnerships' audited financial statements for the year
ended December 31, 1995.
REGISTRATION STATEMENT
F-9
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS
2. Subsequent Event
On May 2, 1996, the non-corporate partners of the Partnership, the
holders of profit participation rights and the shareholders of the
corporate partners of the Partnership entered into a Securities Purchase
and Sale Agreement (the "Agreement") with General Communication, Inc.
(GCI). GCI is a telecommunications company providing long distance
services in Alaska. Under the Agreement, the non-corporate partners and
the profits participation rights holders will sell their Partnership
interests to GCI, the shareholders of the corporate partners will
exchange their corporate shares for GCI shares, and the holders of the
profit participation rights will receive GCI shares in settlement of the
Profit Participation Amount, all for a total consideration of 11.8
million shares of GCI common stock. Upon closing of the transaction, the
Partnership will be 100% owned by GCI and subsidiaries of GCI. It is
anticipated the transaction will close in the last quarter of 1996.
REGISTRATION STATEMENT
F-10
<PAGE>
Report of Independent Auditors
To the Partners
Prime Cable of Alaska, L.P.
We have audited the balance sheets of Prime Cable of Alaska, L.P. (the
Partnership) as of December 31, 1995 and 1994, and the related statements of
operations, changes in partners' capital deficiency, and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above present
fairly, in all material respects, the financial position of Prime Cable of
Alaska, L.P. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 18, 1996, except for the
last paragraph of Note 7, as to
which the date is September 9, 1996
REGISTRATION STATEMENT
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Prime Cable of Alaska, L.P.
We have audited the accompanying statements of operations, changes in partners'
capital deficiency, and cash flows for the year ended December 31, 1993 of Prime
Cable of Alaska, L.P. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Prime Cable
of Alaska, L.P. for the year then ended December 31, 1993, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Austin, Texas
March 15, 1994
REGISTRATION STATEMENT
F-12
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
BALANCE SHEETS
December 31, 1995 and 1994
(thousands of dollars)
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
ASSETS (Note 6)
Cash and cash equivalents .............................. $ 9,477 $ 8,375
Accounts receivable, net (Note 4) ...................... 1,221 1,204
Prepaid expenses ....................................... 166 227
Inventories ............................................ 833 324
Property, plant and equipment, at cost:
Cable television distribution systems ................ 68,090 63,819
Transportation equipment ............................. 848 775
Furniture and fixtures ............................... 1,864 1,760
Land and buildings ................................... 487 487
--------- ---------
71,289 66,841
Less accumulated depreciation ........................ (42,114) (34,975)
--------- ---------
Net property, plant and equipment ................... 29,175 31,866
Intangible assets, net (Note 5) ........................ 33,080 42,447
Deferred debt issuance costs, net ...................... 125 832
Other assets ........................................... 64 28
--------- ---------
Total assets ...................................... $ 74,141 $ 85,303
========= =========
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Accounts payable ....................................... $ 773 $ 809
Accounts payable, affiliates ........................... 186 124
Accrued interest ....................................... 1,368 1,311
Other accrued expenses ................................. 1,639 1,656
Subscriber deposits and unearned income ................ 2,043 1,796
Term debt (Note 6) ..................................... 82,565 84,065
Subordinated debt (Note 7) ............................. 34,041 27,689
--------- ---------
Total liabilities ................................ 122,615 117,450
--------- ---------
Commitments and Contingencies (Notes 7 and 9)
Partners' capital deficiency (Note 7):
General partners ..................................... 9,000 9,000
Limited partners ..................................... 36,000 36,000
Accumulated deficit .................................... (93,474) (77,147)
--------- ---------
Total partners' capital deficiency ............... (48,474) (32,147)
--------- ---------
Total liabilities and partners' capital deficiency $ 74,141 $ 85,303
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-13
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(thousands of dollars)
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues .............................. $ 32,594 $ 30,599 $ 29,101
Operating expenses:
Cable television system expenses .... 16,264 14,911 13,812
Management fees and expenses (Note 9) 1,674 1,671 1,542
Depreciation and amortization ....... 16,487 16,944 17,261
Provision for inventory obsolescence 35
-------- -------- --------
Loss from operations .................. (1,831) (2,962) (3,514)
Interest income ....................... 460 285 249
Interest expense ...................... (14,960) (9,035) (7,996)
Gain (loss) on disposal of assets ..... 4 (15) 10
-------- -------- --------
Net loss .............................. $(16,327) $(11,727) $(11,251)
======== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-14
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
for the years ended December 31, 1995, 1994 and 1993
(thousands of dollars)
<CAPTION>
General Limited
Partners Partners Total
-------- --------- --------
<S> <C> <C> <C>
Balances, January 1, 1993 $ (9,169) $ $ (9,169)
Net loss for the year ended
December 31, 1993 ...... (11,251) (11,251)
-------- -------- ---------
Balances, December 31, 1993 (20,420) (20,420)
Net loss for the year ended
December 31, 1994 ...... (11,727) (11,727)
-------- -------- ---------
Balances, December 31, 1994 (32,147) (32,147)
Net loss for the year ended
December 31, 1995 ...... (16,327) (16,327)
-------- -------- ---------
Balances, December 31, 1995 $(48,474) $ $(48,474)
======== ======== =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-15
<PAGE>
<TABLE>
PRIME CABLE OF ALASKA L.P.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(thousands of dollars)
<CAPTION>
1995 1994 1993
-------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $(16,327) (11,727) $ (11,251)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ................................. 16,487 16,944 17,261
Amortization of deferred debt issuance
costs ....................................................... 708 500 233
Deferred interest on subordinated debt ........................ 6,352 1,802 1,597
Provision for inventory obsolescence .......................... 35
(Gain) loss on disposal of assets ............................. (4) 15 (10)
-------- -------- ---------
7,216 7,569 7,830
Net decrease (increase) in accounts receivable,
prepaid expenses and other assets .............................. 8 (355) (69)
Net increase in accounts payable,
accounts payable-affiliates, accrued interest,
other accrued expenses, and subscriber deposits
and unearned income 313 1,236 294
-------- -------- ---------
Net cash provided by operating activities ........................ 7,537 8,450 8,055
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment
and inventories ................................................ (4,988) (4,021) (2,814)
Proceeds from sale of assets ..................................... 54 10 13
-------- -------- ---------
Net cash used in investing activities ............................ (4,934) (4,011) (2,801)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of term debt ........................................... (1,500) (4,330) (3,405)
Increase in deferred debt issuance cost .......................... (1) (646) (383)
-------- -------- ---------
Net cash used in financing activities ............................ (1,501) (4,976) (3,788)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents, 1,102 (537) 1,466
beginning of year 8,375 8,912 7,446
-------- -------- ---------
Cash and cash equivalents,
end of year $ 9,477 8,375 $ 8,912
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid $ 7,843 6,330 $ 6,163
======= ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
REGISTRATION STATEMENT
F-16
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------
1. Organization
Prime Cable of Alaska, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on January 30, 1989 to acquire and operate cable
television systems serving the municipality of Anchorage and its
environs, Fort Richardson, Elmendorf Air Force Base, the city of Bethel
and its environs, and the city of Kenai and the Kenai Peninsula Borough,
all in the state of Alaska (the "Alaska Systems"). The Partnership was
capitalized with contributions totaling $9,000,000 from the general
partners, Prime Cable Fund I, Inc., Prime Cable Fund II, Inc. and Prime
Cable Fund III, Inc., and contributions from the limited partners, Alaska
Cable Inc. ("Alaska Cable"), Prime Cable Growth Partners, L.P. and Prime
Venture I Holdings, L.P. in the amounts of $23,000,000, $11,000,000 and
$2,000,000, respectively.
The partnership agreement calls for losses to be allocated 97% to the
general partners and 3% to the limited partners until the general
partners' capital accounts have been reduced to zero. Thereafter, losses
are allocated entirely to the limited partners until sufficient losses
have been allocated to reduce limited partner capital accounts to zero.
Finally, remaining losses are allocated to the general partners.
Profits will be allocated first to those partners with capital account
deficits, in proportion to their respective deficit balances. Second,
profits will be allocated to all partners based on respective capital
contributions until the capital accounts have been restored to the amount
of each partner's capital contribution less any distributions. Profits in
excess of capital contributions less distributions remaining from the
sale of all, or substantially all, of the assets of the Partnership will
be allocated to the partners in proportion to their respective capital
contributions after first being reduced by amounts paid to the corporate
limited partner and to the subordinate debt holders as described in Note
7.
As of June 30, 1995, certain shareholders of Alaska Cable can require the
sale of the Partnership for any reason.
The Partnership has a $10 investment, representing a .165% limited
partnership capital interest in Prime Video, L.P. ("PVLP"). PVLP was
organized to acquire, develop and operate Blockbuster Video Superstores,
and has 19 stores in operation at December 31, 1995. The Partnership's
investment is accounted for using the cost method, the results of which
do not differ significantly from the equity method. Through December
1995, the Partnership has received distributions totaling $7,000 from
PVLP.
2. Summary of Significant Accounting Policies
Inventories
Inventories are carried at the lower of cost (weighted average unit cost)
or market.
REGISTRATION STATEMENT
F-17
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
2. Summary of Significant Accounting Policies, continued
Property, Plant and Equipment
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. The composite method and a ten year life are
used for cable television distribution systems. Under the composite
method, proceeds from the retirement of cable television distribution
system assets are credited to the allowance for depreciation. Gains or
losses on disposition of property, plant and equipment (other than cable
television distribution systems) are credited or charged to income.
Maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and betterments are capitalized.
Intangible Assets
Excess cost over net assets acquired arising from the acquisition of
cable television systems is being amortized by the straight line method
over ten years. Other intangible assets, including subscriber lists and a
Certificate of Operating Rights, are being amortized by the straight line
method over their useful lives ranging from ten to eleven years.
It is the Partnership's policy to value intangible assets at the lower of
unamortized cost or fair value. Management reviews the valuation and
amortization of intangible assets on a periodic basis, taking into
consideration any events or circumstances which might result in
diminished fair value.
Deferred Debt Issuance Costs
Debt issuance costs are deferred and amortized by the straight-line
method, which approximates the interest method, over the term of the
related debt.
Revenue Recognition
Revenues are generally billed in advance and are recognized as the cable
service is provided.
Advertising Expense
The Partnership expenses advertising costs as incurred. Advertising
expenses, net of reimbursements, were approximately $660,000 and $674,000
for 1995 and 1994, respectively.
Income Taxes
The Partnership as an entity pays no income taxes, although it is
required to file federal and state income tax returns for informational
purposes only. All income or loss "flows through" to the individual
partners in the manner specified in the partnership agreement.
REGISTRATION STATEMENT
F-18
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
2. Summary of Significant Accounting Policies, continued
Concentrations of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk are primarily cash, temporary investments,
and accounts receivable. Excess cash is invested in high quality
short-term liquid money instruments issued by highly-rated financial
institutions. At December 31, 1995, substantially all of the
Partnership's cash balances were invested in short-term liquid money
instruments. Though limited to one geographical area, the concentration
of credit risk with respect to the Partnership's receivables is minimized
due to the large number of customers, individually small balances, short
payment terms and required deposits.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, the Partnership considers
all highly liquid investments with a maturity of three months or less,
when acquired, to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Acquisition of Cable Television Systems
On June 30, 1989, the Partnership acquired the Alaska Systems for an
aggregate purchase price including acquisition expenses of $143,843,000.
For financial statement purposes, the acquisition was accounted for using
the purchase method with the acquisition cost allocated to the tangible
and identifiable intangible assets based upon current fair market values.
The allocation resulted in an excess of cost over net assets acquired of
$24,204,000.
On October 1, 1989, the cable television system in the Eaglewood
subdivision of Anchorage was acquired by the Partnership for $541,000,
including acquisition expenses. The acquisition was accounted for as a
purchase transaction with the acquisition cost allocated to the tangible
and identifiable intangible assets of the system based upon current fair
market values. This allocation resulted in an excess of cost over net
assets acquired of $217,000.
REGISTRATION STATEMENT
F-19
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
4. Accounts Receivable
Accounts receivable consisted of the following (thousands of dollars):
December 31,
-------------------
1995 1994
------- -------
Accounts receivable, trade $ 1,333 $ 1,402
Accounts receivable, other 117 69
Less allowance for doubtful accounts (229) (267)
------- --------
Accounts receivable, net of allowance $ 1,221 $ 1,204
======= ========
5. Intangible Assets
Intangible assets consisted of the following (thousands of dollars):
December 31,
--------------------
1995 1994
-------- --------
Subscriber list $ 34,821 $ 34,821
Certificate of Operating Rights 29,019 29,019
Excess of acquisition costs
over net assets acquired 24,421 24,421
Other intangibles 5,775 5,775
-------- --------
94,036 94,036
Less accumulated amortization (60,956) (51,589)
-------- --------
Intangible assets, net $ 33,080 $ 42,447
======== ========
6. Bank Debt
Bank debt consisted of the following (thousands of dollars):
December 31,
--------------------
1995 1994
-------- --------
Bank credit agreement:
Tranche A Note $ 65,065 $ 66,565
Tranche B Note 17,500 17,500
-------- --------
$ 82,565 $ 84,065
======== ========
The rates of interest on amounts outstanding under the bank loan
agreement at December 31, 1995 were fixed under three-month Eurodollar
contracts at 7.2% and 7.9% for the Tranche A Note and the Tranche B Note,
respectively.
REGISTRATION STATEMENT
F-20
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
6. Bank Debt, continued
On March 7, 1996, the Partnership consummated a new bank loan agreement
using the proceeds to pay off all amounts outstanding under the previous
bank credit agreement and subordinated notes (Note 7). The Partnership
has $125,000,000 available under the new loan agreement, with borrowings
bearing interest at the bank's prime rate plus 2%. At the Partnership's
option, all or a specified portion of the indebtedness may be fixed for
periods ranging from one month to one year based on Eurodollar rates plus
3%. The interest rates under the new agreement are subject to reductions
of up to 1.75% per annum if certain financial tests are met. The
Partnership is required to pay a commitment fee equal to .5% per annum on
the unused portion of the commitment, and an agency fee of $50,000 per
year. Interest and fees are payable quarterly.
Beginning June 30, 1998, the loan commitment is reduced at the end of
each calendar quarter through March 31, 2005 as follows:
Quarterly Reduction
of Loan Commitment
-------------------------------
1998 $ 4,166,667
1999 $ 3,125,000
2000 $ 3,125,000
2001 $ 3,125,000
2002 $ 4,687,500
2003 $ 4,687,500
2004 $ 6,250,000
2005 $12,500,000
While the Partnership may elect to reduce amounts due and available under
the loan agreement through prepayments of not less than $1,000,000, a
mandatory prepayment is required each May, beginning in May 1999, if, for
the prior year ended December 31, the Partnership's Operating Cash Flow
(defined as net income before extraordinary items and gains and losses on
asset sales, plus interest expense, depreciation, amortization, bank
fees, deferred management fees, expenses and other amounts deferred under
the management agreement (Note 8), income tax expense, partnership
expenses not to exceed $75,000 per annum, and other non-cash expenses)
exceeds payments made for cash interest expense, permanent prepayments of
principal amounts outstanding under the loan agreement, bank fees, cash
income tax payments, capital expenditures, amounts previously deferred
under the management agreement, and capital lease obligations. The
Partnership is required to make a prepayment in the amount of 50% of such
excess. Additionally, a mandatory prepayment may be required in the event
of asset sales (other than dispositions of obsolete inventory and
equipment in the ordinary course of business), the issuance of
partnership interests or other debt or equity securities, or in the event
of certain changes in ownership of the Partnership. All such mandatory
prepayments permanently reduce the amounts due and available under the
loan commitment.
REGISTRATION STATEMENT
F-21
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
6. Bank Debt, continued
The loan agreement is collateralized by essentially all of the
Partnership's assets, the general partners' interests in the Partnership,
and a pledge by PMLP of its rights under the management agreement. The
loan agreement imposes numerous requirements and restrictions, including
limitations on indebtedness, payments, purchases and capital
expenditures. In addition, certain financial ratios must be maintained.
In connection with the initial funding under the March 7, 1996 loan
agreement, the Partnership paid bank fees of approximately $2,144,000,
which will be amortized to interest expense over the life of the
agreement. Additional bank fees equal to .5% of the commitment are due
upon the occurrence of certain changes in ownership of the Partnership,
but in no event later than September 7, 1997.
7. Subordinated Debt
Subordinated debt consisted of the following (thousands of dollars):
December 31,
--------------------
1995 1994
-------- --------
Subordinated notes:
Original principal amount outstanding $ 20,000 $ 20,000
Deferred interest 14,041 7,689
-------- --------
$ 34,041 $ 27,689
======== ========
On June 30, 1989, the Partnership entered into an investment agreement to
issue subordinated notes with an original principal amount of
$20,000,000. The notes bear interest at 12.25%, with 7.25% payable
quarterly and the remainder deferred. Interest deferred each quarter
bears interest at 12.25% and is payable at maturity.
On March 7, 1996, the Partnership used $30,387,000 in proceeds from the
bank loan agreement (Note 6) to prepay in full the amounts outstanding
under the subordinated notes. The investment agreement remained in force.
Under the investment agreement, the subordinated debt holders also were
issued profit participation rights entitling them to receive the Profit
Participation Amount (defined as 13.6284% multiplied by the excess of the
fair market value of the Partnership over the sum of (1) the $45,000,000
original equity contributed to the Partnership, reduced by distributions,
plus (2) the amount of the tax allocation to the corporate limited
partner which provides the corporate limited partner an after-tax return
equivalent to the other limited partners). The holders of profit
participation rights have right of first refusal on a portion of the
issuance of additional partnership interests by the Partnership.
REGISTRATION STATEMENT
F-22
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
7. Subordinated Debt, continued
The holders of the profit participation rights may elect at any time to
put all or any portion of their rights to the Partnership. In the event
that the Partnership is unable to purchase their rights, the holders can
require the liquidation of the Partnership. At any time after June 30,
1996, but prior to June 30, 1998, the Partnership may, by notice to the
holders, require them to sell all or any portion of their profit
participation rights to the Partnership. Under the put and call
agreements, the purchase price of the rights shall be based on the Profit
Participation Amount multiplied by the percentage of rights sold. Any
payments to the holders of the profit participation rights are
subordinate to payment of amounts due under the new March 7, 1996 bank
loan agreement (Note 6).
At each balance sheet date, management of the Partnership estimates fair
market value of the Partnership to determine the Profit Participation
Amount. Based upon such estimates, the Partnership recorded a liability
of $4,320,000 to the holders of the profit participation rights in 1995.
This amount was charged to interest expense and recorded as additional
deferred interest on the subordinated debt in the financial statements
for 1995, which have been restated to include this expense and liability.
Such amount will be paid upon the sale of the partnership interests (see
Note 9).
8. Commitments and Contingencies
Lease Arrangements
The Partnership, as an integral part of its operations, has entered into
operating lease contracts for microwave service, pole use and office
space. The approximate minimum aggregate rentals under such leases
(exclusive of minimum pole rentals of approximately $142,000 per year) at
December 31, 1995, are as follows: 1996, $462,000; 1997, $454,000; 1998,
$451,000; 1999, $471,000; 2000, $486,000 and $332,000 thereafter. Rent
expense was $571,000, $556,000, and $460,000, for the years ended
December 31, 1995, 1994 and 1993, respectively.
Management Agreement
The Partnership is a party to a management agreement with PMLP, an
affiliate of the general partners. Under the terms of the management
agreement, PMLP manages all aspects of the daily operations of the cable
television systems. In consideration for its services to the Partnership,
PMLP receives annual fees equal to 5% of the gross revenues of the
Partnership and is reimbursed for certain expenses incurred in connection
with the services provided. Under the terms of the March 7, 1996 bank
loan agreement (Note 6), the Partnership will defer payment of the 5%
fees until October 1, 1996. The deferred fees bear interest at a rate of
17.5% per annum, and may be paid to PMLP upon the achievement of certain
financial ratios. In addition, the terms of the bank loan agreement
restrict payments to PMLP in the event of a default under the credit
agreement.
In connection with the agreement, the Partnership incurred $1,674,000,
$1,671,000, and $1,542,000, in management fees and reimbursable expenses
for the years ended December 31, 1995, 1994 and 1993, respectively.
REGISTRATION STATEMENT
F-23
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
8. Commitments and Contingencies, continued
Employee Benefit Plan
The Partnership participates with other affiliated entities in a defined
contribution pension plan covering substantially all full-time employees
who have completed one year of service. The plan is subject to the
provisions of Internal Revenue Code Sec. 401(k). Contributions by the
Partnership are determined as a percent of each participating employee's
contributions and are at the discretion of the plan's sponsor, PMLP.
Partnership contributions totaled $33,000, $29,000, and $21,000, for
fiscal years 1995, 1994 and 1993, respectively.
Litigation
The Partnership is involved in various lawsuits and legal proceedings
which have arisen in the normal course of business, including the
following: Two former employees filed separate lawsuits related to the
Partnership's employment practices, with claims for damages aggregating
approximately $650,000, with one action including an unspecified claim
for punitive damages. Two suits have been filed against the Partnership
related to automobile accidents, one making damage claims aggregating
approximately $550,000, the other claiming damages in an unspecified
amount. However, any damages ultimately assessed or settlements
negotiated under these two automobile accident claims will be paid by the
Partnership's insurance carrier. While the ultimate results of these
matters cannot be predicted with certainty, management does not expect
them to have a material adverse effect on the financial position or
results of operations of the Partnership, and therefore no provision for
liability has been made in the financial statements.
Cable Service Rate Reregulation
On April 1, 1993, the Federal Communications Commission ("FCC") adopted
rules governing rates charged by cable operators for the basic service
tier of channels, the installation, lease and maintenance of equipment
(such as converter boxes and remote control units) used by subscribers to
receive this tier, and for cable programming services other than
programming offered on a per-channel or per-program basis (the "regulated
services"). To comply with the regulations, the Partnership implemented
various subscriber service and rate changes effective September 1, 1993.
These changes resulted in a reduction of total monthly revenue of
approximately 6%.
On March 30, 1994, the FCC released revisions to its April 1, 1993 rate
regulations. The revisions required cable operators to implement
additional rate rollbacks using complex benchmark calculations, or
alternatively, to justify higher rates based on a cost-of-service
showing. The Partnership elected to file cost-of-service showings with
the FCC where required. Management of the Partnership believes that rates
in effect at March 1994 were supportable under the cost-of-service rules,
and therefore, no rate rollbacks were implemented in connection with the
1994 FCC revisions. Subsequent rate adjustments have been made utilizing
cost-of-service methodology with adjustments as provided by FCC rules.
REGISTRATION STATEMENT
F-24
<PAGE>
PRIME CABLE OF ALASKA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------
8. Commitments and Contingencies, continued
Cable Service Rate Reregulation, continued
The regulated services rates charged by the Partnership may be reviewed
by the State of Alaska under certain conditions (for basic service) or
the FCC (for cable programming service). Refund liability for basic
service rates is limited to a one-year period. In order for the State of
Alaska to exercise rate regulation authority over the Partnership's basic
service rates, 25% of the Alaska Systems' subscribers must request such
regulation by filing a petition with the State of Alaska. At December 31,
1995, the State of Alaska does not have rate regulation authority over
the Partnership's basic service rates, and therefore there is no refund
liability for basic service at this time. Refund liability for cable
programming service rates may be calculated from the date a complaint
alleging an unreasonable rate for cable programming service is filed with
the FCC until the rate reduction is implemented. Complaints by
subscribers have been filed with, and accepted by, the FCC for certain
franchise areas. However, the Partnership's filings made in response to
those complaints related to the period prior to July 15, 1994 have been
approved by the FCC; therefore, the potential liability for cable
programming service refunds would be limited to the period subsequent to
July 15, 1994 for these areas. Management of the Partnership believes
that the potential for any refund liability for cable programming service
is remote, and therefore no provision has been made in the financial
statements for such refunds.
Management of the Partnership believes that it has complied in all
material respects with the provisions of the FCC rules and regulations
and that the Partnership is, therefore, not liable for any refunds.
Accordingly, no provision has been made in the financial statements for
any potential refunds. The FCC rules and regulations are, however,
subject to judgmental interpretations, and the impact of potential rate
changes or refunds ordered by the FCC could cause the Partnership to make
refunds and/or to be in default on certain debt covenants.
In February 1996, a telecommunications bill was signed into federal law
which significantly impacts the cable industry. Most notably, the bill
allows cable system operators to provide telephony services, allows
telephone companies to offer video services, and provides for
deregulation of cable programming service rates by 1999. The impact of
the new bill cannot be determined at this time, but it is not expected to
have a significant adverse impact on the financial position or results of
operations of the Partnership.
9. Subsequent Event
The Partners of the Partnership have signed a letter of intent to sell
the Partnership to General Communication, Inc. (GCI). GCI is a
telecommunications company providing long distance services in Alaska. A
definitive agreement is expected to be signed in the second quarter of
1996. Under the terms of the letter of intent, the non-corporate partners
would sell their partnership interests, the shareholders of the corporate
partners would exchange their corporate shares, and the holders of the
profit participation rights (see Note 7) would receive settlement of the
Profit Participation Amount, all for a total consideration of 11.8
million shares of GCI common stock.
REGISTRATION STATEMENT
F-25
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Balance Sheets
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
--------- ------------
(In thousands)
<S> <C> <C>
Assets
Cash and cash equivalents ............................ $ 1,015 $ 3,905
Trade accounts receivable, less allowance for doubtful
accounts of $102 in 1996, $95 in 1995 .............. 1,402 1,537
Property, plant and equipment, net ................... 10,909 12,144
Intangible assets, net ............................... 5,244 6,908
Due from affiliates .................................. 639 --
======== ========
Total Assets ......................................... $ 19,209 $ 24,494
======== ========
Liabilities and shareholder's equity
Line of credit ....................................... $ 3,000 $ 8,000
Accounts payable ..................................... 305 615
Accrued compensation and benefits .................... 425 331
Other accrued liabilities ............................ 885 775
Deferred revenue ..................................... 1,152 1,211
Due to affiliates .................................... -- 64
-------- --------
Total liabilities .................................... 5,767 10,996
-------- --------
Commitments and contingencies
Shareholder's equity:
Common Stock ....................................... 3 3
Additional paid-in-capital ......................... 14,458 14,478
Accumulated deficit ................................ (1,019) (983)
-------- --------
Total shareholder's equity ........................... 13,442 13,498
-------- --------
Total liabilities and shareholder's equity ........... $ 19,209 $ 24,494
======== ========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-26
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Statements of Income
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Cable television service revenue ....... $ 3,650 $ 3,647 $ 7,442 $ 7,224
Operating expenses:
Cost of revenues .................. 1,233 1,208 2,485 2,374
Selling, general and administrative 752 728 1,515 1,450
Depreciation and amortization ..... 1,556 1,517 3,113 3,034
------- ------- ------- -------
Income from operations ................. 109 194 329 366
Other income (expense):
Loss on disposal of assets ........ -- (2) (6) (2)
Interest income (expense), net .... (242) 23 (374) 55
------- ------- ------- -------
Income (loss) before income taxes ...... (133) 215 (51) 419
Benefit for income taxes ............... -- 16 15 16
------- ------- ------- -------
Net income (loss) ...................... $ (133) $ 231 $ (36) $ 435
======= ======= ======= =======
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-27
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Statements of Cash Flows
<CAPTION>
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Operating activities
Net income (loss) .................................. $ (36) $ 435
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for uncollectible accounts receivable 7 14
Loss on disposal of assets .................... 6 2
Depreciation and amortization ................. 3,113 3,034
Changes in operating assets and liabilities:
Trade accounts receivable ................ 128 13
Intangible and other assets .............. (4) 155
Accounts payable ......................... (310) (86)
Accrued compensation and benefits and
other accrued liabilities ........... 204 61
Deferred revenue .......................... (59) 15
-------- --------
Net cash provided by operating activities .......... 3,049 3,643
-------- --------
Investing activities
Additions to property, plant and equipment ......... (216) (275)
-------- --------
Net cash used in investing activities .............. (216) (275)
-------- --------
Financing activities
Borrowings on line of credit ....................... 6,000 --
Repayment of line of credit ........................ (11,000) --
Change in due from affiliates ...................... (703) 1,628
Decrease in paid-in-capital ........................ (20) --
Dividends paid to Jack Kent Cooke Incorporated ..... -- (9,700)
-------- --------
Net cash used in financing activities .............. (5,723) (8,072)
-------- --------
Net decrease in cash and cash equivalents .......... (2,890) (4,704)
Cash and cash equivalents at beginning of period ... 3,905 6,153
-------- --------
Cash and cash equivalents at end of period ......... $ 1,015 $ 1,449
======== ========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-28
<PAGE>
Alaskan Cable Network
Notes to Unaudited Combined Financial Statements
1. General
The unaudited combined financial statements of the Alaskan Cable
Network (ACN or the Company) include the operations of cable television
systems of Alaskan Cable Network/Fairbanks, Inc., Alaskan Cable
Network/Juneau, Inc. and Alaskan Cable Network/Ketchikan, Sitka, Inc.
for the three and six-month periods ended June 30, 1996 and 1995. Each
of the entities comprising ACN is wholly-owned by Jack Kent Cooke
Incorporated (JKCI). Prior to April 30, 1992, these companies were
wholly-owned subsidiaries of Cooke Media Group Inc. (CMG), a wholly
owned subsidiary of JKCI. In connection with an agreement with an
unrelated party for the sale of CMG and certain other JKCI operations,
the cable television systems comprising ACN were sold to JKCI. This
transaction was accounted for as a transfer among companies under
common control, and therefore, was recorded at CMG's historical cost
basis.
Cable television operations generate revenue through the use of
property and equipment and, therefore, have few current assets, as the
expression is defined in terms of a one-year operating cycle.
Accordingly, the Company does not identify current assets and current
liabilities separately in the accompanying combined balance sheets.
The Company's operations are regulated by the Federal Communications
Commission and certain other state and local authorities.
The accompanying unaudited combined 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. In the opinion
of management of the Company, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods
ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto
included in Alaskan Cable Network's audited financial statements for
the year ended December 31, 1995. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Sale of the Company
On April 15, 1996, the Company entered into an Asset Purchase Agreement
(the "Agreement") with General Communication, Inc. (GCI). GCI is a
telecommunications company providing long distance services in Alaska.
Under the Agreement, the Company will sell substantially all of its
assets to GCI for total consideration of $70 million, consisting of
2,923,077 shares of GCI class A common stock and $51 million cash. It
is anticipated that the transaction will close in the fourth quarter of
1996.
REGISTRATION STATEMENT
F-29
<PAGE>
Alaskan Cable Network
Notes to Unaudited Combined Financial Statements (continued)
3. Ligitgation
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management,
based in part on the opinion of the Company's legal counsel, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations, or cash flows of
the Company.
REGISTRATION STATEMENT
F-30
<PAGE>
Report of Independent Auditors
The Board of Directors
Alaskan Cable Network
We have audited the accompanying combined balance sheets of the
Alaskan Cable Network (see Note 1) as of December 31, 1995 and
1994, and the related combined statements of income, shareholder's
equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position
of the Alaskan Cable Network at December 31, 1995 and 1994, and
the combined results of its operations, and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/
ERNST & YOUNG LLP
Woodland Hills, California
February 9, 1996 except for
Note 13, as to which the date is
March 14, 1996
REGISTRATION STATEMENT
F-31
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Balance Sheets
<CAPTION>
December 31,
----------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Assets
Cash and cash equivalents ............................................ $ 3,905 $ 6,153
Trade accounts receivable, less allowance for doubtful
accounts of $95 in 1995, $82 in 1994 ............................... 1,537 1,366
Property, plant and equipment, net ................................... 12,144 14,161
Intangible assets, net ............................................... 6,908 10,027
Due from affiliates .................................................. -- 1,673
-------- --------
Total assets ......................................................... $ 24,494 $ 33,380
======== ========
Liabilities and shareholder's equity
Line of credit ....................................................... $ 8,000 $ --
Accounts payable ..................................................... 615 390
Accrued compensation and benefits .................................... 331 381
Other accrued liabilities ............................................ 775 1,445
Deferred revenue ..................................................... 1,211 1,128
Due to affiliates .................................................... 64 --
-------- --------
Total liabilities .................................................... 10,996 3,344
Commitments and contingencies
Shareholder's equity:
Common Stock ......................................................... 3 3
Additional paid-in-capital ........................................... 14,478 31,936
Accumulated deficit .................................................. (983) (1,903)
-------- --------
Total shareholder's equity ........................................... 13,498 30,036
-------- --------
Total liabilities and shareholder's equity ........................... $ 24,494 $ 33,380
======== ========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-32
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Statements of Income
<CAPTION>
December 31,
---------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cable television service revenue .............................................. $ 14,515 $ 13,883 $ 14,142
Operating expenses:
Cost of revenues ......................................................... 4,702 4,467 4,350
Selling, general and administrative ...................................... 3,005 2,808 3,063
Depreciation and amortization ............................................ 6,176 6,092 6,362
-------- -------- --------
Income from operations ........................................................ 632 516 367
Other income (expense):
Loss on disposal of assets ................................................ -- -- (2,687)
Interest income, net ..................................................... 80 235 46
-------- -------- --------
Income (loss) before income taxes and cumulative effect
of change in accounting principle ........................................ 712 751 (2,274)
Benefit (provision) for income taxes .......................................... 208 (9) 622
-------- -------- --------
Income (loss) before cumulative effect
of change in accounting principle ........................................ 920 742 (1,652)
Cumulative effect of change in accounting principle ........................... -- -- (622)
-------- -------- --------
Net income (loss) ............................................................. $ 920 $ 742 ($ 2,274)
======== ======== ========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-33
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Statements of Shareholder's Equity
<CAPTION>
Additional
Common Paid- Accumulated
Stock In-Capital Deficit Total
----- ---------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ 3 $ 32,161 $ (371) $ 31,793
Dividends paid ............. -- (112) -- (112)
Net income ................. -- -- (2,274) (2,274)
-------------------------------------------
Balance at December 31, 1993 3 32,049 (2,645) 29,407
Decrease in paid-in-capital -- (113) -- (113)
Net income ................. -- -- 742 742
-------------------------------------------
Balance at December 31, 1994 3 31,936 (1,903) 30,036
Capital Contribution by JKCI -- 737 -- 737
Dividend to JKCI ........... -- (18,195) -- (18,195)
Net income ................. -- -- 920 920
-------------------------------------------
Balance at December 31, 1995 $ 3 $ 14,478 $ (983) $ 13,498
===========================================
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-34
<PAGE>
<TABLE>
Alaskan Cable Network
Combined Statements of Cash Flows
<CAPTION>
December 31,
----------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income (loss) .............................................................. $ 920 $ 742 $ (2,274)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision (credit) for uncollectible accounts
receivable .............................................................. 13 (13) 55
Loss on disposal of assets ................................................ 20 39 2,687
Depreciation and amortization ............................................. 6,176 6,092 6,362
Changes in operating assets and liabilities:
Trade accounts receivable ............................................ (184) (11) 160
Intangible and other assets .......................................... (146) (206) 3
Accounts payable ..................................................... 225 (219) (44)
Accrued compensation and benefits and
other accrued liabilities ....................................... 17 (156) 414
Deferred revenue ...................................................... 83 11 (36)
-------- -------- --------
Net cash provided by operating activities ...................................... 7,124 6,279 7,327
Investing activities
Additions to property, plant and equipment ..................................... (914) (1,170) (6,005)
-------- -------- --------
Net cash used in investing activities .......................................... (914) (1,170) (6,005)
Financing activities
Borrowings on line of credit ................................................... 8,000 -- --
Change in due from affiliates .................................................. 1,737 (1,673) --
Decrease in paid-in-capital .................................................... -- (113) --
Dividends paid to Jack Kent Cooke Incorporated ................................. (18,195) -- (112)
-------- -------- --------
Net cash used in financing activities .......................................... (8,458) (1,786) (112)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................... (2,248) 3,323 1,210
Cash and cash equivalents at beginning of year ................................. 6,153 2,830 1,620
-------- -------- --------
Cash and cash equivalents at end of year ....................................... $ 3,905 $ 6,153 $ 2,830
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................................. $ -- $ -- $ --
Income taxes ......................................................... 3 45 --
Supplemental disclosure of noncash financing activities:
In 1995, JKCI forgave $737 of liabilities owed by
the Company
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-35
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements
December 31, 1995
1. Organization and Basis of Presentation
The combined financial statements of the Alaskan Cable Network (ACN or
the Company) include the operations of cable television systems of
Alaskan Cable Network/Fairbanks, Inc., Alaskan Cable Network/Juneau,
Inc. and Alaskan Cable Network/Ketchikan, Sitka, Inc. for the years
ended December 31, 1995, 1994 and 1993. Each of the entities comprising
ACN is wholly-owned by Jack Kent Cooke Incorporated (JKCI). Prior to
April 30, 1992, these companies were wholly-owned subsidiaries of Cooke
Media Group Inc. (CMG), a wholly owned subsidiary of JKCI. In
connection with an agreement with an unrelated party for the sale of
CMG and certain other JKCI operations, the cable television systems
comprising ACN were transferred to JKCI. This transaction was accounted
for as a transfer among companies under common control, and therefore,
was recorded at CMG's historical cost basis.
Cable television operations generate revenue through the use of
property and equipment and, therefore, have few current assets, as the
expression is defined in terms of a one-year operating cycle.
Accordingly, the Company does not identify current assets and current
liabilities separately in the accompanying combined balance sheets.
The Company's operations are regulated by the Federal Communications
Commission and certain other state and local authorities.
Cumulative Effect of Change in Accounting Principle
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 109, "Accounting for
Income Taxes". The Company adopted the provisions of the new standard
in its financial statements on January 1, 1993. The cumulative effect
as of January 1, 1993, due to the adoption of SFAS No. 109, was an
expense for income taxes of $622,000 for the year ended December 31,
1993.
Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts, and the tax bases of existing
assets and liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. Prior to the adoption of SFAS No.
109, income tax expense was determined using the deferred method. Under
the deferred method, deferred taxes were recognized using the tax rate
applicable to the year of calculation and were not adjusted for
subsequent changes in tax rates.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with initial
maturities of three months or less when acquired as cash equivalents.
REGISTRATION STATEMENT
F-36
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company derives its revenues from thousands of customers located
principally in four cities in Alaska. None of the individual customer
accounts receivable balances are material. Customers are billed monthly, 15
days in advance of the beginning of the service period. Invoices are
generally due at the beginning of the service period. The Company generally
does not require collateral and losses on uncollectible receivables have
been within management's expectations.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization is provided on the straight-line method over the estimated
useful lives, which are generally as follows:
Buildings and improvements 19 to 40 years
Cable television systems 8 to 10 years
Machinery and equipment 8 to 10 years
Intangible and Other Assets
Intangible assets are recorded at cost and are amortized using the
straight-line method over their estimated useful lives, principally 7 to 12
years. The cost in excess of fair value of net assets of purchased
businesses is amortized using the straight-line method over forty years.
The carrying value of the cost in excess of fair value of net assets of
purchased businesses is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates the cost in excess of
fair value of the net assets of purchased businesses will not be
recoverable, as determined based on the undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's
carrying value of this asset is reduced by the estimated shortfalls of cash
flows.
Revenue Recognition
Revenues are generally billed in advance and are deferred until cable
service is provided.
Estimates Used in the Preparation of the Combined Financial Statements
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results inevitably will differ from
those estimates and such differences may be material to the financial
statements.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
REGISTRATION STATEMENT
F-37
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
3. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
December 31
1995 1994
---- ----
Land $ 20 $ 20
Buildings and improvements 294 270
Cable television systems 27,354 26,743
Machinery and equipment 1,399 1,399
Construction in progress 637 441
--------- --------
29,704 28,873
Less accumulated depreciation (17,560) (14,712)
--------- --------
$ 12,144 $ 14,161
========= ========
The Company recorded depreciation expense of $2,911,000, $2,871,000 and
$3,040,000 in 1995, 1994 and 1993, respectively.
4. Intangible and Other Assets
Intangible and other assets consist of the following (in thousands):
December 31
1995 1994
---- ----
Subscriber lists $ 26,666 $ 26,666
Franchise rights 5,609 5,609
Cost in excess of fair value of purchased
businesses (goodwill) 2,209 2,209
Other assets 1,334 1,188
---------- --------
35,818 35,672
Less accumulated amortization (28,910) (25,645)
---------- --------
$ 6,908 $ 10,027
========== ========
5. Line of Credit
On June 27, 1995, the Company entered into a $30 million line of credit
agreement with a bank. Borrowings under the line of credit are
collateralized by all of the Company's common stock and bear interest, at
the Company's option, at the prime rate or the interbank offered rate plus
1% (7.5% at December 31, 1995). If the aggregated borrowings exceed $25
million, the interest rate, at the Company's option, on the amount in
excess of $25 million is based on the prime rate plus .75% or the interbank
offered rate plus 2%. The line of credit agreement expires on June 30,
1997. There were $8 million in borrowings outstanding under this agreement
at December 31, 1995.
The line of credit agreement places certain restrictions on the Company,
including limitations on liens, disposition of assets, loans, investments,
capital expenditures, and requires compliance with certain financial
covenants.
REGISTRATION STATEMENT
F-38
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
6. Income Taxes
The Company utilizes the liability method to account for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Temporary differences arise primarily from differences in depreciation and
amortization for financial statement and income tax purposes, and unused
net operating loss carryforwards.
<TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<CAPTION>
December 31
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization ..................................... $ -- $ 377
Deferred tax assets:
Net operating loss carryforwards .................................. 2,085 2,679
Depreciation and amortization ..................................... 434 --
Accrued sick leave pay ............................................ 49 48
Accrued vacation pay .............................................. 39 37
Allowance for loss on receivables ................................. 35 35
Tax credit carryforward ........................................... 19 19
------- -------
Total deferred tax assets ......................................... 2,661 2,818
Valuation allowance for deferred tax assets ....................... (2,661) (2,441)
------- -------
Net deferred tax assets .............................................. -- 377
------- -------
Net deferred taxes ................................................... $ -- $ --
======= =======
</TABLE>
Management has determined, based on the Company's historical operating
results, the potential impact of deregulation in the cable television
industry, and the ability of other JKCI entities to utilize the Company's
net operating loss carryforwards, that it is more likely than not that the
deferred tax asset will not be realized prior to expiration. The Company
will continue to assess the need for a valuation allowance based on future
operating results and facts and circumstances at the time.
REGISTRATION STATEMENT
F-39
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
6. Income Taxes (continued)
<TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the provision (benefit) for income taxes for the years ended
December 31 is as follows:
<CAPTION>
1995 1994 1993
--------------------------
<S> <C> <C> <C>
U.S. federal income tax rate ............................ 34.0% 34.0% (34.0%)
State income tax refunds, net of federal tax benefit..... (29.0) -- --
Benefit of alternative minimum tax loss carryforwards.... -- (36.0) --
Benefit of net operating loss carryforwards ............. (72.0) -- --
Forgiveness of debt income .............................. 35.0 -- --
Amortization of cost in excess of fair value of net
assets of purchased businesses ........................ 3.0 3.0 1.0
Alternative minimum tax ................................. -- (1.0) --
Reduction of taxes provided in prior years .............. -- (1.0) --
Net operating losses not providing current tax benefit -- -- 6.0
Other -- net ............................................ -- 2.0 --
--------------------------
(29.0%) 1.0% (27.0%)
==========================
</TABLE>
At December 31, 1995, the company has unused net operating loss
carryforwards for federal and state income tax purposes of approximately
$4.5 million and $5.9 million, respectively. The federal and state net
operating loss carryforwards expire in years 2006 through 2009.
A consolidated federal tax return is filed by JKCI. The Company has a tax
sharing arrangement with JKCI requiring that the Company provide for income
taxes as if it were a separate taxable entity. Under the arrangement, the
Company will receive benefit for its operating losses only in years when it
has taxable income. Such benefit will be reduced to the extent that the
Company's operating losses have been utilized by affiliated companies in
the consolidated tax return. Management believes the recorded provision
(benefit) for income taxes is not materially different than the amounts
that would be recorded if the Company were a stand-alone entity.
7. Retirement Plans
An affiliate of the Company sponsors a 401(k) savings plan (the Plan) which
covers most non-union full-time employees of the Company, who may elect to
contribute from 2% to 16% of their compensation to the Plan. The Company
recognized expenses for matching contributions in the amount of $24,000,
$16,000 and $18,000 in 1995, 1994 and 1993, respectively.
The company contributes to a union-sponsored defined benefit pension plan.
Such contribution expense totaled $130,000, $123,000 and $135,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
REGISTRATION STATEMENT
F-40
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
8. Shareholder's Equity
Common Stock consists of the following:
$1.00 par value, shares authorized, issued and outstanding:
Alaskan Cable Network, Inc. 200 shares
Alaskan Cable Network/Fairbanks, Inc. 1,000 shares
Alaskan Cable Network/Juneau Holdings, Inc. 200 shares
Alaskan Cable Network/Ketchikan-Sitka, Inc. 1,000 shares
Alaskan Cable Network/Juneau, Inc. 540.5 shares
The accumulated deficit reflects the Company's operating results subsequent
to the sale of the cable television systems to JKCI discussed in Note 1.
9. Advertising Costs
The Company expenses all advertising costs as incurred. Advertising costs
were $113,000, $98,000 and $131,000 for the years ended December 31, 1995,
1994 and 1993, respectively, and were recorded as part of selling, general
and administrative expenses.
10. Commitments and Contingencies
Leases
The Company leases certain facilities and equipment primarily under
operating leases which expire on various dates through 2001. Future minimum
rental payments as of December 31, 1995 under noncancellable operating
leases are as follows (in thousands):
1996 $ 127
1997 99
1998 71
1999 64
2000 21
Thereafter 9
-----
$ 391
=====
Rent expense was $433,000, $391,000 and $373,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
REGISTRATION STATEMENT
F-41
<PAGE>
Alaskan Cable Network
Notes to Combined Financial Statements (continued)
10. Commitments and Contingencies (continued)
Cable Service Rate Reregulation
On April 1, 1993 the Federal Communications Commission ("FCC") adopted
rules governing rates charged by cable operators for the basic service tier
of channels, the installation, lease and maintenance of equipment (such as
converter boxes and remote control units) used by subscribers to receive
this tier, and for cable programming services other than programming
offered on a per-channel or per-program basis (the "regulated services").
To comply with the regulations, the Company implemented various subscriber
service and rate changes effective September 1, 1993. These changes
resulted in a reduction of total monthly revenue of approximately 10.5%
On March 30, 1994, the FCC released revisions to its April 1, 1993 rate
regulations. The revisions required cable operators to implement additional
rate rollbacks using complex benchmark calculations, or alternatively, to
justify higher rates based on a cost-of-service showing. The Company
elected to file cost-of-service showings with the FCC where required.
Management of the Company believes that rates in effect at March 1994 were
supportable under the cost-of-service rules, and therefore, no rate
rollbacks were implemented in connection with the 1994 FCC revisions.
Subsequent rate adjustments have been made utilizing cost-of-service
methodology with adjustments as provided by FCC rules.
The regulated service rates charged by the Company may be reviewed by the
State of Alaska under certain conditions (for basic service) or the FCC
(for cable programming service). Refund liability for basic service rates
is limited to a one-year period. In order for the State of Alaska to
exercise rate regulation authority over the Company's basic service rates,
25% of each systems' subscribers must request such regulation by filing a
petition with the State of Alaska. In July 1990, the Alaskan Public
Utilities Commission instituted rate regulation over the Juneau operations
for their basic cable service and installation. At December 31, 1995, the
State of Alaska does not have rate regulation authority over the other
three locations comprising the Alaskan Cable Network over their basic
service rates, and therefore there is no refund liability for basic service
at this time. Furthermore, since the rate regulation at the Juneau facility
began in 1990, no refund liability exists for this location as of December
31, 1995. Refund liability for cable programming service rates may be
calculated from the date a complaint alleging an unreasonable rate for
cable programming service is filed with the FCC until the rate reduction is
implemented. There have been no complaints filed with the FCC for these
certain franchise areas.
Management of the Company believes that it has complied in all material
respects with the provisions of the FCC rules and regulations and that the
Company is, therefore, not liable for any refunds. Accordingly, no
provision has been made in the financial statements for any potential
refunds. The FCC rules and regulations are, however, subject to judgmental
interpretations, and the impact of potential rate changes or refunds
ordered by the FCC could cause the Company to make refunds.
In February 1996, a telecommunications bill was signed into federal law
which significantly impacts the cable industry. Most notably, the bill
allows cable system operators to provide telephony services, allows
telephone companies to offer video services, and provides for deregulation
of cable programming service rates by 1999. The impact of the new bill
cannot be determined at this time, but it is not expected to have a
significant adverse impact on the financial position or results of
operations of the Company.
REGISTRATION STATEMENT
F-42
<PAGE>
10. Commitments and Contingencies (continued)
Litigation
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, based in
part on the opinion of the Company's legal counsel, the amount of ultimate
liability with respect to these actions will not materially affect the
financial position, results of operations, or cash flows of the Company.
11. Related Party Transaction
The Company makes advances to/borrows from an affiliate at interest rates
of 6.97% per annum during 1995, ranging from 3.91% to 5.49% per annum
during 1994, and ranging from 3.88% to 4.28% per annum during 1993. Net
interest income related to these advances was $7,000, $127,000 and $16,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Such advances/borrowings are payable on demand.
Certain executive officers of JKCI and Tower Media Inc., an affiliate of
the Company, perform services for the Company. No allocations to the
Company were made for such services performed by JKCI, as the amounts were
immaterial, during 1995, 1994 and 1993. Management fees of $225,000,
$233,000 and $202,000 for 1995, 1994 and 1993, respectively, were paid to
Tower Media Inc. for accounting and administrative services rendered on
behalf of the Company. The Company believes the management fees paid to
Tower Media Inc. are at least as favorable as the cost of similar services
from unrelated third parties. JKCI administers a health insurance plan for
the Company's employees at JKCI's cost. The Company then reimburses JKCI
for the cost of the service provided.
12. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Line of Credit; The carrying amounts of the Company's borrowings under
its line of credit agreement approximate their fair value as a result
of the variable interest rate that is adjusted monthly.
Due from Affiliates: The carrying amount of the due from (to)
affiliates approximates its fair value as a result of being payable
on demand and the immateriality of the outstanding borrowings.
13. Subsequent Event
On March 14, 1996, the Company signed a letter of intent to sell all of its
assets to General Communication, Inc. The selling price is in excess of the
net book value of the Company's assets at December 31, 1995. The closing of
the sale is subject to the execution of a definitive Asset Purchase
Agreement and may be subject to regulatory approval.
REGISTRATION STATEMENT
F-43
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
BALANCE SHEETS
<CAPTION>
(Unaudited)
June 30, December 31,
----------- --------------
1996 1995
----------- --------------
ASSETS
------
<S> <C> <C>
Cash ........................................................................... $ 614,411 $ 525,734
Subscriber receivables ......................................................... 100,157 113,651
Advances to affiliates ......................................................... 70,650 5,846
Other receivables .............................................................. 3,443 8,406
Prepaid assets ................................................................. 49,984 34,196
Property, plant and equipment, less
accumulated depreciation of $8,635,146
and $8,464,628 .............................................................. 2,496,739 2,493,956
Excess of cost over fair value of net tangible
assets of systems purchased, less amortization
of $401,602 and $388,785 .................................................... 111,110 123,927
----------- -----------
$ 3,446,494 $ 3,305,716
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Accounts payable ............................................................... 205,737 99,458
Accrued interest ............................................................... 57,810 53,659
Accrued taxes and expenses ..................................................... 191,404 320,755
Deferred revenues .............................................................. 23,882 27,193
Loans payable to bank .......................................................... 3,695,079 3,695,079
Note payable to stockholder .................................................... 300,000 300,000
Notes payable to former stockholders ........................................... 1,563,887 1,673,155
----------- -----------
Total liabilities .......................................................... 6,037,799 6,169,299
----------- -----------
Stockholders' Deficit
Common stock ($1.00 par value), including consideration paid in excess of
stated value. Authorized 20,000 shares; issued and outstanding 10,000 at
June 30, 1996 and December 31, 1995 ..................................... 12,624 12,624
Treasury stock, 3,400 and 3,000 shares at
June 30, 1996 and December 31, 1995, respectively ........................ (4,500,000) (4,500,000)
Retained earnings ........................................................... 1,896,071 1,623,793
----------- -----------
Total stockholders' deficit ............................................... (2,591,305) (2,863,583)
----------- -----------
Commitments and contingencies
$ 3,446,494 $ 3,305,716
=========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-44
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
3 MONTHS ENDED JUNE 30, 6 MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Cable television fees ............. $ 1,497,930 $ 1,502,972 $ 3,006,745 $ 2,969,030
----------- ----------- ----------- -----------
Operating Expenses
Salaries and wages ................ 225,000 210,982 451,898 392,373
Payroll taxes and employee benefits 48,540 52,949 102,658 97,656
Program fees ...................... 241,108 238,728 491,789 475,923
Copyright fees .................... 7,127 11,451 20,818 22,845
Maintenance, parts and supplies ... 19,769 27,797 44,768 50,236
Bad debts ......................... 14,311 4,018 23,115 12,461
Insurance ......................... 9,252 9,468 18,320 16,589
Business and property taxes ....... 8,166 14,254 15,876 24,479
Rentals ........................... 41,193 35,881 84,921 72,126
Travel ............................ 3,214 11,667 8,026 23,433
Telephone and utilities ........... 31,615 30,546 65,494 61,468
Vehicle expense ................... 9,094 10,451 22,002 18,915
Computer services ................. 11,257 11,883 23,556 23,189
Postage and freight ............... 10,728 12,109 21,701 22,055
Office expense .................... 12,952 13,217 28,480 27,463
Advertising and sales expense ..... 17,700 12,685 34,679 21,948
Other operating expenses (net) .... 393 279 770 664
Depreciation and amortization ..... 105,612 106,069 236,907 209,998
Corporate administration .......... 117,222 131,625 239,413 246,295
----------- ----------- ----------- -----------
934,253 946,059 1,935,191 1,820,116
----------- ----------- ----------- -----------
Operating income ................ 563,677 556,913 1,071,554 1,148,914
----------- ----------- ----------- -----------
Other Income (Expense)
Interest expense .................. (100,495) (132,761) (202,998) (269,923)
Management fees ................... (91,645) (90,448) (183,944) (217,227)
Interest income ................... 3,345 18 3,372 22
Other (net) ....................... (39,550) -- (42,118) --
----------- ----------- ----------- -----------
(228,345) (223,191) (425,688) (487,128)
----------- ----------- ----------- -----------
Net income .......................... $ 335,332 $ 333,722 $ 645,866 $ 661,786
=========== =========== =========== ===========
Net income per common share ......... $ 50.81 $ 47.67 $ 97.86 $ 94.54
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-45
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS
------------ ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994 .. $ 12,624 $(4,500,000) $ 1,112,191
Net income .................. -- -- 661,788
Distributions to stockholders -- -- (348,027)
----------- ----------- -----------
Balance, June 30, 1995 ...... $ 12,624 $(4,500,000) $ 1,425,952
=========== =========== ===========
Balance, December 31, 1995 .. $ 12,624 $(4,500,000) $ 1,623,793
Net income .................. -- -- 645,866
Distributions to stockholders -- -- (373,588)
----------- ----------- -----------
Balance, June 30, 1996 ...... $ 12,624 $(4,500,000) $ 1,896,071
=========== =========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-46
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
6 MONTHS ENDED JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net income ............................... $ 645,866 $ 661,786
Noncash items included in net income
Depreciation and amortization .......... 236,907 209,998
Net increase in advances to affiliates . (64,804) (49,851)
Net decrease in subscriber receivables,
other receivables and prepaid assets . 2,669 105,827
Net increase (decrease) in payables,
accrued expenses and deferred revenues (18,921) 36,452
----------- -----------
Net cash provided by operating
activities ....................... 801,717 964,212
----------- -----------
Cash Flows From Investing Activities
Additions to property, plant and
equipment .............................. (226,872) (441,255)
----------- -----------
Net cash used by investing
activities ....................... (226,872) (441,255)
----------- -----------
Cash Flows From Financing Activities
Proceeds from senior debt borrowings ..... -- 3,695,079
Decrease in loans due to affiliate ....... -- (3,421,629)
Repayment on notes due to former
stockholders ........................... (109,269) (101,446)
Decrease in deferred revenues ............ (3,311) (1,447)
Distributions to stockholders ............ (373,588) (348,027)
----------- -----------
Net cash used by financing
activities ....................... (486,168) (177,470)
----------- -----------
Net increase in cash ....................... 88,677 345,487
Cash Balance
Beginning of period ...................... 525,734 118,856
----------- -----------
End of period ............................ $ 614,411 $ 464,343
=========== ===========
Supplemental Information
Interest paid ............................ $ 248,700 $ 288,544
=========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-47
<PAGE>
ALASKA CABLEVISION, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 - GENERAL
Alaska Cablevision, Inc. (Company) is engaged in providing cable
television to various communities located in the State of Alaska. The Company is
affiliated with Rock Associates, Inc. through common ownership and management.
The accompanying unaudited 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. In the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the financial statements and footnotes thereto included in Alaska
Cablevision Inc.'s audited financial statements for the year ended December 31,
1995.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
On May 10, 1996, the Company entered into a Asset Purchase Agreement
(the "Agreement") with General Communication, Inc. (GCI). GCI is a
telecommunications company providing long distance services in Alaska. Under the
Agreement, the Company will sell substantially all of its assets to GCI for a
total consideration of $26,650,000, consisting of a $10 million note payable
convertible to shares of GCI class A common stock and $16,650,000 cash. It is
anticipated that the transaction will close in the fourth quarter of 1996.
REGISTRATION STATEMENT
F-48
<PAGE>
Report of Independent Auditors
To The Stockholders
Alaska Cablevision, Inc.
Kirkland, Washington
We have audited the accompanying balance sheets of Alaska Cablevision, Inc. as
of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alaska Cablevision, Inc. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Carl & Carlsen
February 27, 1996
Seattle, Washington
REGISTRATION STATEMENT
F-49
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
BALANCE SHEETS
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
------
Cash ..................................................................... $ 525,734 $ 118,856
Subscriber receivables ................................................... 113,651 102,740
Advances to affiliates ................................................... 5,846 1,475
Other receivables ........................................................ 8,406 127,381
Prepaid assets ........................................................... 34,196 24,510
Property, plant and equipment, less
accumulated depreciation of $8,464,628
and $8,296,807 (Notes 1 and 2) ........................................ 2,493,956 2,138,843
Excess of cost over fair value of net tangible
assets of systems purchased, less amortization
of $388,785 and $363,150 (Note 1) ..................................... 123,927 149,562
----------- -----------
$ 3,305,716 $ 2,663,367
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Accounts payable ......................................................... 99,458 125,801
Accrued interest ......................................................... 53,659 37,718
Accrued taxes and expenses ............................................... 320,755 246,517
Deferred revenues ........................................................ 27,193 26,999
Loans payable to bank (Note 3) ........................................... 3,695,079 --
Loans payable to affiliate (Note 3) ...................................... -- 3,421,629
Note payable to stockholder (Note 5) ..................................... 300,000 300,000
Notes payable to former stockholders ..................................... 1,673,155 1,879,888
----------- -----------
Total liabilities .................................................... 6,169,299 6,038,552
----------- -----------
Stockholders' Deficit
Common stock ($1.00 par value), including
consideration paid in excess of stated
value. Authorized 20,000 shares; issued
and outstanding 10,000 at December 31, 1995
and 1994 .......................................................... 12,624 12,624
Treasury stock, 3,000 shares at December 31,
1995 and 1994 ..................................................... (4,500,000) (4,500,000)
Retained earnings ..................................................... 1,623,793 1,112,191
----------- -----------
Total stockholders' deficit ......................................... (2,863,583) (3,375,185)
----------- -----------
Commitments and contingencies (Note 8)
$ 3,305,716 $ 2,663,367
=========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-50
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Cable television fees ............. $ 5,920,057 $ 5,708,842 $ 5,660,189
----------- ----------- -----------
Operating Expenses
Salaries and wages ................ 840,031 917,223 786,391
Payroll taxes and employee benefits 216,597 210,962 181,521
Program fees ...................... 950,778 908,770 821,037
Copyright fees .................... 40,345 38,874 28,515
Maintenance, parts and supplies ... 114,318 134,893 116,740
Bad debts ......................... 45,201 33,376 32,320
Insurance ......................... 34,175 27,258 29,867
Business and property taxes ....... 25,481 24,511 8,567
Rentals ........................... 144,292 135,674 129,521
Travel ............................ 54,505 82,790 42,161
Telephone and utilities ........... 127,535 109,123 112,939
Vehicle expense ................... 44,322 40,433 40,858
Computer services ................. 46,298 41,358 45,110
Postage and freight ............... 47,543 42,259 46,551
Office expense .................... 58,200 56,611 49,013
Advertising and sales expense ..... 66,262 63,306 56,276
Other operating expenses (net) .... (2,906) 35,570 24,162
Depreciation and amortization ..... 420,001 313,615 435,113
Corporate administration (net) .... 483,801 276,190 291,454
(Note 6)
----------- ----------- -----------
3,756,779 3,492,796 3,278,116
----------- ----------- -----------
Operating income ................ 2,163,278 2,216,046 2,382,073
----------- ----------- -----------
Other Income (Expense)
Interest expense .................. (485,508) (418,301) (468,240)
Management fees (Note 6) .......... (400,075) (571,357) (567,017)
Interest income ................... -- 13,446 6,105
Income (loss) from disposition of
assets .......................... 7,431 (47,532) (33,135)
Other (net) ....................... (79,475) -- (1,739)
----------- ----------- -----------
(957,627) (1,023,744) (1,064,026)
----------- ----------- -----------
Net income .......................... $ 1,205,651 $ 1,192,302 $ 1,318,047
=========== =========== ===========
Net income per common share ......... $ 172.24 $ 170.33 $ 188.29
=========== =========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-51
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED
EARNINGS/
COMMON TREASURY ACCUMULATED
STOCK STOCK DEFICIT
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1992 .. $ 12,624 $(4,500,000) $ (11,169)
Net income .................. -- -- 1,318,047
Distributions to stockholders -- -- (736,100)
----------- ----------- -----------
Balance, December 31, 1993 .. 12,624 (4,500,000) 570,778
Net income .................. -- -- 1,192,302
Distributions to stockholders -- -- (650,889)
----------- ----------- -----------
Balance, December 31, 1994 .. 12,624 (4,500,000) 1,112,191
Net income .................. -- -- 1,205,651
Distributions to stockholders -- -- (694,049)
----------- ----------- -----------
Balance, December 31, 1995 .. $ 12,624 $(4,500,000) $ 1,623,793
=========== =========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-52
<PAGE>
<TABLE>
ALASKA CABLEVISION, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income ......................... $ 1,205,651 $ 1,192,302 $ 1,318,047
Noncash items included in net income
Depreciation and amortization .... 420,001 313,615 435,113
(Gain) loss from disposition of
assets ......................... (7,431) 47,532 33,135
Net (increase) decrease in
advances to affiliates ......... (4,371) 382,241 (267,771)
Net (increase) decrease in other
receivables and prepaid assets . 98,378 (16,093) (13,965)
Net increase (decrease) in
payables, accrued expenses and
deferred revenues .............. 64,030 56,365 (9,390)
----------- ----------- -----------
Net cash provided by operating
activities ................. 1,776,258 1,975,962 1,495,169
----------- ----------- -----------
Cash Flows From Investing Activities
Additions to property, plant and
equipment ........................ (757,062) (1,118,183) (337,164)
Proceeds from sale of assets ....... 15,014 9,038 2,795
----------- ----------- -----------
Net cash used by investing
activities ................. (742,048) (1,109,145) (334,369)
----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from senior debt borrowings 3,695,079 -- --
Increase (decrease) in loans due to
affiliate ........................ (3,421,629) 46,102 (256,923)
Repayment on notes due to former
stockholders ..................... (206,733) (191,928) (178,184)
Repayment on other borrowings ...... -- -- (1,932)
Distributions to stockholders ...... (694,049) (650,889) (736,100)
----------- ----------- -----------
Net cash used by financing
activities ................. (627,332) (796,715) (1,173,139)
----------- ----------- -----------
Net increase in cash ................. 406,878 70,102 (12,339)
Cash Balance
Beginning of year .................. 118,856 48,754 61,093
----------- ----------- -----------
End of year ........................ $ 525,734 $ 118,856 $ 48,754
=========== =========== ===========
Supplemental Information
Interest paid ...................... $ 469,567 $ 421,793 $ 471,541
=========== =========== ===========
See accompanying notes.
</TABLE>
REGISTRATION STATEMENT
F-53
<PAGE>
ALASKA CABLEVISION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Affiliation - The Company is affiliated with Rock Associates, Inc.
through common ownership and management.
(b) Financial Statement Presentation - The accompanying balance sheet
is presented in an unclassified format as allowed in the Statement of Position
on Accounting by Cable Television Companies issued by the American Institute of
Certified Public Accountants. Revenues of cable television systems are derived
through use of plant and equipment and have few assets that can be defined in
terms of a one-year operating cycle. Management believes this format is the most
meaningful presentation of its financial position.
(c) Operations - The Company is engaged in providing cable television
to various communities located in the State of Alaska.
(d) Revenue Recognition - Revenues billed in advance for cable services
are deferred and recorded as income in the month in which the services are
rendered.
(e) Income Taxes - The Company, with the consent of its shareholders,
has elected to have its income reported directly by the shareholders under
provisions of Sub-chapter S of the Internal Revenue Code.
(f) Plant and Equipment - Depreciation is computed substantially on the
straight-line basis for financial statement purposes over the estimated useful
lives of the assets:
Cable distribution systems 7 - 10 years
Headend and satellite receiving
equipment 7 - 10 years
Buildings 10 - 31 years
Transportation equipment 3 - 7 years
Other equipment and fixtures 5 - 10 years
Maintenance and repairs are charged to expense as incurred.
(g) Intangible Assets - The excess cost over fair value of net tangible
assets of systems acquired is primarily assignable as cost of franchise rights,
and is being amortized on a straight-line method over their respective expected
useful lives, but none in excess of twenty years. The carrying value of the cost
in excess of fair value of net assets of purchased business is reviewed if the
facts and circumstances suggest that it may be impaired. If this review
indicates the cost in excess of fair value of the net assets of purchased
businesses will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of this asset is reduced by the estimated shortfalls of
cash flows.
(h) Employee Benefits Plan - The Company has adopted a profit sharing
and employee savings plan under Section 401(K) of the Internal Revenue Code.
This plan allows eligible employees to defer up to 15% of their compensation on
a pre-tax basis through contributions to the
REGISTRATION STATEMENT
F-54
<PAGE>
savings plan. The Company contributed $.50 in 1995, 1994 and 1993 for every
dollar the employees contributed up to 5% of compensation, which amounted to
$14,117, $10,253 and $11,848 respectively.
(i) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, and categorized as
follows:
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
Buildings, including leasehold
improvements ...................... $ 194,578 $ 157,778
Cable distribution systems, including
connect drops and converters ...... 7,188,764 6,900,036
Headend and satellite equipment ..... 2,734,119 2,649,779
Transportation equipment ............ 346,507 322,047
Other equipment and fixtures ........ 494,616 406,010
----------- -----------
$10,958,584 $10,435,650
=========== ===========
NOTE 3 - LOANS PAYABLE TO BANK
Rock Associates, Inc. owed Provident National Bank and The Bank of
California, N.A. the combined amount of $36,260,000 as of December 31, 1994.
These combined borrowings, covered by a Term Loan Agreement, were collateralized
principally by the capital stock and assets of Rock Associates, Inc. and its
affiliates (see Note 1). Rock Associates, Inc. in turn loaned the Company
portions of the bank borrowings. Note payable to stockholder was also
subordinated in favor of Rock Associates, Inc.'s liability to the banks. This
debt was paid in full on February 28, 1995.
At December 31, 1995, loans payable to bank were covered by a Senior
Reducing Revolving Credit Loan Agreement between Rock Associates, Inc. and
Alaska Cablevision, Inc., co-borrowers, and PNC Bank, National Association.
Proceeds of the new loan agreement dated February 28, 1995, were used primarily
to refinance existing senior debt and to provide funds for cable plant
expansion.
Subject to various terms and conditions, including minimum required
quarterly annualized cash flow ratios to aggregate bank debt, the bank will lend
up to $6,400,000 on a revolving loan
REGISTRATION STATEMENT
F-55
<PAGE>
basis until December 31, 1997. Interest is payable quarterly at either of two
floating rates of interest. The first rate will be the higher of the bank's
prime rate or the Federal Funds rate plus 1/2%. The second rate will be LIBOR
rate plus 1-1/2%. The balance of loans payable to bank is due at maturity, which
is December 31, 1997.
Borrowings under the loan agreement are collateralized principally by
the capital stock and assets of the co-borrowers. Note payable to stockholder is
subordinated in favor of the Company's liability to the bank.
NOTE 4 - NOTES PAYABLE TO FORMER STOCKHOLDERS
The notes due to former shareholders of Alaska Cablevision, Inc.
originally totaling $1,650,000 call for quarterly installments of $73,625
including interest at 7-1/2% per annum. These notes are due in full on January
1, 1997. Notes totaling $600,000 are due August 30, 1996, repayable in quarterly
installments of interest only at 9% per annum. All notes are subordinated to
senior bank debt.
NOTE 5 - NOTE PAYABLE TO STOCKHOLDER
The note due to stockholder is a demand note with interest payable
quarterly at a rate equal to the weighted average rate paid by Alaska
Cablevision, Inc. on its senior bank debt. The note is subordinated to senior
bank debt.
NOTE 6 - RELATED PARTY TRANSACTION
As described in Note 1, Rock Associates, Inc. provides significant
services to the Company. By agreement, the charge for overall management
services is presently based on a percentage of the Company's operating revenues.
The management fee percentage was 6%-10%, 10% and 10% for the year ended
December 31, 1995, 1994 and 1993, respectively. In 1994 and 1993 Rock
Associates, Inc. also provided administration support to the Company. Corporate
administration charges are actual costs incurred. In 1995 all administration was
performed by the Company.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The fair
value of the Company's assets, which are primarily cash and accounts receivable,
and the Company's liabilities approximate their carrying value. The fair value
of any off-balance sheet commitments is immaterial.
REGISTRATION STATEMENT
F-56
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Minimum annual rental commitments at December 31, 1995 under operating
leases are approximately as follows:
Year Ended December 31:
1996 $ 99,000
1997 $ 73,000
1998 $ 45,000
1999 $ 42,000
2000 $ 43,000
Thereafter $ 160,000
NOTE 9 - SUBSEQUENT EVENT
On March 14, 1996, the Company entered into a letter of intent to sell
its operating assets to General Communication, Inc. The total sales price is
$26,650,000, of which $16,650,000 is payable in cash at closing and $10,000,000
is payable in convertible subordinated debt. The sale is expected to close by
the end of 1996.
REGISTRATION STATEMENT
F-57
<PAGE>
Pro Forma Combined Condensed Financial Statements (Unaudited)
General. The following unaudited pro forma combined condensed financial
statements have been prepared to reflect the Acquisition Plan through which the
Company will acquire assets or securities of Prime, the three corporations
comprising Alaskan Cable and Alaska Cablevision. The financial position and
results of operations for McCaw/Rock Homer and McCaw/Rock Seward have not been
included as they are not significant in the Acquisition Plan. The Acquisition
Plan is to be implemented through a series of securities or asset Purchase
Agreements with each of the Cable Companies and a separate securities Purchase
Agreement between the Company and MCI. The Proposed Transactions are expected to
be accounted for using the purchase method of accounting.
The unaudited pro forma combined condensed balance sheet as of June 30,
1996 gives effect to the Proposed Transactions as if they occurred on such date
and combines the following: (1) the Company's historical unaudited consolidated
balance sheet as of June 30, 1996; (2) Prime's historical unaudited balance
sheet as of June 30, 1996; (3) Alaska Cablevision's historical unaudited balance
sheet as of June 30, 1996; and (4) Alaskan Cable's historical unaudited combined
balance sheet as of June 30, 1996.
The unaudited pro forma combined condensed statement of operations for
the six-month period ended June 30, 1996 gives effect to the Proposed
Transactions as if they occurred as of the beginning of the period presented and
combines (1) the Company's historical unaudited consolidated statement of
operations for the six-month period ended June 30, 1996, (2) Prime's historical
unaudited statement of operations for the six-month period ended June 30, 1996,
(3) Alaska Cablevision's historical unaudited statement of income for the
six-month period ended June 30, 1996, and (4) Alaska Cable's historical
unaudited combined statement of income for the six-month period ended June 30,
1996.
The unaudited pro forma combined condensed statement of operations for
the year ended December 31, 1995 gives effect to the Proposed Transactions as if
they occurred as of the beginning of the period presented and combines (1) the
Company's historical consolidated statement of operations for the year ended
December 31, 1995, (2) Prime's historical statement of operations for the year
ended December 31, 1995, (3) Alaska Cablevision's historical statement of income
for the year ended December 31, 1995, and (4) Alaska Cable's historical combined
statement of income for the year ended December 31, 1995.
The unaudited pro forma combined condensed financial statements do not
purport to represent what the Company's results of operations or financial
position would actually have been had the Proposed Transactions occurred at the
beginning of each period presented or on the date indicated, or to project any
future results of operations or financial position of the Company. The pro forma
adjustments are based on available information and upon assumptions that the
Company's management believes are reasonable under the circumstances. These
adjustments are directly attributable to the Proposed Transactions indicated and
are expected to have a continuing impact on the financial position and results
of operations of the Company.
These pro forma combined condensed financial statements should be read
in conjunction with the historical financial statements and notes thereto of the
Company, Prime, Alaska Cablevision, and Alaskan Cable, which are incorporated by
reference in or included elsewhere in this Proxy Statement/Prospectus.
Pro Forma Statements.
REGISTRATION STATEMENT
F-58
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET AS OF JUNE 30, 1996*
($ in thousands, except per share data)
<CAPTION>
HISTORICAL
Company Prime Alaska Cablevision Alaskan Cable
------- ----- ------------------ -------------
<S> <C> <C> <C> <C>
Cash and other current
assets (1) $ 5,879 1,853 664 1,015
Net receivables 26,481 956 174 2,041
Net property and equipment (2) 63,661 27,628 2,497 10,909
Other assets 12,387 2,390 --- ---
Excess of cost over net
assets of acquired
businesses and other
intangible assets (net) (3) 1,235 28,397 111 5,244
----- ------ --- -----
Total assets $ 109,643 61,224 3,446 19,209
======= ====== ===== ======
Accounts payable 16,314 1,490 206 305
Other current liabilities,
excluding current portion
of long-term debt and leases 5,062 6,207 272 2,462
Debt and obligations under
capital leases (4) 31,143 107,320 5,559 3,000
Deferred income taxes, net (5) 7,824 --- --- ---
Other liabilities 1,807 --- --- ---
Convertible notes payable (6) --- --- --- ---
Shareholders'/partners'
equity (deficit) (7) 47,493 (53,793) (2,591) 13,442
------ -------- ------- ------
Total liabilities and
stockholders' equity $ 109,643 61,224 3,446 19,209
======= ====== ===== ======
Book value per common or
equivalent common share (8) $ 2.00 (4.56) (392.58) 4,571.33
==== ====== ======== ========
Pro forma book value per
equivalent common share (9) $ n/a n/a n/a n/a
=== === === ===
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to
this table.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-59
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET AS OF JUNE 30, 1996*
($ in thousands, except per share data)
<CAPTION>
PRO FORMA ADJUSTMENTS
Alaska
Cable- Alaskan MCI Stock
Prime vision Cable Issuance Total Pro Forma
----- ------ ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and other current assets (1) $ --- (360) (289) --- (649) 8,762
Net receivables --- --- --- --- 29,652
---
Net property and equipment (2) 5,525 499 2,316 --- 8,340 113,035
Other assets --- --- --- --- --- 14,777
Excess of cost over net assets of
acquired businesses and other
intangible assets (net) (3) 113,441 23,543 49,746 --- 186,730 221,717
------- ------ ------ --- ------- -------
Total assets $ 118,966 23,682 51,773 --- 194,421 387,943
======= ====== ====== === ======= =======
Accounts payable --- --- --- --- --- 18,315
Other current liabilities,
excluding current portion of
long-term debt and leases --- --- --- --- --- 14,003
Debt and obligations under
capital leases (4) (4,320) 11,091 48,000 (13,000) 41,771 188,793
Deferred income taxes, net (5) --- --- --- --- --- 7,824
Other liabilities --- --- --- --- --- 1,807
Convertible notes payable (6) --- 10,000 --- --- 10,000 10,000
Shareholders/partners' equity
(deficit) (7) 123,286 2,591 3,773 13,000 142,650 147,201
------- ----- ----- ------ ------- -------
Total liabilities and
stockholders' equity $ 118,966 23,682 51,773 --- 194,421 387,943
======= ====== ====== === ======= =======
Book value per common or
equivalent common share (8) $ n/a n/a n/a n/a n/a n/a
=== === === === === ===
Pro forma book value per
equivalent common share (9) $ 5.89 --- 5.89 6.50 n/a 3.63
==== === ==== ==== === ====
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to this table.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-60
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996*
($ in thousands, except per share data)
<CAPTION>
HISTORICAL
Company Prime Alaska Cablevision Alaskan Cable
------- ----- ------------------ -------------
<S> <C> <C> <C> <C>
Transmission services $ 70,540 --- --- ---
Cable television services --- 17,276 3,007 7,442
System sales and service 5,356 --- --- ---
Other 1,273 --- --- ---
------ ------ ----- -------
Total revenues 77,169 17,276 3,007 7,442
Cost of sales (18) 43,776 4,116 579 2,485
------ ------ ----- -------
Contribution 33,393 13,160 2,428 4,957
Operating costs and
expenses (10) 21,670 5,476 1,303 1,515
Depreciation and
amortization (11) 3,805 8,410 237 3,113
----- ------ ----- -------
Operating income 7,918 (726) 888 329
(loss)
Interest expense (12) (804) (4,736) (203) (374)
Other income (expense) (13) 176 143 (39) (6)
----- ------ ----- -------
Earnings (loss)
before income tax 7,290 (5,319) 646 (51)
expense
Income tax expense
(benefit) (14) 3,002 --- --- (15)
----- ------- ----- -------
Net earnings (loss) $ 4,288 (5,319) 646 (36)
===== ======= ===== =======
Earnings (loss) attributed
to common shareholders $ 4,288 (5,319) 646 (36)
===== ======= ===== =======
Primary and fully diluted
earnings (loss) per common
or equivalent common share
attributable to common
shareholders (15)
$ 0.17 (0.45) 97.88 (12.24)
==== ====== ===== =======
Primary and fully diluted
pro forma earnings (loss)
per equivalent common
share attributable to
common shareholders (16) $ n/a n/a n/a n/a
=== === ===== =======
Weighted average number of
common (or equivalent
common) and common
equivalent shares
outstanding (17) 25,025 11,800 7 3
====== ====== ===== =======
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to
this table. In this table, "n/a" means not applicable.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-61
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1996*
($ in thousands, except per share data)
<CAPTION>
PRO FORMA ADJUSTMENTS
Alaska Alaskan MCI Stock
Prime Cablevision Cable Issuance Total Pro Forma
----- ----------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Transmission services $ --- --- --- --- --- 70,540
Cable television services --- --- --- --- --- 27,725
System sales and service --- --- --- --- --- 5,356
Other --- --- --- --- --- 1,273
------- ----- ------- ----- ------- -------
Total revenues --- --- --- --- --- 104,894
Cost of sales --- --- --- --- --- 50,956
------- ----- ------- ----- ------- -------
Contribution --- --- --- --- --- 53,938
Operating costs and
expenses (10) (424) (184) --- --- (608) 29,356
Depreciation and
amortization (11) (4,482) 254 (1,651) --- (5,879) 9,686
------- ----- ------- ----- ------- -------
Operating income (loss) 4,906 (70) 1,651 --- 6,487 14,896
Interest expense (12) 648 (808) (1,650) 516 (1,294) (7,411)
Other income (expense) (13) --- 40 --- --- 40 314
------- ----- ------- ----- ------- -------
Earnings (loss)
before income tax 5,554 (838) 1 516 5,233 7,799
expense
Income tax expense
(benefit) (14) 827 (79) (6) 212 955 3,942
------- ----- ------- ----- ------- -------
Net earnings (loss) $ 4,727 (759) 7 304 4,278 3,857
======= ===== ======= ===== ======= =======
Earnings (loss) attributed
to common shareholders $ 4,727 (759) 7 304 4,278 3,857
======= ===== ======= ===== ======= =======
Primary and fully diluted
earnings (loss) per common
or equivalent common share
attributable to common
shareholders (15) $ n/a n/a n/a n/a n/a n/a
======= ===== ======= ===== ======= =======
Primary and fully diluted
pro forma earnings (loss)
per equivalent common share
attributable to common
shareholders (16) $ (0.05) --- (0.01) 0.15 n/a 0.09
======= ===== ====== ===== ======= =======
Weighted average number of
common (or equivalent
common) and common
equivalent shares
outstanding (17) 11,800 --- 2,923 2,000 16,723 41,748
======= ===== ======= ===== ======= =======
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to
this table. In this table, "n/a" means not applicable.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-62
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995*
($ in thousands, except per share data)
<CAPTION>
HISTORICAL
Company Prime Alaska Cablevision Alaskan Cable
------- ----- ------------------ -------------
<S> <C> <C> <C> <C>
Transmission services $ 120,005 --- --- ---
Cable television services --- 32,594 5,920 14,515
System sales and service 7,193 --- --- ---
Other 2,081 --- --- ---
------- -------- ------ ------
Total revenues 129,279 32,594 5,920 14,515
Cost of sales (18) 70,221 7,320 1,126 4,702
------- -------- ------ ------
Contribution 59,058 25,274 4,794 9,813
Operating costs and expenses (10) 39,331 10,618 2,611 3,005
Depreciation and amortization (11) 6,223 16,487 420 6,176
------- -------- ------ ------
Operating income (loss) 13,504 (1,831) 1,763 632
Interest expense (12) (1,146) (14,960) (486) (16)
Other income (expense) (13) 243 464 (71) 96
------- -------- ------ ------
Earnings (loss) before
income tax expense 12,601 (16,327) 1,206 712
Income tax expense (benefit) (14) 5,099 -- --- (208)
------- -------- ------ ------
Net earnings (loss) $ 7,502 (16,327) 1,206 920
======= ======== ====== ======
Earnings (loss) attributed to
common shareholders $ 7,502 (16,327) 1,206 920
======= ======== ====== ======
Primary and fully diluted
earnings (loss) per common or
equivalent common share
attributable to common $ 0.31 (1.38) 172.29 312.87
======= ======== ====== ======
shareholders (15)
Primary and fully diluted pro
forma earnings (loss) per
equivalent common share
attributable to common $ n/a n/a n/a n/a
======= ======== ====== ======
shareholders (16)
Weighted average number of
common (or equivalent common)
and common equivalent shares
outstanding (17) 24,426 11,800 7 3
======= ======== ====== ======
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to
this table. In this table, "n/a" means not applicable.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-63
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995*
($ in thousands, except per share data)
PRO FORMA ADJUSTMENTS
Alaska Alaskan MCI Stock
Prime Cablevision Cable Issuance Total Pro Forma
----- ----------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Transmission services $ --- --- --- --- --- 120,005
Cable television services --- --- --- --- --- 53,029
System sales and service --- --- --- --- --- 7,193
Other --- --- --- --- --- 2,081
------- ------- ------- ------ -------- -------
Total revenues --- --- --- --- --- 182,308
Cost of sales (18) --- --- --- -- --- 83,369
------- ------- ------- ----- -------- -------
Contribution --- --- --- --- --- 98,939
Operating costs and expenses (10) (674) (400) --- --- (1,074) 54,491
Depreciation and amortization (11) (8,632) 557 (3,251) -- (11,326) 17,980
------- ------- ------- ----- -------- -------
Operating income (loss) 9,306 (157) 3,251 --- 12,400 26,468
Interest expense (12) 6,784 (1,536) (4,032) 1,032 2,248 (14,360)
Other income (expense) (13) --- 79 (96) -- (17) 715
------- ------- ------- ----- -------- -------
Earnings (loss) before income
tax expense 16,090 (1,614) (877) 1,032 14,631 12,823
Income tax expense (benefit) (14) 1,339 (165) 141 418 1,733 6,624
------- ------- ------- ----- -------- -------
Net earnings (loss) $ 14,751 (1,449) (1,018) 614 12,898 6,199
======= ======= ======= ===== ======== =======
Earnings (loss) attributed to common
shareholders $ 14,751 (1,449) (1,018) 614 12,898 6,199
======= ======= ======= ===== ======== =======
Primary and fully diluted earnings
(loss) per common or equivalent
common share attributable to common
shareholders (15) $ n/a n/a n/a n/a n/a n/a
======= ======= ======= ===== ======== =======
Primary and fully diluted pro forma
earnings (loss) per equivalent
common share attributable to common
shareholders (16) $ (0.13) --- (0.03) 0.31 n/a 0.15
====== ======= ======= ===== ======== =======
Weighted average number of common
(or equivalent common) and common
equivalent shares outstanding (17)
11,800 --- 2,923 2,000 16,723 41,149
====== ======= ======= ===== ======== =======
<FN>
- ----------------
*See within this section "-Adjustments" for the substance of the footnotes to
this table. In this table, "n/a" means not applicable.
- ----------------
</FN>
</TABLE>
REGISTRATION STATEMENT
F-64
<PAGE>
Adjustments. The pro forma adjustments to the unaudited pro forma
condensed balance sheet as of June 30, 1996 and the unaudited pro forma
condensed statements of operations for the six months ended June 30, 1996 and
the year ended December 31, 1995 are as follows:
1. Elimination of cash and other current assets held by Alaska Cablevision
and Alaskan Cable not included in the asset sale.
2. Represents the difference between historical book value and Company
management's estimate of market value of property, plant and equipment
acquired. Company management consulted with asset appraisal experts
regarding a factor that can be applied to the acquired assets net book
value to approximate market value. The experts have had significant
experience in valuing cable television assets and have a general
understanding of the assets to be acquired by the Company. Based on
such discussions, management has used a factor of 120% of June 30, 1996
net book value to approximate market value at that date. The actual
market values will be adjusted following appraisal of the assets prior
to closing and will likely differ from the values estimated herein.
However, management does not expect that the differences will have a
material impact on the Company's pro forma financial statements.
3. Represents the excess of cost over net assets acquired.
4. Elimination of debt owed by Alaska Cablevision and Alaskan Cable and
the addition of new debt expected to be incurred by the Company to
close the Proposed Transactions.
5. Excess acquired net deferred tax assets over deferred tax liabilities
recorded as a result of the non-taxable component of the merger has
been fully reserved through valuation allowance.
6. Addition of Cablevision Company Notes payable to Alaska Cablevision
pursuant to the Alaskan Cable Proposed Transaction.
7. Represents (a) an increase in shareholders' equity due to the issuance
of the Prime Company Shares and Alaskan Cable Company Shares; (b) the
elimination of Alaska Cablevision's and Alaskan Cable's shareholders'
equity; and (c) the increase in shareholders' due to the Prime Company
Shares, Alaskan Cable Company Shares, and the MCI Company Stock
issuance. For purposes of calculation of the excess of cost over net
assets acquired, shares to be issued pursuant to the Prime and Alaskan
Cable Proposed Transactions are valued at the volume weighted average
price for several trading days before and after the public announcement
of the Proposed Transactions (approximately $5.89 per share). The MCI
Company Stock issuance is valued at $6.50 per share.
8. Represents shareholders'/partners' equity (deficit) divided by the
common shares outstanding at the end of the period reported. Since
Prime is organized as a partnership, the number of shares to be issued
pursuant to the Prime Proposed Transaction (11,800,000 shares) are used
for purposes of calculating Prime's book value per common share.
9. For the Cable Companies, shareholders' or partners' combined historical
and pro forma equity (deficiency) is divided by the number of shares to
be issued pursuant to the corresponding Proposed Transaction
(11,800,000 shares for Prime, 2,923,077 shares for Alaskan Cable and
2,000,000 shares for MCI) for purposes of calculating pro forma book
value per equivalent common share. For the Company, total combined
shareholders' and partners' historical and pro forma equity
(deficiency) is divided by the number of Company shares outstanding at
June 30, 1996 plus all shares to be issued pursuant to the Proposed
Transactions.
REGISTRATION STATEMENT
F-65
<PAGE>
10. Pursuant to the Prime Management Agreement (see, EXHIBIT INDEX), Prime
has agreed to oversee, manage and supervise the development and
operation of the Company Cable Systems, i.e., all cable systems
acquired by the Company pursuant to the Proposed Transactions. The
Company has agreed to pay PIIM $1 million for these services in year 1
of the agreement. Accordingly, Prime management fees are included and
historical management fees are eliminated from pro forma operating
costs and expenses.
11. Represents adjustments to depreciation and amortization expense
resulting from the adjusted carrying values, and lives for property,
plant and equipment and intangible assets.
Property, plant and equipment is depreciated using the
straight-line method over the following lives:
Cable distribution systems 8 years
Building 20 years
Transportation equipment 4 years
Furniture and fixtures 4 years
Excess of cost over net assets acquired is being amortized by the
straight-line method over 40 years.
12. Elimination of interest expense incurred by Prime, Alaska Cablevision
and Alaskan Cable and the addition of the following: (1) estimated
interest expense incurred on new convertible notes at the fixed
interest rate of 7.00%; and (2) additional variable estimated interest
on all other debt at 7.9375%. Pursuant to the Alaska Cablevision
Purchase Agreement, interest is based on the lowest allowable IRS rate
under imputed interest rules, determined for this analysis using the
Applicable Federal Rate for July, 1996. The expected variable rate to
be paid for all other debt is based on the Libor rate of 7.9375%,
determined for this analysis as of June 30, 1996.
<TABLE>
A 1/8% increase in the variable interest rate would have the following
effect (amounts in thousands):
<CAPTION>
Twelve months Six months
ended ended
December 31, 1995 June 30, 1996
----------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Total pro forma interest expense based on June
30, 1996 rates $ 14,360 7,411
Total pro forma interest expense based on June
30, 1996 rates increased by 1/8% 14,556 7,509
------ -----
Increase in total pro forma interest expense $ 196 98
====== =====
REGISTRATION STATEMENT
F-66
<PAGE>
A 1/8 % decrease in the variable interest rate would have the following
effect:
Total pro forma interest expense based on June
30, 1996 rates $ 14,360 7,411
Total pro forma interest expense based on June
30, 1996 rates decreased by 1/8% 14,162 7,311
------ -----
Reduction in total pro forma interest expense $ (198) (100)
====== =====
</TABLE>
13. Elimination of interest income earned by Alaskan Cable and costs
incurred by Alaska Cablevision associated with the Alaska Cablevision
Purchase Agreement.
14. The income tax effect of pro forma adjustments for Alaskan Cable and
MCI are computed using the Company's effective income tax rate of 41%
for the six-month period ended June 30, 1996 and 40% for the year ended
December 31, 1995. Since Prime is organized as a partnership and Alaska
Cablevision's shareholders have elected S-corporation income tax status
under the Code, pro forma adjustments for these companies include taxes
computed on historical earnings (loss) in addition to pro forma
earnings (loss). The income tax pro forma adjustments for Prime include
the income tax effect of nondeductible goodwill.
15. Primary and fully diluted earnings (loss) per common and equivalent
common share is based upon the weighted average number of outstanding
shares of each Cable Company before the Proposed Transactions close.
The number of shares to be issued pursuant to the Prime Proposed
Transaction (11,800,000 shares) are used for purposes of calculating
Prime's primary and fully diluted earnings per common share.
16. Primary and fully diluted pro forma earnings (loss) per common share is
based upon the weighted average number of outstanding shares of each
Cable Company after the corresponding Proposed Transactions close.
17. Represents the weighted average of common shares outstanding and common
equivalent shares outstanding for each Company at June 30, 1996. The
number of shares to be issued pursuant to the Prime Proposed
Transaction (11,800,000 shares) and the MCI Proposed Transaction
(2,000,000 shares) are used for purposes of computing Prime's and MCI's
weighted average of common shares outstanding.
18. Historical cost of sales for the Cable Companies are derived as
follows:
(1) Alaska Cablevision --
December 31, June 30,
1995 1996
---- ----
(unaudited)
(in thousands)
Programming fees $ 951 491
Copyright fees 40 20
Direct labor and benefits 125 63
Other costs 10 5
------ ---
Total cost of sales $ 1,126 579
===== ===
REGISTRATION STATEMENT
F-67
<PAGE>
(2) Prime --
Twelve months Six months
Ended Ended
December 31, June 30,
1995 1996
---- ----
(unaudited)
(in thousands)
Basic programming fees $ 6,808 3,804
Copyright fees 319 161
FCC fees and other costs 193 151
----- ----
Total cost of sales $ 7,320 4,116
===== =====
(3) Alaskan Cable -- Equivalent to "Cost of Revenues" as reported
in Alaskan Cable's June 30, 1996 unaudited financial
statements and December 31, 1995 audited financial statements.
See "INDEX TO FINANCIAL STATEMENTS."
REGISTRATION STATEMENT
F-68
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
In accordance with the provisions of the Alaska Corporations Code (specifically
AS 10.06.490) the Company's Restated Articles of Incorporation provide for
indemnification of directors and officers of the Company, who are made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he or she is
or was a director or officer of the Company or served any other enterprise as a
director or officer at the request of the Company. The right of indemnification
is also applicable to the executors, administrators and other similar legal
representative of any such director or officer.
The indemnification covers expenses, including attorney's fees,
actually and reasonably incurred in connection with the defense or settlement of
an action or suit if the director or officer acted in good faith and in a manner
reasonably believed to be in the best interests of the corporation. No
indemnification will be made in respect of any claim, issue or matter as to
which the director or officer is adjudged to be liable for negligence or
misconduct unless the court in which the action or suit was brought determines
that the director or officer is fairly and reasonably entitled to indemnity for
such expenses.
The text of AS 10.06.490 is as follows:
"Indemnification of officers, directors, employees, and
agents: insurance. (a) A corporation may indemnify a person
who was, is, or is threatened to be made a party to a
completed, pending, or threatened action or proceeding,
whether civil, criminal, administrative, or investigative,
other than an action by or in the right of the corporation, by
reason of the fact that the person is or was a director,
officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise.
Indemnification may include reimbursement of expenses,
attorney fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by the person in
connection with the action or proceeding if the person acted
in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or
proceeding, the person had no reasonable cause to believe the
conduct was unlawful. The termination of an action or
proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, does not create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to a criminal action or proceeding, the person had
reasonable cause to believe that the conduct was unlawful.
(b) A corporation may indemnify a person who was, is, or is
threatened to be made a party to a completed, pending, or
threatened action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or
other enterprise. Indemnification may
REGISTRATION STATEMENT
Page II-1
<PAGE>
include reimbursement for expenses and attorney fees actually
and reasonably incurred by the person in connection with the
defense or settlement of the action if the person acted in
good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made in respect of any claim,
issue, or matter as to which the person has been adjudged to
be liable for negligence or misconduct in the performance of
the person's duty to the corporation except to the extent that
the court in which the action was brought determines upon
application that, despite the adjudication of liability, in
view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for expenses that
the court considers proper. (c) To the extent that a director,
officer, employee, or agent of a corporation has been
successful on the merits or otherwise in defense of an action
or proceeding referred to in (a) or (b) of this section, or in
defense of a claim, issue, or matter in the action or
proceeding, the director, officer, employee, or agent shall be
indemnified against expenses and attorney fees actually and
reasonably incurred in connection with the defense. (d) Unless
otherwise ordered by a court, indemnification under (a) or (b)
of this section may only be made by a corporation upon a
determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because the
director, officer, employee, or agent has met the applicable
standard of conduct set out in (a) and (b) of this section.
The determination shall be made by
(1) the board by a majority vote of a quorum consisting of
directors who were not parties to the action or proceeding; or
(2) independent legal counsel in a written opinion if a
quorum under (1) of this subsection is
(A) not obtainable; or
(B) obtainable but a majority of disinterested directors so
directs; or
(3) approval of the outstanding shares.
(e) The corporation may pay or reimburse the reasonable
expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition in the manner
provided in (d) of this section if
(1) in the case of a director or officer, the director or
officer furnishes the corporation with a written affirmation
of a good faith belief that the standard of conduct described
in AS 10.06.450(b) or 10.06.483(e) has been met;
(2) the director, officer, employee, or agent furnishes the
corporation a written unlimited general undertaking, executed
personally or on behalf of the individual, to repay the
advance if it is ultimately determined that an applicable
standard of conduct was not met; and
(3) a determination is made that the facts then known to
those making the determination would not preclude
indemnification under this chapter.
(f) The indemnification provided by this section is not
exclusive of any other rights to which a person seeking
indemnification may be entitled under a bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, both
as to action in the official capacity of the person and as to
action in another capacity while holding the office. The right
to indemnification continues as to a person who has ceased to
be a director,
REGISTRATION STATEMENT
Page II-2
<PAGE>
officer, employee, or agent, and inures to the benefit of the
heirs, executors, and administrators of the person.
(g) A corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability
asserted against the person and incurred by the person in that
capacity, or arising out of that status, whether or not the
corporation has the power to indemnify the person against the
liability under the provisions of this section.
Article VIII of the Restated Articles of Incorporation for General
Communication, Inc. reads as follows:
"The Corporation shall indemnify, to the full extent permitted
by, and in the manner permissible under, the laws of the State
of Alaska and any other applicable laws, any person made or
threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative,
other than an action by or in the right of the Corporation, by
reason of the fact that the person is or was a director,
officer, employee or agent of this Corporation or is or was
serving at the request of the Corporation as a director or
officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise. The
foregoing provisions of this Article VIII will be deemed to be
a contract between this Corporation and each director and
officer who serves in such capacity at any time while this
Article VIII is in effect, and any repeal or modification of
this Article VIII shall not affect any rights or obligations
then existing with respect to any statement of facts then or
theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part
upon any such statement of facts. The foregoing rights of
indemnification shall not be deemed exclusive of any other
rights to which any director or officer or his legal
representative may be entitled apart from the provisions of
this Article VIII."
As of the Record Date, the Company had not been asked or put on notice
to provide indemnification to any officer, director, or employee of the Company.
Item 21. Exhibits and Financial Schedules.
<TABLE>
(a) Exhibits.
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1. --
2.1 Prime Purchase Agreement
2.2.1 Agreement and Plan of Merger of ACI with and into GCI Cable
2.2.2 Certificate of Merger Merging ACI into GCI Cable (for filing in Delaware)
2.2.3 Articles of Merger between GCI Cable and ACI (for filing in Alaska)
2.3.1 Agreement and Plan of Merger of PCFI with and into GCI Cable
2.3.2 Certificate of Merger Merging PCFI into GCI Cable (for filing in Delaware)
REGISTRATION STATEMENT
Page II-3
<PAGE>
2.3.3 Articles of Merger between GCI Cable and PCFI (for filing in Alaska)
2.4 Alaskan Cable Purchase Agreement
2.5 Alaska Cablevision Purchase Agreement
2.6 McCaw/Rock Homer Purchase Agreement
2.7 McCaw/Rock Seward Purchase Agreement
2.8 MCI Purchase Agreement
3.1 Restated Articles of Incorporation of Registrant (1)
3.2 Bylaws of Registrant, as revised (1)
4.1 Specimen Stock Certificate for the Class A common stock of Registrant
5.1 Opinion of Wohlforth, Argetsinger, Johnson & Brecht, A Professional Corporation regarding
legality of securities being registered
8.1.1 Form of tax opinion of Jenkens & Gilchrist regarding
certain federal income tax matters on merger of PCFI
with GCI Cable in the Prime Proposed Transaction
8.1.2 Form of tax opinion of Jenkens & Gilchrist regarding
certain federal income tax matters on merger of ACI
with GCI Cable in the Prime Proposed Transaction
9.1 New Voting Agreement among certain shareholders of Registrant (2)
10.1 Prime Management Agreement (2)
10.2 Prime Registration Rights Agreement (2)
10.3 Alaskan Cable Registration Rights Agreement (3)
11. --
12. --
13.1 Form 10-K for the Registrant for the year ended December 31, 1995 (1)
13.2 Form 10-K/A for the Registrant (dated April 25, 1996) for the year ended December 31,
1995 (1)
14. --
15. --
16. --
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG Peat Marwick LLP (Registrant accountant)
23.2 Consent of Ernst & Young LLP (Prime accountant 1994, 1995, and 1996)
23.3 Consent of Coopers & Lybrand L.L.P. (Prime accountant 1993)
23.4 Consent of Ernst & Young LLP (Alaskan Cable accountant for Alaskan Cable/Fairbanks,
Alaskan Cable/Juneau, and Alaskan Cable/Ketchikan)
23.5 Consent of Carl & Carlsen (Alaska Cablevision accountant)
23.6 Consent of Wohlforth, Argetsinger, Johnson & Brecht, A Professional Corporation (law firm
furnishing opinion on legality of shares being registered)
23.7 Consent of Jenkens & Gilchrist, A Professional
Corporation (law firm furnishing opinion with respect
to federal income tax consequences of ACI merger and
PCFI merger)
24.1 Power of Attorney
99.1 Form 8-K for the Registrant, dated March 14, 1996 (1)
99.2 Form 8-K/A for the Registrant, dated May 20, 1996 (1)
99.3 Form of Proxy for Registrant's Annual Meeting of Shareholders
99.4 Letter to Prime Group from Prime
99.5 Letter to Shareholders from Alaskan Cable
99.6 Consent of the Partners of Prime
99.7 Consent of the Partners of Prime Growth
99.8 Consent of the Partners of Prime Holdings
99.9 Consent of Shareholders of Alaska Cable, Inc.
99.10 Consent of the Partners of Prime Venture II, L.P.
99.11 Consent of the Partners of Prime Cable Limited Partnership
REGISTRATION STATEMENT
Page II-4
<PAGE>
99.12 Consent of PCLP (Sole Shareholder of PCFI)
99.13 Form of Consent Solicited by the Boards of Directors in Lieu of Special Meeting of
Shareholders (for Alaskan Cable/Fairbanks)
99.14 Form of Consent Solicited by the Boards of Directors in Lieu of Special Meeting of
Shareholders (for Alaskan Cable/Juneau)
99.15 Form of Consent Solicited by the Boards of Directors in Lieu of Special Meeting of
Shareholders (for Alaskan Cable/Ketchikan)
99.16 Performance Graph Data for Five-Year Period January 1, 1991 - December 31, 1995 (1)
99.17 Acceleration Request
<FN>
- ----------------
1 Previously filed with the Commission.
2 Included as an exhibit to Prime Purchase Agreement, i.e., Exhibit 2.1
to this Form S-4 Registration Statement.
3 Included as an exhibit to Alaskan Cable Purchase Agreement, i.e.,
Exhibit 2.4 to this Registration Statement.
- ----------------
</FN>
</TABLE>
(b) Financial Statement Schedules.
None.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable, is not material, or is shown
in the Financial Statements or notes thereto.
(c) Reports, Opinions or Appraisals.
None.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
REGISTRATION STATEMENT
Page II-5
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
person who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under that act, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the Proxy Statement/Prospectus pursuant to Item 4, 10(b), 11 or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective, provided, in the case of a transaction that (but for the possibility
of integration with other transaction) would itself qualify for an exemption
from registration, that
REGISTRATION STATEMENT
Page II-6
<PAGE>
(i) such transactions by itself or when aggregated with other such transactions
made since the filing of the most recently audited financial statements of the
Registrant would have a material financial effect upon the Registrant and (ii)
the information required to be supplied in a post-effective amendment by this
paragraph (9) is not contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
REGISTRATION STATEMENT
Page II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Anchorage, State
of Alaska on September 30, 1996.
GENERAL COMMUNICATION, INC.
(Registrant)
By: /s/ By: /s/
Ronald A. Duncan John M. Lowber
President and Chief Executive Senior Vice President and
Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial
Officer)
By: /s/
Alfred J. Walker
Vice President and Chief
Accounting Officer
(Principal Accounting
Officer)
REGISTRATION STATEMENT
Page II-8
<PAGE>
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<CAPTION>
Signature Title Date
- ------------------------------- ------------------------------ -------------------
<S> <C> <C>
/s/ Chairman of the Board September 11, 1996
Carter F. Page and Director
/s/ Vice Chairman of the Board September , 1996
Robert M. Walp and Director
/s/ President and Director, September , 1996
Ronald A. Duncan (Chief Executive Officer)
/s/ Director September 10, 1996
Donne F. Fisher
Director September , 1996
John W. Gerdelman
/s/ Director September , 1996
Larry E. Romrell
/s/ Director September 10, 1996
James M. Schneider
</TABLE>
REGISTRATION STATEMENT
Page II-9
EXHIBIT 2.1
SECURITIES PURCHASE AND SALE AGREEMENT
May 2, 1996
among
GENERAL COMMUNICATION, INC.
an Alaska corporation
("Buyer")
and
PRIME VENTURE I HOLDINGS, L.P.
a Delaware limited partnership
("Holdings"),
PRIME CABLE GROWTH PARTNERS, L.P.
a Delaware limited partnership
("Growth"),
PRIME VENTURE II, L.P.
a Delaware limited partnership
("PVII")
PRIME CABLE LIMITED PARTNERSHIP
a Delaware limited partnership
("PCLP")
AUSTIN VENTURES, L.P.
a Delaware limited partnership
("AV")
WILLIAM BLAIR VENTURE PARTNERS III LIMITED PARTNERSHIP
an Illinois limited partnership
("WBVP")
CENTENNIAL FUND II, L.P.
a Delaware limited partnership
("CFII")
CENTENNIAL FUND III, L.P.
a Colorado limited partnership
("CFIII")
REGISTRATION STATEMENT
Page II-13
<PAGE>
CENTENNIAL BUSINESS DEVELOPMENT FUND, LTD.
a Colorado limited partnership
("CBDF")
BANCBOSTON CAPITAL, INC.
a Massachusetts corporation
("BBC")
FIRST CHICAGO INVESTMENT CORPORATION
a Delaware corporation
("FCIC")
MADISON DEARBORN PARTNERS V
an Illinois general partnership
("MDP")
(Holdings, Growth, PVII, PCLP, BBC, FCIC, MDP, AV, WBVP, CFII, CFIII and CBDF,
collectively referred to as "Sellers"), and
PRIME II MANAGEMENT, L.P.
a Delaware limited partnership
("PIIM")
for the purchase and sale of one hundred percent (100%)
of all outstanding limited and general partnership interests in
PRIME CABLE OF ALASKA, L.P.
a Delaware limited partnership
("Company")
and One Hundred Percent (100%) of the outstanding capital stock of
ALASKA CABLE, INC.
a Delaware corporation
("ACI")
and
PRIME CABLE FUND I, INC.
a Delaware corporation
("PCFI")
REGISTRATION STATEMENT
Page II-14
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions................................................................................... 21
1.1 ACI.................................................................................. 21
1.2 Affiliate............................................................................ 21
1.3 APUC................................................................................. 21
1.4 APUC Certificate..................................................................... 21
1.5 Assets............................................................................... 22
1.6 CATV................................................................................. 22
1.7 CATV Business....................................................................... 22
1.8 CATV Franchise Agreement............................................................. 22
1.9 CATV Instruments..................................................................... 22
1.10 CATV System.......................................................................... 22
1.11 Closing and Closing Date............................................................. 22
1.12 Company Contracts.................................................................... 22
1.13 Company Loan Agreement............................................................... 23
1.14 Employees............................................................................ 23
1.15 Environmental Law.................................................................... 23
1.16 Equipment............................................................................ 23
1.17 ERISA................................................................................ 23
1.18 Excluded Assets...................................................................... 23
1.19 FAA.................................................................................. 23
1.20 FCC.................................................................................. 23
1.21 Financial Statements................................................................. 23
1.22 GCI Class A Stock.................................................................... 24
1.23 GAAP................................................................................. 24
1.24 Hazardous Substances................................................................. 24
1.25 Inspection Termination Period........................................................ 24
1.26 Intangibles.......................................................................... 24
1.27 MDU Agreements....................................................................... 24
1.28 MDU Complex.......................................................................... 24
1.29 MCI.................................................................................. 24
1.30 Net Income........................................................................... 25
1.31 Operating Cash Flow.................................................................. 25
1.32 Other Required Assets................................................................ 25
1.33 Partnership Agreement................................................................ 25
1.34 Partnership Interests................................................................ 25
1.35 PCFI................................................................................. 25
1.36 Permitted Encumbrances............................................................... 25
1.37 Person............................................................................... 27
1.38 Purchase Price....................................................................... 27
1.39 Real Property........................................................................ 27
REGISTRATION STATEMENT
Page II-15
<PAGE>
1.40 Required Consents.................................................................... 27
1.41 Security Interest.................................................................... 27
1.42 Sellers' Stock....................................................................... 27
1.43 Service Area......................................................................... 27
1.44 Escrow Holdback...................................................................... 27
1.45 Subscribers.......................................................................... 28
Section 2. Purchase and Sale............................................................................. 28
2.1 Purchase and Sale of Securities...................................................... 28
2.2 Purchase Price....................................................................... 29
2.3 Escrow Holdback...................................................................... 29
Section 3. Representations, Warranties, and Covenants of Sellers......................................... 29
3.1 Organization and Qualification....................................................... 30
3.2 Company's Partnership Interests...................................................... 30
3.3 ACI's Capitalization................................................................. 30
3.4 PCFI's Capitalization................................................................ 31
3.5 Authority............................................................................ 31
3.6 Enforceability....................................................................... 31
3.7 No Subsidiaries or Affiliates........................................................ 31
3.8 Cash Flow............................................................................ 31
3.9 Indebtedness......................................................................... 32
3.10 Records.............................................................................. 32
3.11 No Breach or Violation............................................................... 32
3.12 No Programming Rate Changes.......................................................... 32
3.13 No Finders or Brokers................................................................ 32
3.14 Schedules............................................................................ 32
3.15 Compliance with Laws................................................................. 33
3.16 Financial Statements................................................................. 35
3.17 Tax Returns and Other Reports........................................................ 36
3.18 Real Property........................................................................ 36
3.19 Employees............................................................................ 36
3.20 Litigation and Violations............................................................ 37
3.21 Disclosure........................................................................... 37
3.22 Investment Company................................................................... 37
3.23 CATV Instruments and Company Contracts............................................... 37
3.24 Patents, Trademarks, and Copyrights.................................................. 38
3.25 Assets............................................................................... 38
3.26 Title to Assets...................................................................... 39
3.27 No Other Assets or Liabilities....................................................... 39
3.28 Required Consents.................................................................... 39
3.29 Overbuilds........................................................................... 39
3.30 No Insolvency........................................................................ 39
REGISTRATION STATEMENT
Page II-16
<PAGE>
Section 4. Representations, Warranties, and Covenants of Buyer........................................... 39
4.1 Organization and Authority........................................................... 39
4.2 Capitalization....................................................................... 40
4.3 Enforceability....................................................................... 40
4.4 Cash Flow............................................................................ 41
4.5 Indebtedness......................................................................... 41
4.6 Records.............................................................................. 41
4.7 No Breach or Violation............................................................... 41
4.8 Compliance with Laws................................................................. 41
4.9 Financial Statements................................................................. 43
4.10 Tax Returns and Other Reports........................................................ 44
4.11 Transfer Taxes....................................................................... 44
4.12 Litigation and Violations............................................................ 44
4.13 Disclosure........................................................................... 44
4.14 Investment Company................................................................... 45
4.15 No Finders or Brokers................................................................ 45
4.16 Purchase for Investment.............................................................. 45
4.17 No Insolvency........................................................................ 45
4.18 No Subsidiaries or Affiliates........................................................ 45
4.19 Employees............................................................................ 45
4.20 Contracts and Rights................................................................. 45
4.21 Required Consents.................................................................... 46
Section 5. Conduct Prior to Closing...................................................................... 46
5.1 Operation in Ordinary Course......................................................... 46
5.1.1 Company........................................................................ 46
5.1.2 Buyer.......................................................................... 47
5.2 Agents............................................................................... 48
5.3 No New Company Securities............................................................ 48
5.4 No New Buyer Securities.............................................................. 48
5.5 Employees............................................................................ 49
5.6 Access to Premises and Records....................................................... 49
5.7 Existing Relationships............................................................... 50
5.8 Required Consents.................................................................... 51
5.9 MDU Agreements....................................................................... 51
5.10 Buyer's Title Reports................................................................ 51
5.11 Compliance with HSR Act and Rules.................................................... 51
5.12 Use of Names and Logos............................................................... 52
5.13 Public Announcements................................................................. 52
5.14 Registration of GCI Shares........................................................... 52
Section 6. Closing....................................................................................... 52
Section 7. Deliveries by Sellers at Closing.............................................................. 53
REGISTRATION STATEMENT
Page II-17
<PAGE>
Section 8. Deliveries by Buyer at Closing................................................................ 56
Section 9. Conditions to Obligations of Buyer............................................................ 58
9.1 Accuracy of Representations and Compliance with Conditions........................... 58
9.2 Deliveries Complete.................................................................. 58
9.3 No Adverse Change.................................................................... 58
9.4 Restraint of Proceedings............................................................. 59
9.5 Cash Flow, Indebtedness.............................................................. 59
Section 10. Conditions to Obligations of Sellers.......................................................... 59
10.1 Accuracy of Representations and Compliance with Conditions........................... 59
10.2 Deliveries Complete.................................................................. 60
10.3 No Adverse Change.................................................................... 60
10.4 Restraint of Proceedings............................................................. 60
10.5 Cash Flow; Indebtedness.............................................................. 60
10.6 Director Designees Elected........................................................... 60
10.7 Registration Statement............................................................... 60
10.8 Listing of GCI Shares................................................................ 60
Section 11. Conditions to Both Parties Obligations........................................................ 61
11.1 Simultaneous Closing................................................................. 61
11.2 Mergers.............................................................................. 61
11.3 Consents............................................................................. 61
11.4 No Governmental Action............................................................... 61
Section 12. Transactions Subsequent to Closing............................................................ 61
12.1 Further Actions...................................................................... 61
12.2 Tax Returns.......................................................................... 61
12.3 COBRA Benefits....................................................................... 61
12.4 PIIM Records Retention............................................................... 62
Section 13. Registration Rights Agreement................................................................. 62
Section 14. Voting Agreement.............................................................................. 62
Section 15. Management Agreement.......................................................................... 63
Section 16. Agreement Not to Compete...................................................................... 63
Section 17. Survival of Representations and Warranties; Indemnification................................... 63
17.1 Survival............................................................................. 63
REGISTRATION STATEMENT
Page II-18
<PAGE>
17.2 Indemnity by Sellers................................................................. 63
17.3 Indemnity by Buyer................................................................... 64
17.4 Defense of Claims.................................................................... 64
17.5 Threshold; Maximum Indemnification Obligation........................................ 65
17.6 Exclusive Nature of Indemnification Remedy........................................... 65
17.7 Determination of Indemnified Amounts................................................. 65
Section 18. Termination................................................................................... 66
18.1 Mutual Consent....................................................................... 66
18.2 Default by Sellers................................................................... 66
18.3 Default by Buyer..................................................................... 66
Section 19. Miscellaneous................................................................................. 67
19.1 Expenses............................................................................. 67
19.2 Modification......................................................................... 67
19.3 Notice............................................................................... 67
19.4 Waiver............................................................................... 68
19.5 Binding Effect; Assignment........................................................... 69
19.6 No Third Party Beneficiaries......................................................... 69
19.7 Severability......................................................................... 69
19.8 Captions............................................................................. 69
19.9 Counterparts......................................................................... 69
19.10 Governing Law........................................................................ 69
19.11 Incorporation by Reference........................................................... 69
19.12 Confidentiality...................................................................... 69
19.13 Appointment of Sellers' Agent........................................................ 70
</TABLE>
REGISTRATION STATEMENT
Page II-19
<PAGE>
EXHIBITS
A - Escrow Agreement
B - Registration Rights Agreement
C - Voting Agreement
D - Management Agreement
E - Non-Compete Agreement
SCHEDULES
A. Sellers/Company:
1 - The CATV Business (including Rate Schedule)
1A - Allocation of GCI Shares
2 - CATV Instruments
3 - Company Contracts
4 - Required Consents
5 - Equipment and Vehicles Owned
6 - Real Property Owned
7 - Security Interests to Be Discharged Prior to Closing
and Permitted
Security Interests
8 - Proceedings and Judgments
9 - Employee Matters
10 - Excluded Assets
11 - Tax Matters
12 - Regulation and Environmental Matters
13 - Changes Prior to Closing
14 - Alaska Cable, Inc. Shareholders
15 - Other Required Assets
B. Buyer:
16 - Buyer's Required Consents
17 - Buyer's Proceedings and Judgments
18 - Buyer's Tax Matters
19 - Buyer's Subsidiaries and Affiliates
20 - Buyer's Stock Option Plans
REGISTRATION STATEMENT
Page II-20
<PAGE>
SECURITIES PURCHASE AND SALE AGREEMENT
This Securities Purchase and Sale Agreement ("Agreement") is
made as of May 2, 1996, among General Communication, Inc., an Alaska corporation
("Buyer"), Prime Venture I Holdings, L.P., a Delaware limited partnership
("Holdings"), Prime Cable Growth Partners, L.P. a Delaware limited partnership
("Growth"), Prime Venture II, L.P., a Delaware limited partnership ("PVII"),
Prime Cable Limited Partnership, a Delaware limited partnership ("PCLP"),
BancBoston Capital, Inc., a Massachusetts corporation ("BBC"), First Chicago
Investment Corporation, a Delaware corporation ("FCIC"), Madison Dearborn
Partners V, an Illinois general partnership ("MDP"), Austin Ventures, L.P., a
Delaware limited partnership ("AV"), William Blair Venture Partners III Limited
Partnership, an Illinois limited partnership ("WBVP"), Centennial Fund II, L.P.,
a Delaware limited partnership ("CFII"), Centennial Fund III, L.P., a Colorado
limited partnership ("CFIII"), Centennial Business Development Fund, Ltd., a
Colorado limited partnership ("CBDF"), and collectively with Holdings, Growth,
PVII, PCLP, BBC, FCIC, MDP, AV, WBVP, CFII, CFIII and CBDF, "Sellers") and Prime
II Management, L.P., a Delaware limited partnership ("PIIM"). This Agreement
states the terms upon which Sellers agree to sell to Buyer, and Buyer agrees to
purchase from Sellers, all of the Partnership Interests (as defined below) and
all of the Sellers' Stock (as defined below), which shall result in Buyer owning
all of the limited and general partnership interests of Prime Cable of Alaska,
L.P., a Delaware limited partnership ("Company").
In consideration of the terms, conditions, and agreements
contained in this Agreement, the parties agree as follows:
Section 1. Definitions
1.1 ACI. "ACI" shall mean Alaska Cable, Inc., a Delaware
corporation.
1.2 Affiliate. "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with a person or entity;
"control" means the ownership, directly or indirectly, of equity securities or
other ownership interests in a person or entity by another person or entity,
which represent more than 50% of the voting power or equity ownership in such
person or entity.
1.3 APUC. "APUC" shall mean the Alaska Public Utilities
Commission.
1.4 APUC Certificate. "APUC Certificate" shall mean the
applicable certificate of public convenience and necessity issued by APUC, being
Certificate Nos. 246 (Bethel), 261 and 287 (Anchorage, Eagle River, Chugiak,
Kenai and Soldotna) for the Service Areas legally described herein.
REGISTRATION STATEMENT
Page II-21
<PAGE>
1.5 Assets. "Assets" shall include all properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description, including leasehold interests and goodwill, if any,
that are owned by Company , including but not limited to the CATV Instruments,
the Intangibles, Company Contracts, the Equipment, and the Real Property, but
excluding any Excluded Assets set forth on Schedule 10.
1.6 CATV. "CATV" shall mean cable television.
1.7 CATV Business. "CATV Business" shall refer to all of the
Assets and business of the CATV Systems as presently conducted by Company in and
around the Service Area, as generally described on Schedule 1 to this Agreement.
1.8 CATV Franchise Agreement. "CATV Franchise Agreement" shall
refer to that certain CATV Franchise Agreement No. F65501-91-D0003, between
Company and the Operational Contracting Office/LGCV, on behalf of the United
States of America, dated November 30, 1990.
1.9 CATV Instruments. "CATV Instruments" shall refer to all
intangible CATV channel distribution rights owned by Company, all franchise
agreements, pole attachment rights, leases, licenses, easements, crossing
permits and service agreements, other than those which are Excluded Assets as
described on Schedule 2 to this Agreement.
1.10 CATV System. "CATV System" shall refer to a complete CATV
reception and distribution system of Company which is part of Company's CATV
Business and consisting of one or more headends, equipment, Subscriber drops and
associated electronic equipment, which is, or is capable of being, without
modification, operated as an independent system without interconnections to
other systems. Any systems which are interconnected or which are served in total
or in part by a common headend shall be considered a single CATV System.
1.11 Closing and Closing Date. "Closing" shall refer to the
consummation of the transactions contemplated by this Agreement, to take place
at a meeting held at the place and on the date (referred to as the "Closing
Date") specified in Section 6 of this Agreement.
1.12 Company Contracts. "Company Contracts" shall refer to all
contracts and agreements pertaining to the lawful ownership, operation, and
maintenance of the CATV Business other than CATV Instruments and other than
those contracts and agreements which are Excluded Assets or other Required
Assets, as described on Schedule 3 to this Agreement; provided, that Schedule 3
need not list any of the foregoing involving payments of less than $5,000
monthly, individually, or
REGISTRATION STATEMENT
Page II-22
<PAGE>
$100,000 in the aggregate, in any 30-day period, and which may be terminated by
Company after Closing at any time without penalty or liability to Buyer upon
notice of 30 days or less (collectively, "Immaterial Contracts");
1.13 Company Loan Agreement. "Company Loan Agreement" means
that certain Amended and Restated Loan Agreement dated March 7, 1996 among
Company, the banks named therein (the "PCOA Banks"), Toronto Dominion (Texas),
Inc. ("TD Bank"), Credit Lyonnais Cayman Island Branch, The Chase Manhattan
Bank, N.A. and NationsBank of Texas, N.A., as managing agents (the "Managing
Agents"), and TD Bank, as administrative agent for the Managing Agents and the
PCOA Banks (the "Administrative Agent").
1.14 Employees. "Employees" shall be as defined in Section
3.19.
1.15 Environmental Law. "Environmental Law" means any statute,
ordinance, code, law, rule, regulation, order or other requirement, standard or
procedure enacted, adopted or applied by any governmental authority (including
judicial decisions applying common law) relating to pollution or protection of
public health, safety or welfare or the environment, including those relating to
emissions, discharges, releases or threatened releases of Hazardous Substances
into the environment (including ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances.
1.16 Equipment. "Equipment" shall refer to all tangible
personalty, electronic devices, trunk and distribution coaxial and optical fiber
cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and
pole hardware, Subscriber's devices (including, without limitation, converters,
encoders, transformers behind TV sets and fittings), "headend" (origination,
earth stations, transmission and distribution system) hardware, test equipment,
vehicles, and other personal property and facilities owned by Company as
described on Schedule 5 to this Agreement.
1.17 ERISA. "ERISA" shall be as defined in Section 3.15.
1.18 Excluded Assets. "Excluded Assets" shall refer to those
Assets which will not be owned by Company on the Closing Date as listed on
Schedule 10.
1.19 FAA. "FAA" shall mean the Federal Aviation
Administration.
1.20 FCC. "FCC" shall mean the Federal Communications
Commission.
1.21 Financial Statements. "Financial Statements" shall be as
defined in Section 3.16.
REGISTRATION STATEMENT
Page II-23
<PAGE>
1.22 GCI Class A Stock. "GCI Class A Stock" means GCI's voting
Class A common stock, no par value.
1.23 GAAP. "GAAP" shall mean, as in effect from time to time,
generally accepted accounting principles used in the United States, consistently
applied.
1.24 Hazardous Substances. "Hazardous Substances" means any of
the following: (i) any "hazardous waste" as defined by the Resource Conservation
and Recovery Act of 1976 (RCRA), (42 U.S.C.section 6901 et seq.), as amended,
and rules and regulations promulgated thereunder; (ii) any "hazardous substance"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C.ss. 9601 et seq.) (CERCLA), as amended, and
rules and regulations promulgated thereunder; (iii) any substance regulated by
the Toxic Substances Control Act (42 U.S.C. ss. 2601 et seq.), as amended, and
rules and regulations promulgated thereunder; (iv) asbestos requiring abatement,
removal or treatment pursuant to the requirements of any Environmental Laws; (v)
polychlorinated biphenyls; (vi) any substances regulated under the provisions of
Subtitle I of RCRA relating to underground storage tanks; (vii) any substance
the presence, use, treatment, storage or disposal of which on real property is
prohibited by any legal requirements; and (viii) any other substance which by
any legal requirements requires special handling, reporting or notification of
any governmental authority in its collection, storage, use, treatment or
disposal.
1.25 Inspection Termination Period. "Inspection Termination
Period" means the period commencing on the date of this Agreement and continuing
for 60 days thereafter (or such shorter period as may be specified by Buyer by
written notice to Sellers).
1.26 Intangibles. "Intangibles" shall mean all general
intangibles owned by Company including, but not limited to, Subscriber lists,
accounts receivable, claims (excluding any claims relating to Excluded Assets),
patents, copyrights, and goodwill, if any.
1.27 MDU Agreements. "MDU Agreements" shall mean the Company's
agreements that exist as of the date of this Agreement to provide CATV Services
to MDU Complexes, as required by Section 5.9 hereof.
1.28 MDU Complex. "MDU Complex" shall mean any apartment,
condominium, or townhome complex or mobile home park and any other multiple unit
dwelling project subject to common ownership which currently receives cable
television service from the CATV Business.
1.29 MCI. "MCI" means MCI Telecommunications Corporation.
REGISTRATION STATEMENT
Page II-24
<PAGE>
1.30 Net Income. "Net Income" means, as applied to any Person
for any period, the aggregate amount of net income of such Person, after taxes,
for such period as determined in accordance with GAAP.
1.31 Operating Cash Flow. "Operating Cash Flow" shall mean, as
applied to any Person in respect of any fiscal period, the sum of (a) the
remainder of (i) the Net Income of such Person for such fiscal period minus (ii)
interest income and extraordinary income (including extraordinary gains
resulting from sales of assets) of such Person for such fiscal period and any
taxes associated therewith, plus (b) interest expense, depreciation,
amortization, bank fees, income tax expense, extraordinary losses (including
losses resulting from such sale of assets, net of any tax effect), and all other
non-cash expenses deducted in determining such Net Income, and with respect to
Company, management fees, expenses and other amounts under Company's management
agreement with PIIM, and partnership expenses.
1.32 Other Required Assets. "Other Required Assets" shall mean
those assets or properties used or held for use in connection with the operation
of the CATV Business and which are owned or leased by PIIM, as described on
Schedule 15.
1.33 Partnership Agreement. "Partnership Agreement" shall mean
that certain Amended and Restated Agreement of Limited Partnership of the
Company dated as of June 30, 1989, among PCFI, Growth, Holdings and ACI, as
amended by that First Amendment to Amended and Restated Agreement of Limited
Partnership dated as of August 9, 1991, and as hereafter amended.
1.34 Partnership Interests. "Partnership Interests" shall mean
(i) all of the issued and outstanding limited partnership interests in Company
owned by Holdings and Growth, and (ii) all of the issued profit participation
interests in Company owned by BBC, FCIC and MDP.
1.35 PCFI. "PCFI" shall mean Prime Cable Fund I, Inc., a
Delaware corporation.
1.36 Permitted Encumbrances. "Permitted Encumbrances" shall
mean, with respect to any Person:
(a) with respect to the Company, any lien in favor of
the Administrative Agent on behalf of the Managing Agents and the PCOA Banks to
secure the Company's obligations arising under the Company Loan Agreement; and
with respect to Buyer, any lien in favor of NationsBank of Texas, N.A., and the
Lenders named therein to secure Buyer's obligations under Buyer's Second Amended
and Restated Credit Agreement dated as of April 26, 1996 ("GCI Loan Agreement");
REGISTRATION STATEMENT
Page II-25
<PAGE>
(b) (i) liens on real estate taxes not yet delinquent
and (ii) liens for taxes, assessments, governmental charges or levies or claims
the non-payment of which is being contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on such
Person's books, but only so long as no foreclosure, distraint, sale or similar
proceedings have been commenced with respect thereto and remain unstayed for a
period of thirty (30) days after their commencement;
(c) liens of carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefore;
(d) liens incurred in the ordinary course of business
in connection with worker's compensation and unemployment insurance;
(e) restrictions on the transfer of assets imposed by
any intangible CATV channel distribution rights, franchise agreement,
certificate of public necessity and convenience, pole attachment or conduit
right, lease, license, easement, crossing permit or service agreement, by the
Communications Act of 1934, as amended (the "Communications Act"), and any
regulations thereunder, or by any state or local statute, regulation or
ordinance applicable to such Person;
(f) easements, rights-of-way, restrictions and other
similar encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person, or liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with indebtedness for money borrowed or
other extensions of credit and which do not in the aggregate materially detract
from the value of such properties or materially impair their use in the
operation of the business of such Person;
(g) purchase money security interests arising and
perfected by operation of law only for a period not to exceed ten (10) days from
the inception thereof, and limited to liens on assets so purchased;
(h) liens of record as of the date of this Agreement
listed on Schedule 7;
(i) liens in favor of landlords to secure unpaid
rental payments under leases; and
(j) with respect to the Company, liens of lessors
with respect to capitalized lease obligations permitted under the Company Loan
Agreement; and with
REGISTRATION STATEMENT
Page II-26
<PAGE>
respect to Buyer, liens of lessors with respect to
capitalized lease obligations permitted under the GCI Loan Agreement.
1.37 Person. "Person" shall mean any individual, corporation,
partnership, limited liability company, trust, unincorporated organization,
association, governmental authority or other entity.
1.38 Purchase Price. The "Purchase Price" shall be as defined
in Section 2.2.
1.39 Real Property. The term "Real Property" shall mean (i)
all realty, including appurtenances, improvements, and fixtures located thereon
and any other interests in real property owned by Company and used or held for
use in the CATV Business, including, without limitation, fee interests in
Company's offices and headend sites described on Schedule 6 to this Agreement
(the "Owned Real Property"), and (ii) leasehold interests and easements
described on Schedule 2 to this Agreement (the "Leased Real Property").
1.40 Required Consents. "Required Consents" shall mean all
governmental franchises, approvals, licenses, consents, and any and all other
authorizations or approvals and consents, necessary and required for Sellers to
transfer and convey, and Buyer to purchase, the Partnership Interests and
Sellers' Stock, and for Buyer to conduct Company's CATV Business at the places
and in the manner in which such CATV Business is presently conducted and will be
conducted on the Closing Date. All Required Consents are listed on Schedule 4 to
this Agreement.
1.41 Security Interest. "Security Interest" shall mean any
mortgage, lien, security interest, security agreement, pledge, option, charge,
assessment, restrictive agreement, restriction, encumbrance, adverse interest,
claim, restraint on transfer, or claim against title with respect to the
Partnership Interests and Sellers' Stock or any of the Assets.
1.42 Sellers' Stock. "Sellers' Stock" shall mean all of the
issued and outstanding stock of ACI and PCFI.
1.43 Service Area. "Service Area" shall mean the area in which
Company operates the CATV Business as of the Closing Date, specifically in and
around Anchorage, Eagle River, Chugiak, Kenai, Soldotna and Bethel, pursuant to
applicable APUC Certificate Nos. 246, 261 and 287, and in Fort Richardson and
Elmendorf Air Force Base, Alaska, pursuant to the CATV Franchise.
1.44 Escrow Holdback. "Escrow Holdback" shall be the shares of
GCI Class A Stock, cash or letter of credit held in escrow, as defined in
Section 2.3.
REGISTRATION STATEMENT
Page II-27
<PAGE>
1.45 Subscribers. "Subscribers" shall mean all dwelling and
commercial units, including, but not limited to, individual residences,
commercial establishments, apartment units and hotel rooms (including apartment
units, hotel rooms and other multiple dwelling and commercial units for which
services are provided under bulk billing arrangements), in respect of which the
Company provides basic cable television services for a fee.
Section 2. Purchase and Sale.
2.1 Purchase and Sale of Securities. At the Closing, upon the
terms and conditions set forth in this Agreement, Sellers agree to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from
Sellers, all of the Partnership Interests and Sellers' Stock, together with the
right to receive all unpaid dividends or other distributions payable with
respect to the Partnership Interests and Sellers' Stock. Such sale, conveyance,
transfer, assignment, and delivery shall be effected (a) by the delivery by
Holdings, Growth, BBC, FCIC and MDP to Buyer at the Closing of (i) Holdings'
BBC's FCIC's, MDP's and Growth's respective bills of sale for the Partnership
Interests, and (ii) such other documents or instruments (having terms and
provisions satisfactory to Buyer and the applicable Sellers) which may be
necessary, or which Buyer may reasonably request, in order to effectively vest
in Buyer good and marketable title to the Partnership Interests and the right to
receive such unpaid distributions, free and clear of any Security Interest,
except for any Permitted Encumbrance described in Section 1.36(a) and (e), (b)
by the merger of ACI with and into Buyer (or at Buyer's election, a wholly-owned
subsidiary of Buyer) pursuant to an agreement and plan of merger having terms
and provisions satisfactory to Buyer and to the ACI Sellers to be attached to
this Agreement as Exhibit F prior to the Inspection Termination Date (as defined
in Section 5.6(c) below), which shall provide, among other things, for the
delivery to Buyer at Closing of (i) the stock certificates held by Holdings,
Growth, PVII, AV, CFII, CFIII, CBDF and WBVP (together, the "ACI Sellers")
representing all of the issued and outstanding stock of ACI (the "ACI Stock"),
duly endorsed in blank and with all necessary documentary or transfer tax stamps
affixed thereto, which will be exchanged for a portion of the GCI Shares (as
defined in Section 2.2) as specified in accordance with Section 2.2 below, and
(ii) such other documents or instruments having terms and provisions
satisfactory to Buyer and the applicable Sellers which may be necessary, or
which Buyer may reasonably request, in order to effectively vest in Buyer (or
such subsidiary of Buyer) good and marketable title to the ACI Stock and the
right to receive such unpaid dividends free and clear of any Security Interest,
except for any Permitted Encumbrances described in Section 1.36(a) and (e) and
(c) by the merger of PCFI with and into Buyer (or at Buyer's election, a
wholly-owned subsidiary of Buyer) pursuant to an agreement and plan of merger
having terms and provisions satisfactory to Buyer and to PCLP to be attached to
this Agreement as Exhibit G prior to the Inspection Termination Date (as defined
in Section 5.6(c) below), which shall provide, among other things, for the
delivery to Buyer at Closing of (i) the stock certificates held
REGISTRATION STATEMENT
Page II-28
<PAGE>
by PCLP representing all of the issued and outstanding stock of PCFI (the "PCFI
Stock"), duly endorsed in blank and with all necessary documentary or transfer
tax stamps affixed thereto, which will be exchanged for a portion of the GCI
Shares (as defined in Section 2.2) as specified in accordance with Section 2.2
below, and (ii) such other documents or instruments having terms and provisions
satisfactory to Buyer and PCLP which may be necessary, or which Buyer may
reasonably request, in order to effectively vest in Buyer (or such subsidiary of
Buyer) good and marketable title to the PCFI Stock and the right to receive such
unpaid dividends free and clear of any Security Interest, except for any
Permitted Encumbrances described in Section 1.36(a) and (e). It is the intent of
the parties to structure such mergers as tax-free reorganizations under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. As a result of
the foregoing, Buyer will own, directly or indirectly through wholly-owned
subsidiaries, one hundred percent (100%) of the outstanding limited partner and
general partner interests of Company.
2.2 Purchase Price. Buyer will and, in the case of the mergers
described in Section 2.1(b) and (c), will deliver or cause Buyer's wholly-owned
subsidiary to, deliver to Sellers, as their respective interests appear as set
forth on Schedule 1A attached hereto, at the Closing ELEVEN MILLION EIGHT
HUNDRED THOUSAND (11,800,000) shares of GCI Class A Stock (the "GCI Shares"), in
payment for the Partnership Interests and in consideration for the acquisition
of Sellers' Stock pursuant to said mergers. Such delivery of the GCI Shares
constitutes the "Purchase Price."
2.3 Escrow Holdback. At the Closing, Sellers and Buyer shall
each deposit in escrow with a third party escrow agent acceptable to Sellers and
Buyer either (i) 1,093,750 shares of GCI Class A Stock, or (ii) a letter of
credit or cash in an amount equal to Eight Million Seven Hundred Fifty Thousand
and no/100 Dollars ($8,750,000.00) (the "Escrow Holdback"), to secure each
party's indemnification for breaches of representations, warranties and
covenants. The Escrow Holdback will be held by such escrow agent pursuant to the
terms of an escrow agreement (the "Escrow Agreement") in the form attached
hereto as Exhibit A, which shall provide, among other things, that if no breach
of this Agreement has occurred, the Escrow Holdback shall be released following
each respective indemnitee's written instruction, effective as of one hundred
eighty (180) days after the Closing Date. The 1,093,750 shares of GCI Class A
Stock delivered into escrow by Sellers as a portion of the Escrow Holdback shall
be referred to in this Agreement as the "Sellers' Indemnity Shares."
Section 3. Representations, Warranties, and Covenants of Sellers
Sellers, jointly and severally, represent, warrant, and
covenant to Buyer as follows:
REGISTRATION STATEMENT
Page II-29
<PAGE>
3.1 Organization and Qualification. Each Seller and Company is
a corporation or partnership, as applicable, duly organized, validly existing
and in good standing under the laws of its respective place of incorporation or
formation, as applicable, and Company is duly qualified or licensed to do
business as a foreign limited partnership and is in good standing under the laws
of each jurisdiction in which Company is required to be so qualified or
licensed. Company has all requisite power and authority to carry on the CATV
Business as currently conducted and to own, lease, use, and operate its
properties and to conduct its business as it is now conducted. The copy of
Company's Agreement of Limited Partnership, as amended, which has been delivered
to Buyer is complete and correct, and such document is in full force and effect
and has not been further amended.
3.2 Company's Partnership Interests. Company's authorized and
outstanding partnership interests are owned as follows:
Entity Type of Interest Percentage
Ownership*
Holdings L.P. 4.44%
Growth L.P. 24.44%
ACI L.P. 51.11%
PCFI G.P. 20.01%
Except as provided herein, Company's above-listed partnership interests (i) are
owned beneficially and of record by Holdings, Growth, ACI and PCFI and
constitute all of Company's outstanding partnership interests, (ii) are duly
authorized, validly issued, and (iii) are and will be at Closing, free of any
Security Interests, except for Permitted Encumbrances described in Section
1.36(a) and (e). There are no outstanding agreements or contracts obligating
Company to issue any additional partnership interest of any kind. *These
percentages are subject to the profit participation interests held by BCC, FCIC
and MDP.
3.3 ACI's Capitalization. The authorized capital stock of ACI
consists of (i) four thousand six hundred (4,600) shares of Class A Common
Stock, par value 10/100 Dollars ($.10) per share, all of which are issued and
outstanding and owned beneficially and of record as set forth on Schedule 14,
and (ii) twenty-one (21) shares of Class B Common Stock, par value 10/100
Dollars ($.10) per share, all of which are issued and outstanding and owned
beneficially and of record as set forth on Schedule 14. The ACI shares are duly
authorized, have been validly issued, and are fully paid and nonassessable and
upon delivery to Buyer at the Closing will be free of any Security Interests,
except for any Permitted Encumbrances described in Section 1.36(a) and (e).
There are no outstanding or authorized (i) securities of ACI convertible into or
exchangeable or exercisable for any shares of its capital stock, or (ii)
subscriptions,
REGISTRATION STATEMENT
Page II-30
<PAGE>
options, warrants, calls, rights, commitments, or other agreements or
obligations of any kind obligating ACI to issue any additional shares of its
capital stock or any other securities convertible into or evidencing the right
to acquire or subscribe for any shares of its capital stock.
3.4 PCFI's Capitalization. The authorized capital stock of
PCFI consists of One Thousand (1,000) shares of common stock, par value 50/100
Dollars ($.50) per share, of which One Thousand (1,000) shares are issued and
outstanding. The PCFI shares are owned beneficially and of record by PCLP and
constitute all the outstanding capital stock of PCFI. The PCFI shares are duly
authorized, have been validly issued, and are fully paid and nonassessable and
upon delivery to Buyer at the Closing, will be free of any Security Interests,
except for any Permitted Encumbrances described in Section 1.36 (a) and (e).
There are no outstanding or authorized (i) securities of PCFI convertible into
or exchangeable or exercisable for any shares of its capital stock, or (ii)
subscriptions, options, warrants, calls, rights, commitments, or other
agreements or obligations of any kind obligating PCFI to issue any additional
shares of its capital stock or any other securities convertible into or
evidencing the right to acquire or subscribe for any shares of its capital
stock.
3.5 Authority. Each Seller has all requisite capacity, power,
right, and authority to enter into this Agreement and to perform its obligations
under this Agreement. Except for obtaining the Required Consents described in
Schedule 4, the execution, delivery, and performance of this Agreement by
Sellers have been duly authorized by all applicable corporate or partnership
action of Sellers. No material consent of or authorization from any Person,
including any governmental agency, is required to be obtained in connection with
the execution, delivery, and performance of this Agreement by Sellers, except
for the Required Consents described in Schedule 4.
3.6 Enforceability. This Agreement and all documents,
instruments, and certificates to be delivered under this Agreement constitute
legal, valid, and binding obligations of Sellers, enforceable against Sellers in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting generally the enforcement of creditors' rights and remedies and by
general principles of equity, including limitations on the availability of the
remedy of specific performance or injunctive relief, regardless of whether
performance or injunctive relief is sought in a proceeding at law or in equity.
3.7 No Subsidiaries or Affiliates. Except as set forth on
Schedule 10, Company does not control, or own any stock or other interest in,
directly or indirectly, any corporation, partnership, association, or other
business entity.
3.8 Cash Flow. Company's 1995 operating cash flow was not less
than Sixteen Million Three Hundred Thirty Thousand Dollars ($16,330,000).
REGISTRATION STATEMENT
Page II-31
<PAGE>
3.9 Indebtedness. As of February 29, 1996, Company's combined
outstanding subordinated and senior debt (less any positive working capital
balance or plus any working capital deficit, as the case may be, calculated
without regard to the current portion of long term debt) did not exceed
$107,000,000 in the aggregate.
3.10 Records. Company's minute books, as made available to
Buyer, contain current, complete, and accurate records of all meetings and
actions of Company's partners, and, if any, committees of the partners. All
material actions and transactions taken or entered into by Company or otherwise
requiring action by its partners have been duly authorized or ratified as
necessary and are evidenced in such minute books. Company's books and ledgers,
as made available to Buyer, contain complete and accurate records of all
issuances and transfers of its partnership interests. The signatures appearing
in such minute books, and ledgers are the genuine signatures of the persons
purporting to have signed them.
3.11 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Sellers (a) does not and will not (with the
giving of notice or passage of time or both) (i) conflict with or result in a
material breach or violation by Sellers, or Company of, or (ii) constitute a
material default by Sellers or Company under, or (iii) create any right of
termination, cancellation, or acceleration of a material right by any party
pursuant to, any of the CATV Instruments or Company Contracts, any statute,
ordinance, rule, or regulation, or any agreement, instrument, judgment, or order
to which Sellers, or Company is a party or by which Sellers, Company, the CATV
Business, or any of the Assets is bound or may be affected, and (b) does not and
will not (with the giving of notice or passage of time or both) create or impose
any Security Interest on the Partnership Interests or Sellers' Stock, or on any
of the Assets.
3.12 No Programming Rate Changes. PIIM has no reason to
believe that for so long as PIIM continues to manage Company, the rates charged
by programmers under Company's current programming agreements will be increased
solely due to Sellers' and Buyer's consummation of the transactions contemplated
by this Agreement.
3.13 No Finders or Brokers. Neither any of Sellers nor Company
has entered into any contract, arrangement, or understanding with any person or
firm which may result in any obligation of Buyer or Sellers to pay any finder's,
broker's, or agent's fees or commissions or other like payments as a result of
the transactions contemplated by this Agreement.
3.14 Schedules. Schedules 2, 3, 5, 6 and 10 to this Agreement
list all material Assets owned, held, used, or useful for the performance of any
CATV Instruments, Company Contracts and for the lawful conduct of the CATV
Business, other
REGISTRATION STATEMENT
Page II-32
<PAGE>
than Immaterial Contracts. Schedules 1 through 15 to this Agreement are true,
accurate, and complete in all material respects.
3.15 Compliance with Laws.
3.15.1 In General.
(a) Except with respect to the regulatory status
of the CATV Business under, or Company's compliance with, the FCC rules
implementing the rate regulation provisions of the Communications Act (as to
which Company makes no representations and warranties in this Agreement other
than in Section 3.15.2), Company has complied in all material respects with, and
is in material compliance with, the CATV Business has complied in all material
respects with and is in material compliance with, and Company has constructed,
maintained and operated, and is constructing, maintaining and operating, the
CATV Business (including, without limitation, the Real Property) in material
compliance with all applicable laws including the Communications Act, the
Copyright Act of 1976, the rules and regulations of the FCC, the APUC, the U.S.
Copyright Office, the Register of Copyrights and the Copyright Tribunal (in each
case as the same are currently in effect).
(b) All reports, notices, forms and filings, and
all fees and payments, required to be given to, filed with, or paid to, any
governmental authority by Company under all applicable laws have been timely and
properly given and made by Company, and are complete and accurate in all
material respects, in each case as required by applicable law, including (i) all
cable television registration statements, periodic reports and aeronautical
frequency usage notices, (ii) reports and filings required by the FAA, and (iii)
for each relevant semiannual reporting period, with the United States Copyright
Office, all required Statements of Account in true and correct form and
copyright royalty fee payments in correct amounts relating to the CATV Business'
carriage of television broadcast signals and other programming;
(c) Seller has not received any notice (written or
oral) from any governmental authority or any other Person that it, the CATV
Business, or its ownership and operation of the CATV Business is in material
violation of any applicable law, and Company knows of no basis for the
allegation of any such violations; and
(d) Company has complied in all material respects
with all applicable legal requirements relating to the employment of labor,
including ERISA, continuation coverage requirements with respect to group health
plans, and those relating to wages, hours, unemployment compensation, worker's
compensation, equal employment opportunity, age and disability discrimination,
immigration control and the payment and withholding of taxes, and no reportable
event, within the meaning of Title IV of ERISA, has occurred and is continuing
with respect to any "employee benefit plan" or "multiemployer plan" (as those
terms are defined in ERISA) maintained by Company
REGISTRATION STATEMENT
Page II-33
<PAGE>
or its affiliates (as defined in Section 407(d)(7) of ERISA). No prohibited
transaction, within the meaning of Title I of ERISA, has occurred with respect
to any such employee benefit plan or multiemployer plan, and no material
accumulated funding deficiency (as defined in Title I of ERISA) or withdrawal
liability (as defined in Title IV of ERISA) exists with respect to any such
employee benefit plan or multiemployer plan.
3.15.2 Rate Regulation Information. Included in Schedule 12 is
an accurate description of the regulatory status of the CATV Business under the
FCC rules implementing the rate regulation provisions of the Communications Act,
described by community unit, including (a) whether the local franchising
authority has been certified to regulate the rates for the basic tier and
equipment, (b) whether any complaints have been filed subjecting the CATV
Business' rates for cable programming services to regulation by the FCC in such
community unit and, if so, the date of the first such complaint, (c) the actions
that have been taken in anticipation of or response to regulation for each
community unit, including rate changes initiated and forms filed with the local
franchising authorities or the FCC, as the case may be, and (d) the status of
the regulatory response. Company has delivered to Buyer complete and correct
copies of all FCC Forms 393 and 1200 filed with the local franchising
authorities and/or the FCC with respect to the CATV Business, copies of all
material correspondence with any governmental authority relating to rate
regulation generally or specific rates charged to subscribers to the CATV
Business, and any documentation which Company has used to support an exemption
from the rate regulation provisions of the Communications Act claimed by Company
with respect to the CATV Business.
3.15.3 Environmental. To Company's knowledge (which, for
purposes of this Section 3.15.3 is limited to the actual knowledge of (a) the
officers of PIIM in its Austin, Texas offices, (b) Dan Pike and Ron Hepler,
engineers in such offices, and (c) Marty Robinson, manager of the CATV
Business), except as set forth in Schedule 12: (The foregoing individuals named
in clauses (b) and (c) above are the most knowledgeable persons with the Company
with respect to this issue and have each familiarized themselves with the
Environmental Law as pertinent to the Company's operations within the scope of
their authority and have each reviewed all pertinent information within their
control with respect to possible violations of Environmental Law); (i) Company
has not received any notice (written or oral) from any governmental authority or
other Person that the Person giving such notice is investigating whether, or has
determined that there are, any violations of Environmental Laws by Company, or
violations of Environmental Law due to activities on, or affecting, or related
to, the Real Property, (ii) none of the Real Property has previously been used
by any Person for the generation, production, emission, manufacture, handling,
processing, treatment, storage, transportation, disposal or discharge of any
Hazardous Substances, (iii) Company has not used, generated, produced, emitted,
manufactured, handled, possessed, treated, stored, transported, disposed or
discharged, and does not presently use, generate, produce, emit, manufacture,
handle, possess, treat, store, transport, dispose or discharge, any Hazardous
Substances on, into or from the Real Property, (iv) Company
REGISTRATION STATEMENT
Page II-34
<PAGE>
is in compliance in all material respects with all laws applicable to its own
(as distinguished from other Persons') use, generation, production, emission,
manufacturing, treatment, storage, transportation, disposal, and discharge of
any Hazardous Substances on, into or from the Real Property, (v) there are no
above ground or underground storage tanks, or any Equipment containing
polychlorinated biphenyls, on the Real Property, (vi) no release of Hazardous
Substances outside the Real Property has entered or threatens to enter any Real
Property, nor is there any pending or threatened claim based on Environmental
Laws which arises from any condition of the land surrounding any Real Property,
(vii) no Real Property has been used at any time as a gasoline service station
or any other facility for storing, pumping, dispensing or producing gasoline or
any other petroleum products or wastes, (viii) no building or other structure on
any Real Property contains asbestos, and (ix) there are no incinerators, septic
tanks or cesspools on the Real Property and all waste is discharged into a
public sanitary sewer system. Company has provided Buyer with complete and
correct copies of (A) all studies, reports, surveys or other materials in
Company's possession or of which Company has knowledge and to which Company has
access relating to the presence or alleged presence of Hazardous Substances at,
on or affecting the Real Property, (B) all notices or other materials in
Company's possession or of which Company has knowledge and to which Company has
access that were received from any governmental authority having the power to
administer or enforce any Environmental Laws relating to current or past
ownership, use or operation of the Real Property or activities at or affecting
the Real Property and (C) all materials in Company's possession or to which
Company has access relating to any claim, allegation or action by any private
third party under any Environmental Law. The representations and warranties in
this Section 3.15.3 are the only representations and warranties given by Company
with respect to the Environmental Law compliance of the Company and the CATV
Business.
3.16 Financial Statements. Sellers have delivered to Buyer
correct and complete copies of Company's audited financial statements for each
of the two most recent fiscal years ended prior to the date of this Agreement
and unaudited interim monthly financial statements for the two month period
ended February 29, 1996 (the "Financial Statements"). The Financial Statements
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby (except, in
the case of interim financial statements, subject to normal recurring year-end
adjustments and the absence of footnotes), and fairly present in accordance with
generally accepted accounting principles the financial condition and results of
operation of Company as of the dates indicated and for the periods covered
thereby. Except as disclosed by, or reserved against in, its most recent balance
sheet included in the Financial Statements, Company did not have as of the date
of such balance sheet any liability or obligation, whether accrued, absolute,
fixed, or contingent (including, without limitation, liabilities for taxes or
unusual forward or long-term commitments), which was material to the business,
results of operations, or financial condition of Company and which is required
to be disclosed on, or reserved against in, a balance sheet. Sellers have
received no notice of any fact which may form a basis for
REGISTRATION STATEMENT
Page II-35
<PAGE>
any claim by a third party which, if asserted, could result in a liability
affecting Company not disclosed by or reserved against in the most recent
balance sheet of Company. From the date of the most recent balance sheet
included in the Financial Statements to and including the date of this
Agreement, (i) the CATV Business has been operated only in the ordinary course,
(ii) Company has not sold or disposed of any assets other than in the ordinary
course of business, (iii) there has not occurred any material adverse change or
event in the business, operations, assets, liabilities, financial condition, or
results of operations of Company compared to the business, operations, assets,
liabilities, financial condition, or results of operations reflected in the
Financial Statements, and (iv) there has not occurred any theft, damage,
destruction, or loss which has had a material adverse effect on Company.
3.17 Tax Returns and Other Reports. Company has duly and
timely filed in proper form all federal, state, local, and foreign, income,
franchise, sales, use, property, excise, payroll, and other tax returns and
other tax reports required to be filed by law with the appropriate governmental
authority, and, to the extent applicable, has paid or made provision for payment
of all taxes and assessments of whatever nature including penalties and
interest, if any, which are due with respect to any aspect of its business or
any of its properties. Except as set forth on Schedule 11, there are no tax
audits pending and no outstanding agreements or waivers extending the statutory
period of limitations applicable to any relevant tax return.
3.18 Real Property. With respect to all Real Property:
3.18.1 The Real Property has unobstructed access for
purposes of ingress and egress to public roads or streets or private roads over
which Company has a valid right-of-way. The Real Property is served by utilities
and services necessary for the present use of the Real Property in connection
with the CATV Business.
3.18.2 None of the improvements on the Owned Real
Property encroaches upon the property of others.
3.18.3 Company holds good and marketable fee simple
title to the Owned Real Property and the valid and enforceable right to use and
possess such Owned Real Property, subject only to the Permitted Encumbrances.
Company has the valid and enforceable right to use Leased Real Property, subject
to the leases, easements, licenses, or rights-of-way described on Schedule 2.
3.19 Employees. Schedule 9 contains a true and complete list
of names, and positions of all of Company's employees (the "Employees"). Company
has no employment agreements, either written or oral, with any person, and all
Employees are terminable at will. Company is not a party to any contract with
any labor organization and has not agreed to recognize any union or other
collective bargaining unit. No union or other collective bargaining unit has
been certified as representing any
REGISTRATION STATEMENT
Page II-36
<PAGE>
of Company's employees, and Company has not received any requests from any party
for recognition as a representative of employees for collective bargaining
purposes.
3.20 Litigation and Violations. Except as set forth on
Schedule 8 and except for proceedings affecting the cable television industry or
a specific segment thereof generally, there are no suits, claims, grievances,
actions, proceedings, or governmental investigations pending or, to Sellers'
best knowledge, threatened against or affecting Sellers or Company which (i)
seek to restrain or enjoin the consummation of the transactions contemplated by
this Agreement or (ii) might have a material adverse effect on the financial
position or results of operations of Company. Company is not in violation of any
term of any judgment, decree, injunction, or order to which it is subject, which
violation could have a material adverse effect on the financial position or
results of operations of Company. Sellers agree to hold Buyer harmless for any
loss suffered by Company in excess of One Hundred Sixty-Six Thousand and no/100
Dollars ($166,000) which arises out of the litigation described on Schedule 8 at
paragraph E. Buyer agrees that Sellers shall be entitled to all affirmative
recoveries received in relation to such litigation. Company shall only be
required to pay the One Hundred Sixty-Six Thousand and no/100 Dollars ($166,000)
held in reserve for such litigation on any third party judgment or settlement.
Such reserve shall not be utilized to pay any of Company's or Sellers' legal
fees or costs incurred in such litigation.
3.21 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Sellers or Company contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
3.22 Investment Company. Company is not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended (the "Act"), and Company has
not relied on rule 3a-2 under the Act as a means of excluding it from the
definition of an "investment company" under the Act at any time within the three
(3) year period preceding the Closing Date.
3.23 CATV Instruments and Company Contracts.struments and
Company Contracts.
3.23.1 The CATV Instruments and Company Contracts are
currently in full force and effect, are valid under all applicable laws, and are
enforceable against Company and, to Sellers' knowledge, the other party or
parties thereto, according to their terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights and remedies generally and (ii) general principals of equity,
including principles of commercial reasonableness, good faith and fair dealing
and limitations on the availability of the remedy of specific enforcement or
injunctive
REGISTRATION STATEMENT
Page II-37
<PAGE>
relief regardless of whether enforcement is sought in a proceeding at law or in
equity. Company is in compliance in all material respects with and is not in
material violation or default under any of the CATV Instruments or Company
Contracts. There is no legal action, governmental proceeding, or investigation,
pending or, to Sellers' knowledge, threatened, to modify, revoke, terminate,
suspend, cancel, or reform any of the CATV Instruments or Company Contracts.
Company holds valid and continuing CATV Instruments, Company Contracts,
rights-of-way, rights-of-entry, permits, and other rights and authorizations
necessary to enable it to operate its CATV Business.
3.23.2 True, complete, and correct copies of the CATV
Instruments and Company Contracts other than Immaterial Contracts and any
amendments thereto effective as of the date of this Agreement have been
delivered by Company to Buyer.
3.24 Patents, Trademarks, and Copyrights. Company has
delivered to Buyer copies of all current reports and filings, and all reports
and filings for the past three (3) years, made or filed by Company pursuant to
Copyright rules and regulations. Company shall make available to Buyer all other
past reports and filings made or filed by Company pursuant to Copyright rules
and regulations. Company does not possess any patent, patent right, trademark,
or copyright and is not a party to any license or royalty agreement with respect
to any patent, trademark, or copyright except for licenses respecting program
material and obligations under the Copyright Act of 1976 applicable to CATV
systems generally. The Assets are free of the rightful claim of any third party
by way of copyright infringement or the like.
3.25 Assets. To Sellers' knowledge (which, for purposes of
this Section 3.25 is limited to the actual knowledge of (i) the officers of
PIIM, in its Austin, Texas offices, (ii) Dan Pike or Ron Hepler, engineers in
such offices, and (iii) Marty Robinson, manager of the CATV Business), except as
set forth in Schedule 5, the Equipment is in good operating condition and
repair, ordinary wear and tear excepted, and has been constructed and maintained
and has been and is being operated in accordance in all material respects with
all applicable laws, Company Contracts and CATV Instruments, including such
Equipment's compliance with utility pole and conduit make ready, grounding,
bonding, spacing, clearance, signal carriage capacity, signal leakage,
installation and repair, or engineering, electrical, aeronautical or other
technical capabilities, specifications or requirements (including the National
Electrical Code, and the Communications Act, as currently in effect, and the
rules and regulations of the FCC and the FAA). Except as specifically provided
in this Section 3.25 and Section 3.15.3, (A) the Equipment is conveyed on an "AS
IS" basis, and (B) Sellers do not make any representations or warranties in this
Agreement or otherwise, express or implied, including implied warranties of
merchantability or fitness for a particular purpose, with respect to the
physical condition or engineering capability of the Equipment or its compliance
with applicable law, Company Contracts or CATV Instruments. Company maintains
insurance on its CATV Business in amounts and of such a nature and with insurers
as is commercially reasonable to protect and save it harmless from material
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casualty loss, and Company shall maintain such policies in such amounts duly in
force until the Closing. Except as set forth on Schedule 3, none of the
Equipment is leased or rented by Company from any other Person.
3.26 Title to Assets. Except as specifically disclosed on the
Schedules to this Agreement or otherwise specifically provided in this
Agreement, Company has good and marketable title to all of the Assets. The
Assets are free and clear of all Security Interests of any kind or nature except
for (i) Permitted Encumbrances, and (ii) Security Interests which shall be
removed and released at or prior to Closing or which are consented to by Buyer
in its sole discretion and are disclosed in Schedule 7.
3.27 No Other Assets or Liabilities. Except for the Excluded
Assets and the Other Required Assets, Company does not own, use or hold for use
any material assets of any kind other than the Assets described on Schedules 2,
3, 5 and 6; and Company has no material liabilities, obligations, or commitments
of any kind other than (i) obligations under the CATV Instruments and Company
Contracts described on Schedules 2 and 3, (ii) liabilities disclosed on the
Financial Statements, and (iii) liabilities incurred after the date of this
Agreement in the ordinary course of business and in compliance with the terms of
this Agreement.
3.28 Required Consents. A true and complete list of all
Required Consents is set forth on Schedule 4.
3.29 Overbuilds. No area presently served by Company's CATV
Business is presently subject to or, to Sellers' best knowledge, threatened to
be subject to an overbuild situation by another cable television operator. No
Person other than Company has been granted or has applied for APUC Certificates
or a CATV franchise agreement in any of the communities (or any of the
unincorporated areas) presently served by Company's CATV business.
3.30 No Insolvency. As of even date and as of the Closing
Date, Company and PIIM are not and shall not be insolvent.
Buyer acknowledges and agrees that its sole recourse with
respect to any breach of any representation, warranty or covenant in this
Section 3 is as provided in Section 17.
Section 4. Representations, Warranties, and Covenants of Buyer
Buyer represents, warrants, and covenants to Sellers as
follows:
4.1 Organization and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Alaska; has
all requisite capacity,
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power, right, and authority to execute, deliver, and perform this Agreement; and
has taken all action required by law, its Articles of Incorporation and Bylaws,
and otherwise to authorize the execution, delivery, and performance of this
Agreement. Buyer is duly qualified or licensed to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction in which
Buyer is required to be so qualified and licensed. Buyer has all requisite power
and authority to carry on its business as currently conducted and to own, lease,
use and operate its properties and to conduct its business as it is now
conducted. The copies of Company's Articles of Incorporation, as amended, which
have been delivered to Company are complete and correct, and each of such
document is in full force and effect and have not been further amended. No
material consent of or authorization from any Person, including any governmental
agency, is required to be obtained in connection with the execution, delivery
and performance of this Agreement by Buyer, except for the required consents
described in Schedule 16 ("Buyer's Required Consents").
4.2 Capitalization. The authorized capital stock of Buyer
consists of 50,000,000 shares of Class A common stock, of which 19,696,207
shares are issued and outstanding; 10,000,000 shares of Class B common stock, of
which 4,175,434 are issued and outstanding, and 1,000,000 shares of preferred
stock, of which no shares are issued and outstanding, all as of April 15, 1996.
As of the Closing, the GCI Shares will be duly authorized, validly issued, fully
paid and nonassessable and free of any Security Interests. There are no
outstanding or authorized (i) securities of Buyer convertible into or
exchangeable or exercisable for any shares of its capital stock, except that
each share of Class B common stock is convertible into one share of Class A
common stock, or (ii) subscriptions, options, warrants, calls, rights,
commitments, or other agreements or obligations of any kind obligating Buyer to
issue any additional shares of its capital stock or any other securities
convertible into or evidencing the right to acquire or subscribe for any shares
of its capital stock, except pursuant to (a) Buyer's December, 1986 Stock Option
Plan, (b) Buyer's December, 1986 Employee Stock Purchase Plan; (c) that June,
1989, option agreement granted to John Lowber to acquire 100,000 shares of
Buyer's Class A common stock at $0.75 per share; (d) that June, 1989, incentive
agreement with William Behnke to acquire 85,190 shares of Buyer's Class A common
stock for $.001 per share; and (e) those shares of Buyer's Class A common stock
to be issued in connection with the transaction(s) described in Section 5.4
hereof.
4.3 Enforceability. This Agreement constitutes the legal,
valid, and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity. There is
no litigation at law, in equity, or in any other proceeding or investigation
pending or threatened against Buyer which might materially impair the ability of
Buyer to perform under this Agreement.
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4.4 Cash Flow. Buyer's 1995 operating cash flow was not less
than Nineteen Million Five Hundred Thousand Dollars ($19,500,000). Buyer shall
provide Sellers with Buyer's audited financial statements as and for the year
ended December 31, 1995, no later than March 31, 1996. Such statements shall
present Buyer's financial condition substantially as presented to Sellers in
Buyer's unaudited documents.
4.5 Indebtedness. As of February 29, 1996, Buyer's combined
outstanding subordinated and senior debt (less any positive working capital
balance or plus any working capital deficit, as the case may be, calculated
without regard to the current portion of long term debt) did not exceed Fourteen
Million Dollars ($14,000,000) in the aggregate.
4.6 Records. Buyer's minute books, as made available to
Sellers, contain current, complete, and accurate records of all meetings and
actions of Buyer's directors, and, if any, committees of the board of directors.
All material actions and transactions taken or entered into by Buyer or
otherwise requiring action by its directors and/or shareholders have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Buyer's books and ledgers, as made available to Sellers, contain complete and
accurate records of all issuances and transfers of its stock interests. The
signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
4.7 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 16, the execution, delivery, and
performance of this Agreement by Buyer (a) does not and will not (with the
giving of notice or passage of time or both ) (i) conflict with or result in a
breach or violation by Buyer of, or (ii) constitute a default by Buyer under, or
(iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of its contracts, any statute, ordinance, rule, or
regulation, or any agreement, instrument, judgment, or order to which Buyer is a
party or by which Buyer is bound or may be affected, and (b) does not and will
not (with the giving of notice or passage of time or, both) create or impose any
Security Interest on the GCI Shares.
4.8 Compliance with Laws.
(a) Buyer is in material compliance with all applicable
laws, rules, regulations, orders, ordinances, and codes of the United States of
America, its territories and possessions, and of any state, county,
municipality, or other political subdivision or any agency of any of the
foregoing having jurisdiction over Buyer's business and affairs.
REGISTRATION STATEMENT
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In General.
Buyer has constructed, maintained and operated, and is
constructing, maintaining and operating, its business (including, without
limitation, the real property owned or leased by Buyer ("Buyer's Real
Property")) in material compliance with all applicable laws including the
Communications Act, the rules and regulations of the FCC, the APUC, (in each
case as the same are currently in effect);
(b) All reports, notices, forms and filings, and all fees
and payments, required to be given to, filed with, or paid to, any governmental
authority by Buyer under all applicable laws have been timely and properly given
and made by Buyer, and are complete and accurate in all material respects, in
each case as required by applicable law;
(c) Buyer has not received any notice (written or oral)
from any governmental authority or any other Person that it, or its ownership
and operation of its business is in material violation of any applicable law,
and Buyer knows of no basis for the allegation of any such violations; and
(d) Buyer has complied in all material respects with all
applicable legal requirements relating to the employment of labor, including
ERISA, continuation coverage requirements with respect to group health plans,
and those relating to wages, hours, unemployment compensation, worker's
compensation, equal employment opportunity, age and disability discrimination,
immigration control and the payment and withholding of taxes, and no reportable
event, within the meaning of Title IV of ERISA, has occurred and is continuing
with respect to any "employee benefit plan" or "multiemployer plan" (as those
terms are defined in ERISA) maintained by Buyer or its affiliates (as defined in
Section 407(d)(7) of ERISA). No prohibited transaction, within the meaning of
Title I of ERISA, has occurred with respect to any such employee benefit plan or
multiemployer plan, and no material accumulated funding deficiency (as defined
in Title I of ERISA) or withdrawal liability (as defined in Title IV of ERISA)
exists with respect to any such employee benefit plan or multiemployer plan.
(e) To Buyer's knowledge, except as set forth in Schedule
17: (i) Buyer has not received any notice (written or oral) from any
governmental authority or other Person that the Person giving such notice is
investigating whether, or has determined that there are, any violations of
Environmental Laws by Buyer, or violations of Environmental Law due to
activities on, or affecting, or related to Buyer's Real Property, (ii) none of
Buyer's Real Property has previously been used by any Person for the generation,
production, emission, manufacture, handling, processing, treatment, storage,
transportation, disposal or discharge of any Hazardous Substances, (iii) Buyer
has not used, generated, produced, emitted, manufactured, handled, possessed,
treated, stored, transported, disposed or discharged, and does not presently
use, generate, produce, emit, manufacture, handle, possess, treat, store,
transport, dispose or
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discharge, any Hazardous Substances on, into or from Buyer's Real Property, (iv)
Buyer is in compliance in all material respects with all laws applicable to its
own (as distinguished from other Persons') use, generation, production,
emission, manufacturing, treatment, storage, transportation, disposal, and
discharge of any Hazardous Substances on, into or from Buyer's Real Property,
(v) there are no above ground or underground storage tanks, or any Equipment
containing polychlorinated biphenyls, on Buyer's Real Property, (vi) no release
of Hazardous Substances outside Buyer's Real Property has entered or threatens
to enter any of Buyer's Real Property, nor is there any pending or threatened
claim based on Environmental Laws which arises from any condition of the land
surrounding any of Buyer's Real Property, (vii) no Real Property has been used
at any time as a gasoline service station or any other facility for storing,
pumping, dispensing or producing gasoline or any other petroleum products or
wastes, (viii) no building or other structure on any of Buyer's Real Property
contains asbestos, and (ix) there are no incinerators, septic tanks or cesspools
on Buyer's Real Property and all waste is discharged into a public sanitary
sewer system. Buyer has provided Sellers with complete and correct copies of (A)
all studies, reports, surveys or other materials in Buyer's possession or of
which Buyer has knowledge and to which Buyer has access relating to the presence
or alleged presence of Hazardous Substances at, on or affecting Buyer's Real
Property, (B) all notices or other materials in Buyer's possession or of which
Buyer has knowledge and to which Buyer has access that were received from any
governmental authority having the power to administer or enforce any
Environmental Laws relating to current or past ownership, use or operation of
the real property or activities at or affecting Buyer's Real Property and (C)
all materials in Buyer's possession or to which Buyer has access relating to any
claim, allegation or action by any private third party under any Environmental
Law. The representations and warranties in this Section 4.8 are the only
representations and warranties given by Buyer with respect to the Environmental
Law compliance of Buyer and
its business.
4.9 Financial Statements. Buyer has delivered to Sellers
correct and complete copies of Buyer's audited financial statements for each of
the two most recent fiscal years ended prior to the date of this Agreement and
unaudited interim monthly financial statements for periods subsequent to the end
of the most recent fiscal year end (the "Financial Statements"). The Financial
Statements are complete and correct, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except, in the case of interim financial statements,
subject to normal recurring year-end adjustments and the absence of footnotes),
and fairly present in accordance with generally accepted accounting principles
the financial condition and results of Buyer's operations as of the dates
indicated and for the periods covered thereby. Except as disclosed by, or
reserved against in, its most recent balance sheet included in the Financial
Statements, Buyer did not have as of the date of such balance sheet any
liability or obligation, whether accrued, absolute, fixed or contingent
(including, without limitation, liabilities for taxes or unusual forward or
long-term commitments), which was material to Buyer's business, results of
operations or financial condition and which is required to be disclosed on, or
REGISTRATION STATEMENT
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<PAGE>
reserved against in, a balance sheet. Buyer has received no notice of any fact
which may form a basis for any claim by a third party which, if asserted, could
result in a liability affecting Buyer not disclosed by or reserved against in
Buyer's most recent balance sheet. From the date of the most recent balance
sheet included in the Financial Statements to and including the date hereof, (i)
Buyer's business has been operated only in the ordinary course, (ii) Buyer has
not sold or disposed of any assets other than in the ordinary course of
business, (iii) there has not occurred any material adverse change or event in
Buyer's business, operations, assets, liabilities, financial condition, or
results of operations compared to the business, operations, assets, liabilities,
financial condition, or results of operations reflected in the Financial
Statements, and (iv) there has not occurred any theft, damage, destruction, or
loss which has had a material adverse effect on Buyer.
4.10 Tax Returns and Other Reports. Buyer has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule 18, there are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any relevant
tax return.
4.11 Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
4.12 Litigation and Violations. Except as set forth on
Schedule 17, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Buyer's best knowledge, threatened
against or affecting Buyer which (i) seek to restrain or enjoin the consummation
of the transactions contemplated by this Agreement or (ii) might have a material
adverse effect on Buyer's financial position or results of operations. Buyer is
not in violation of any term of any judgment, decree, injunction, or order to
which it is subject, which violation could have a material adverse effect on the
financial position or results of operations of Buyer.
4.13 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Buyer contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. None of
the periodic filings made by Buyer with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, since January 1, 1995
contains any untrue statement of a material fact or
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omits to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
4.14 Investment Company. Buyer is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Buyer has not relied
on rule 3a-2 under the Act as a means of excluding it from the definition of an
"investment company" under the Act at any time within the three (3) year period
preceding the Closing Date.
4.15 No Finders or Brokers. Neither Buyer nor any of its
Affiliates have entered into any contract, arrangement, or understanding with
any person or firm which may result in any obligation of Sellers to pay any
finder's, broker's, or agent's fees or commissions or other like payments as a
result of the transactions contemplated by this Agreement.
4.16 Purchase for Investment. Buyer is acquiring the
Partnership Interests and Sellers' Stock for investment and with no present
intention of distributing or reselling the Partnership Interests or Sellers'
Stock or any part thereof in any transaction that would constitute a
"distribution" within the meaning of the Securities Act of 1933 as now in effect
(the "1933 Act"). Buyer acknowledges that they understand that the Partnership
Interests and Sellers' Stock have not been registered under the 1933 Act or any
state securities law.
4.17 No Insolvency. As of even date and as of the Closing
Date, Buyer is not and shall not be insolvent.
4.18 No Subsidiaries or Affiliates. Except as set forth on
Schedule 19, Buyer does not control, or own any stock or other interest in,
directly or indirectly, any corporation, partnership, association, or other
business entity.
4.19 Employees. Buyer has no employment agreements, either
written or oral, with any person, and all Employees are terminable at will,
except as set forth in Buyer's 1995 Proxy Statement. Buyer is not a party to any
contract with any labor organization and has not agreed to recognize any union
or other collective bargaining unit. No union or other collective bargaining
unit has been certified as representing any of Buyer's employees, and Buyer has
not received any requests from any party for recognition as a representative of
employees for collective bargaining purposes.
4.20 Contracts and Rights. Buyer holds valid and continuing
instruments, contracts, rights-of-way, rights-of-entry, permits and other rights
and authorizations necessary to enable it to operate its business.
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4.21 Required Consents. A true and complete list of all of
Buyer's Required Consents is set forth on Schedule 16.
Sellers acknowledge and agree that their sole recourse with
respect to any breach of any representation, warranty or covenant in this
Section 4 is as provide
d in Section 17.
Section 5. Conduct Prior to Closing
5.1 Operation in Ordinary Course.
5.1.1 Company. Sellers shall cause PIIM to continue to
manage Company under its existing management agreement. Sellers shall cause
Company to continue to operate the CATV Business prior to the Closing Date only
in the ordinary course as presently operated provided, that Company shall be
entitled to undertake the upgrade of Company's CATV Systems as described
generally on Schedule 1, including, without limitation, payment of all expenses
in a timely manner consistent with prior business practices without accelerating
or delaying any payments, maintaining business books, records, and files all in
accordance with past practices, consistently applied, and maintaining the Assets
(including maintenance of Company's usual inventories of spare equipment and
parts listed on Schedule 5), and continuing to implement procedures for
disconnection and discontinuance of service to Subscribers whose accounts are
delinquent or past due, in accordance with current practice and policy as of the
date of this Agreement. Without limiting the generality of the foregoing,
Sellers agree that Company, or anyone acting on Company's behalf, shall not,
without Buyer's prior written consent, (i) declare, set aside or pay any
dividend or distribution with respect to the Partnership Interests of Company,
(ii) directly or indirectly guarantee or agree to guarantee any obligation of
another Person except as permitted by the Company Loan Agreement (iii) enter
into or modify any material agreement, contract, or commitment which, if entered
into prior to the date of this Agreement, would be required to be disclosed on
any Schedule to this Agreement, except for agreements, contracts or commitments
which (A) are entered into in the ordinary course of the Company's business in
accordance with the Company's 1996 budget, (B) involve payments by Company after
the Closing not in excess of (1) $25,000 individually or (2) $250,000 in the
aggregate or (C) can be immediately terminated without liability to Company
after the Closing, (iv) place or permit to exist any lien, encumbrance, security
interest, claim or charge of any kind against the Partnership Interests (other
than Permitted Encumbrances described in Section 1.36(a) and (e)) and Sellers'
Stock (other than Permitted Encumbrances described in Section 1.36(a) and (e))
or the Assets (other than Permitted Encumbrances), (v) cancel any indebtedness
owing to Company or waive any material rights or claims possessed by Company,
(vi) enter into or continue any discussions, negotiations or contracts relating
to the sale, assignment, or transfer any Assets or equity in Company or the CATV
Business, (other than for the purposes of raising
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additional equity capital for Company and then only on terms whereby such new
equity holders shall sell their equity interests in Company to Buyer as part of
the transaction contemplated by this Agreement for no additional aggregate
consideration payable by Buyer); (vii) commit any act or omit to do any act
which would cause a material breach of any CATV Instrument or Company Contract
or permit any material amendment to or cancellation of any CATV Instrument or
Company Contract, (viii) commit any material violation of any law, statute,
rule, governmental regulation or order, (ix) except for expenditures that are
part of the Prime Upgrade Expense (as defined in Section 9.3), purchase or
acquire any capital asset involving an expenditure which shall cause the capital
expenditure budget of Company to be exceeded by more than ten (10%) percent as
of the Closing Date (any such excess not exceeding such ten (10%) percent being
referred to herein as the "Prime Cap-Ex Excess"), or(x) except as permitted in
the Company Loan Agreement, including without limitation, with respect to
Company's obligations under Company's Eurodollar Advances and Interest Hedge
Agreements (as those terms are defined in the Company Loan Agreement) purchase
any debt security having a maturity of more than 90 days Sellers shall cause
Company to maintain insurance on the CATV Business and the Assets until the
Closing Date consistent with past practice and policy, and Sellers shall bear
all uninsured risk of loss on or prior to Closing with respect to the CATV
Business and the Assets as a result of any loss, claim, casualty, or calamity.
5.1.2 Buyer. Buyer shall operate its business prior to the
Closing Date only in the ordinary course as presently operated, including,
without limitation, payment of all expenses in a timely manner consistent with
prior business practices without accelerating or delaying any payments,
maintaining business books, records, and files all in accordance with past
practices, consistently applied. Without limiting the generality of the
foregoing, Buyer agrees that Buyer, or anyone acting on Buyer's behalf, shall
not, without Sellers' prior written consent, (i) declare, set aside or pay any
dividend or distribution with respect to its shares of common stock; (ii) borrow
or agree to borrow or refinance any funds, or directly or indirectly guarantee
or agree to guarantee any obligation of another person or entity, except for
Buyer's guaranty of the GCI Loan Agreement described at Section 1.36(a); (iii)
enter into or modify any material agreement, contract, or commitment which, if
entered into prior to the date of this Agreement, would be required to be
disclosed on any Schedule to this Agreement; (iv) cancel any indebtedness owing
to Buyer or waive any rights or claims possessed by Buyer; (v) enter into or
continue any discussions, negotiations or contracts relating to the sale,
assignment or transfer of assets or equity in Buyer, except as described in
Section 5.4 hereof; (vi) commit any act or omit to do any act which would cause
a breach of any contract or permit any amendment to or cancellation of any
contract; (vii) commit any violation of any law, statute, rule, governmental
regulation or order; (viii) purchase or acquire any capital asset involving an
expenditure which shall cause Buyer's capital expenditure budget to be exceeded
by more than ten (10%) percent as of the Closing Date or enter into any contract
other than (A) those which are entered into in the ordinary course of Buyer's
business in accordance with Buyer's 1996 budget, (B) those
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contracts not described in (A) or (C) hereof which involve payments by Buyer
after the Closing Date not in excess of (1) One Hundred Thousand and no/100
Dollars ($100,000) individually, or (2) One Million and no/100 Dollars
($1,000,000) in the aggregate, or (C) can be immediately terminated without
liability to Buyer after Closing; or (ix) purchase any debt security having a
maturity of more than ninety (90) days. Buyer shall maintain insurance on its
business until the Closing Date consistent with past practice and policy, and
Buyer shall bear all risk of loss on or prior to Closing with respect to Buyer's
business as a result of any loss, claim, casualty, or calamity.
5.2 Agents. Company and PIIM agree that Buyer's designated
agent shall be included in all material business discussions regarding Company's
conduct of its affairs. Buyer agrees that Sellers' designated agent shall be
included in all material business discussions regarding Buyer's conduct of its
affairs.
5.3 No New Company Securities. Company shall not issue or
enter into any agreement to issue any additional partnership interests,
securities or warrants or options to purchase securities prior to the Closing
(other than for the purpose of raising additional equity capital for Company and
then only on terms whereby such new equity holders shall sell their equity
interests in Company to Buyer as part of the transaction contemplated herein for
no additional aggregate consideration payable by Buyer). Company shall not enter
into any executive compensation arrangement conditioned upon the acquisition or
attempted acquisition of a significant interest of Company, except as consented
to by Buyer.
5.4 No New Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan described in Schedule 20) to purchase securities prior to
the Closing, except (i) for the proposed issuance of Buyer's Class A common
stock to MCI in accordance with Section 11.1, (ii) for the proposed issuance of
shares of GCI Class A Stock as a portion of the purchase price consideration
payable by Buyer in connection with the possible acquisition of the ongoing
cable television business and cable television systems of Rock Associates, Inc.,
on terms acceptable to PIIM, (iii) for the proposed issuance of shares of GCI
Class A Stock as a portion of the purchase price consideration payable by Buyer
in connection with the possible acquisition of the ongoing cable television
business and cable television systems of Alaskan Cable Network, Inc. on terms
acceptable to PIIM, and (iv) any Buyer's shares issued in connection with (ii)
and (iii) herein for the escrow holdbacks required in connection therewith.
Neither Buyer nor anyone acting on Buyer's behalf shall enter into or continue
any discussions, negotiations or contracts relating to the sale of all or any
portion of its assets or equity, except in the ordinary course of business.
Buyer shall not enter into any executive compensation arrangement conditioned
upon the acquisition or attempted acquisition of a significant interest of
Buyer, except as consented to by Sellers.
REGISTRATION STATEMENT
Page II-48
<PAGE>
5.5 Employees. Sellers shall cause Company to use commercially
reasonable efforts to preserve its relationship with its employees and to pay to
those employees all salaries, commissions, and other compensation to which they
are entitled for services rendered prior to the Closing Date.
5.6 Access to Premises and Records.
(a) Buyer's Inspection Rights. Sellers shall cause
Company to give to Buyer and its representatives full access at reasonable times
upon reasonable prior notice to all the premises and books and records of the
CATV Business and to all of the Assets, and shall cause Company to furnish to
Buyer and its representatives all information regarding the business and
properties of Company as shall from time to time be reasonably requested.
Furthermore, Buyer shall be given the opportunity to perform a field audit of
Company's accounts with Company's cooperation prior to Closing. Buyer agrees
that it will exercise this right of access solely for the purposes of completing
its investigation in connection with this Agreement and that the confidentiality
of any data or information acquired by Buyer in connection with this transaction
shall be maintained by Buyer and its representatives in accordance with Section
19.12. Without limiting Buyers' rights of access stated above, Company shall
permit Buyer and/or such agents or experts as Buyer shall designate, full access
to the Real Property or any of it and all records concerning the Real Property
during reasonable business hours upon reasonable prior notice for purposes of
such independent investigation Buyer shall desire to conduct. At Buyers' sole
option, such investigation may include testing of the soil, groundwater,
building components, tanks, containers and equipment on the Real Property as
Buyers or Buyers' agents or experts shall deem necessary to determine or confirm
the environmental condition of the Real Property; provided, that such
investigations do not unreasonably damage such assets or properties and that any
such damage is promptly repaired to its pre-investigation condition by Buyer at
Buyer's expense to Sellers' reasonable satisfaction and that such investigations
do not unreasonably interfere with Company's business activities; and provided,
further, that Buyer shall indemnify and hold harmless Company, Sellers and their
respective affiliates, officers, directors, owners, employees and agents from
any damage, loss and expense arising from the conduct of any such investigation,
including mechanic's liens filed by Persons employed by Buyer, reasonable
attorneys', consultants' and other professionals' fees and other litigation and
court costs. Performance of such an inspection or review shall not in any way
modify or otherwise affect Buyers' rights or Sellers' obligations under this
Agreement, including but not limited to Sellers' representations and warranties
in Section 3.15.3 above.
(b) Sellers' Inspection Rights. Buyer shall give to
Sellers and their representatives full access at reasonable times to all of
Buyer's assets, properties, premises, books and records, and each shall furnish
to Sellers and their representatives all information regarding the business and
properties of Buyer as shall from time to time be reasonably requested.
Furthermore, Sellers shall, at Company's expense, be given the opportunity to
perform a field audit of Buyer's accounts with Buyer's cooperation prior
REGISTRATION STATEMENT
Page II-49
<PAGE>
to Closing. Sellers agree that they will exercise this right of access solely
for the purposes of completing their investigation in connection with this
Agreement and that the confidentiality of any data or information acquired by
Sellers in connection with this transaction shall be maintained by Sellers and
their representatives in accordance with Section 19.12. Without limiting
Sellers' rights of access stated above, Buyer shall permit Sellers and/or such
agents or experts as Sellers shall designate, full access to Buyer's Real
Property or any of it and all records concerning Buyer's Real Property during
reasonable business hours upon reasonable prior notice for purposes of such
independent investigation Sellers shall, at Company's expense, desire to
conduct. At Sellers' sole option, such investigation may include testing of the
soil, groundwater, building components, tanks, containers and equipment on
Buyer's Real Property as Sellers or Sellers' agents or experts shall deem
necessary to determine or confirm the environmental condition of Buyer's Real
Property; provided, that such investigations do not unreasonably damage such
assets or properties and that any such damage is promptly repaired to its
pre-investigation condition by Sellers at Company's expense to Buyer's
reasonable satisfaction and that such investigations do not unreasonably
interfere with Buyer's business activities; and provided, further, that Sellers
shall indemnify and hold harmless Buyer and its respective affiliates, officers,
directors, owners, employees and agents from any damage, loss and expense
arising from the conduct of any such investigation, including mechanic's liens
filed by Persons employed by Sellers, reasonable attorneys', consultants' and
other professionals' fees and other litigation and court costs. Performance of
such an inspection or review shall not in any way modify or otherwise affect
Sellers' rights or Buyer's obligations under this Agreement, including but not
limited to Buyer's representations and warranties in Section 4.8(e) above.
(c) Buyer's Termination Right. Buyer shall be
entitled, at its option in its sole discretion, to terminate this Agreement for
any reason whatsoever by giving a written notice ("Inspection Termination
Notice") to Sellers on or before seven days after the last day of the Inspection
Termination Period (the "Inspection Termination Date"). If this Agreement is not
terminated by Buyer pursuant to this Section 5.6(c) by the Inspection
Termination Date, this Agreement shall continue in full force and effect in
accordance with its terms. If this Agreement is terminated by Buyer pursuant to
this Section 5.6(c), no party shall have any liability or obligation to the
others under this Agreement except with respect to Sections 19.1 and 19.12 which
shall continue in effect thereafter, or arising from a breach or default of this
Agreement.
5.7 Existing Relationships. Sellers shall cause Company to use
commercially reasonable efforts to preserve the CATV Business as a going concern
and to preserve existing relationships with the APUC, and its suppliers,
customers, and others having business dealings with Company Buyer shall use
commercially reasonable efforts to preserve its business as a going concern and
to preserve its existing relationships with suppliers, customers and others
having business dealings with it.
REGISTRATION STATEMENT
Page II-50
<PAGE>
5.8 Required Consents. Sellers, Company and Buyer agree to
cooperate and use their reasonable commercial efforts to obtain all Required
Consents and all Buyer's Required Consents in a form and upon terms and
conditions satisfactory to Sellers and Buyer. Sellers will afford Buyer the
opportunity to review, approve, and, with Sellers' mutual approval, revise the
form of Required Consents to be delivered to the consenting parties referred to
in items C.1, D.1-5 and E.1-3 on Schedule 4 prior to delivery to any such
consenting party. Nothing contained herein shall be deemed to require Company,
Sellers or Buyer to undertake any extraordinary or unreasonable measures to
obtain such Required Consents, including, without limitation, the initiation or
prosecution of legal proceedings, or agreeing to change any material terms of
any CATV Instruments or Company Contracts.
5.9 MDU Agreements. Sellers represent and warrant that they
have provided true, complete and correct copies of all MDU Agreements to Buyer.
5.10 Buyer's Title Reports. Within ten (10) days after the
execution of this Agreement, Buyer will order at Company's expense, (i) title
reports on all Real Property owned by Company and on easements which provide
access to "headend" or tower sites, and (ii) commitments for title reports for
all Real Property leased by Company which is used for "headend" or tower sites.
Each title report shall contain no exceptions other than standard exceptions and
exceptions which in Buyer's reasonable opinion do not adversely (other than in
an immaterial way as to any individual parcel) affect the good and marketable
title to or Company's access or quiet use or enjoyment of such Real Property in
the manner the Real Property is presently used in the normal conduct of the CATV
Business.
5.11 Compliance with HSR Act and Rules. Sellers and Buyer
agree that each of them shall, within 45 days after the date of this Agreement,
file or cause to be filed one or more of the Notification and Report Forms (the
"HSR Report") mandated by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as currently in effect (the "HSR Act"), and the rules and regulations
promulgated thereunder (the "HSR Rules"), to be filed by it, or by any other
Person that is part of the same "person" (as defined in the HSR Act and the HSR
Rules) and coordinate the filing of such HSR Reports (and exchanging drafts
thereof) so as to present both HSR Reports to the FTC and the DOJ at the time
selected by the mutual agreement of Sellers and Buyer, and to avoid substantial
errors or inconsistencies between the filings in the description of the
transactions contemplated by this Agreement. Each party shall timely provide all
information lawfully requested by the FTC or DOJ as necessary to facilitate the
consummation of the transactions contemplated by this Agreement. If the
transactions contemplated by this Agreement are challenged by FTC or DOJ or any
other governmental authority, either Sellers or Buyer may terminate this
Agreement immediately upon written notice to the other. If this Agreement is
terminated pursuant to this Section 5.12, no party shall have any liability or
obligation to the other under this
REGISTRATION STATEMENT
Page II-51
<PAGE>
Agreement except pursuant to Sections 19.1 and 19.12, which shall continue
thereafter to be effective, or arising from a breach or default of this
Agreement.
5.12 Use of Names and Logos. For a period of 90 days after the
termination of the Management Agreement, Buyer shall be entitled to use the
trademarks, trade names, service marks, service names, logos and similar
proprietary rights of Company to the extent incorporated in or on the Assets;
provided, that Buyer shall exercise reasonable commercial efforts to remove all
such names, marks, logos and similar proprietary rights from the Assets as soon
as reasonably practicable following the termination of the Management Agreement.
Notwithstanding the preceding, Buyer will not be required to remove or
discontinue using any such name or mark affixed to converters or other items
used in subscribers' homes or properties or as are used in a similar fashion
making such discontinuance or removal impracticable for Buyer.
5.13 Public Announcements. Except as may be required by
applicable law or regulation, neither Buyer nor Sellers shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other parties, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, Sellers acknowledge and agree that Buyer shall make all press
releases it deems necessary under the securities law, rules and regulations.
5.14 Registration of GCI Shares. As soon as practicable
following the execution and delivery of this Agreement, Buyer shall prepare and
file with the Securities and Exchange Commission (the "Commission") a
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") with respect to the distribution of
the GCI Shares to Sellers pursuant to this Agreement. Buyer shall use reasonable
best efforts to cause the Registration Statement to become effective on or prior
to the Closing Date and shall prepare and file with the Commission any
amendments and supplements to the Registration Statement and to the prospectus
included as part of the Registration Statement as may be necessary to keep the
Registration Statement effective through the Closing Date and to comply with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder with respect to the distribution of the GCI Shares to the Sellers
pursuant to this Agreement. The GCI Shares are "Registrable Shares," as defined
in the Registration Rights Agreement, and Buyer's obligations with respect to
the registration of the GCI Shares under the Securities Act following the
Closing shall be set forth in the Registration Rights Agreement.
Section 6. Closing
The Closing shall occur at Sherman & Howard's offices in
Denver, Colorado at 10:00 a.m. local time, on such date acceptable to Sellers
and Buyer within ten (10) business days after all conditions to Closing
contained in this Agreement have been met,
REGISTRATION STATEMENT
Page II-52
<PAGE>
or at such different place, time, or date as may be agreed by Sellers and Buyer.
Until the Closing or earlier termination of this Agreement, the parties shall
cooperate fully by exchanging information upon reasonable request and in all
other reasonable ways to enable all parties to prepare for the Closing and to
determine whether the conditions to the Closing have been satisfied. Any of
Buyer or Sellers may terminate this Agreement upon written notice to the others
if the Closing hereunder has not occurred by October 31, 1996; or, if the APUC'S
consent shall not have been obtained by such date, then at Buyer's or Sellers'
option (exercised by delivery of written notice of such election to the other
prior to October 31, 1996), no later than December 31, 1996; and the parties
shall thereupon be relieved of any further obligation hereunder;, except that
the provisions of Section 19.1 and 19.12 shall survive any such termination,
provided, however, if a party's breach of this Agreement has prevented the
consummation of the transactions contemplated hereby, such party shall not be
entitled to terminate this Agreement under this Section 6. The Closing Date may
be further extended by mutual consent of the parties.
Section 7. Deliveries by Sellers at Closing
At Closing, Sellers shall deliver to Buyer:
7.1 (A) the bills of sale for the Partnership
Interests,
(B) the certificates evidencing the Sellers'
Stock, duly endorsed in blank and with
all necessary documentary or transfer tax
stamps affixed thereto,
(C) an agreement and plan of merger duly
executed by ACI (having terms which are
reasonably satisfactory to Buyer and the
ACI Sellers) in accordance with Section
2.1(b),
(D) such articles or certificates of merger
duly executed by ACI (having terms which
are reasonably satisfactory to Buyer and
the ACI Sellers) as are required under
Alaska and Delaware law in order to
consummate the merger contemplated by
Section 2.1(b),
(E) an agreement and plan of merger duly
executed by PCFI (having terms which are
reasonably satisfactory to Buyer and
PCLP) in accordance with Section 2.1(c),
(F) such articles or certificates of merger
duly executed by PCFI (having terms which
are reasonably satisfactory to Buyer and
PCLP) as are required under Alaska and
REGISTRATION STATEMENT
Page II-53
<PAGE>
Delaware law in order to consummate the
merger contemplated by Section 2.1(c),
(G) such other documents or instruments
(having terms which are reasonably
satisfactory to Buyer and Sellers), which
may be necessary or which Buyer may
reasonably request, in order to
effectively vest in Buyer good and
marketable title to the Partnership
Interests and Sellers' Stock, free and
clear of all Security Interests except
for Permitted Encumbrances listed in
Section 1.36(a) and (e);
7.2 Company's, ACI's and PCFI's minute books and
transfer ledgers and such other papers, evidence of
title or interest, books, records, files,
correspondence, memoranda and other documents of
Company as Buyer may request prior to Closing;
7.3 the written resignations dated as of the Closing
Date, of all managers, officers and directors, as
applicable, of Company, ACI and PCFI and of all
agents therefor, including any agent for service of
process;
7.4 certificates of good standing for ACI and PCFI,
dated within thirty (30) days of the Closing Date,
issued by the Secretary of State of Delaware;
7.5 incumbency and specimen signature certificates,
dated the Closing Date, from Sellers and PIIM with
respect to the officers or managers of Sellers and
PIIM executing this Agreement and any other document
delivered hereunder by or on behalf of Sellers,
Company and PIIM;
7.6 a certificate of Sellers, dated the Closing Date,
signed by a proper officer of Sellers certifying that
(A) except (1) as a result of the taking by any
Person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified earlier date or is
otherwise inapplicable, all of the representations
and warranties of Sellers in this Agreement are true
and correct in all material respects on the Closing
Date with the same force and effect as if made on and
as of the Closing Date, and (B) Sellers have
performed and complied and have caused Company to
perform and comply in all material respects with all
of its covenants and agreements set forth in, and
satisfied in all material respects all conditions
required to be satisfied by it pursuant to, this
Agreement except as such covenants, agreements,
REGISTRATION STATEMENT
Page II-54
<PAGE>
or conditions shall have been waived by Buyer at or
before the Closing Date;
7.7 a certified copy of resolutions of the partners,
the boards of directors, and if necessary, the
shareholders, as applicable, of Sellers authorizing
the execution and delivery by Sellers of this
Agreement and any other agreements executed by
Sellers pursuant hereto, and the performance of the
obligations of Sellers hereunder and thereunder;
7.8 an opinion of Sellers' counsel which is governed
by the Legal Opinion Accord of the ABA Section of
Business Law 1991, dated the Closing Date, covering
matters customary with respect to the transactions
contemplated by this Agreement, in form and substance
reasonably satisfactory to Buyer;
7.9 an opinion of special communications, FCC counsel
to Sellers, dated the Closing Date, covering matters
customary with respect to the APUC and FCC aspects of
the transactions contemplated by this Agreement, in
the form and substance reasonably satisfactory to
Buyer;
7.10 releases or terminations, in form and substance
reasonably satisfactory to Buyer, of all Security
Interests (i) with respect to the Partnership
Interests and Sellers' Stock, other than Permitted
Encumbrances described in Section 1.36(a) and (e),
and (ii) with respect to the Assets of Company,
except for Permitted Encumbrances;
7.11 to the extent in the possession of Sellers or
their agents, all contracts not terminated pursuant
to this Agreement, all unexpired warranties, any
leases of personal property, any business and other
licenses and permits related to Company or the CATV
Business;
7.12 counterparts of the Escrow Agreement, the
Registration Rights Agreement and the Voting
Agreement, duly executed by Sellers;
7.13 to the extent in the possession of Sellers or
their agents, all blueprints, schematics, drawings,
maps, system design bill of materials, engineering
and technical data related to the Assets or the CATV
Business;
7.14 counterparts of the Management Agreement, duly
executed by PIIM;
REGISTRATION STATEMENT
Page II-55
<PAGE>
7.15 counterparts of the Non-Compete Agreement, duly
executed by PIIM, Growth, Holdings and PCLP;
7.16 Schedules 1-15 which have been updated to reflect
any material changes from the date of execution of
this Agreement to the Closing Date; provided,
however, that if any such change has a material
adverse effect on the condition, financial or
otherwise, of Company or the CATV Business, Buyer
shall have the right to terminate this Agreement with
no further obligations to Sellers hereunder, except
as may arise under Section 19.1 and 19.12.
Drafts of each of the items listed in this Section 7 shall be
delivered by Sellers to Buyer within a reasonable time prior to Closing for
Buyer's review and approval.
Section 8. Deliveries by Buyer at Closing
At Closing, Buyer shall deliver to Sellers:
8.1 certificates in the names and in the amounts set
forth on a certificate delivered by Sellers to Buyer
prior to the Closing Date evidencing the GCI Shares
free and clear of all Security Interests;
8.2 (i) an agreement and plan of merger duly executed by
Buyer (or a wholly-owned subsidiary of Buyer) (having
terms which are reasonably satisfactory to Buyer and
the ACI Sellers) in accordance with Section 2.1(b);
(ii) such articles or certificates of merger duly
executed by Buyer (or a wholly-owned subsidiary of
Buyer) (having terms which are reasonably
satisfactory to Buyer and the ACI Sellers) as are
required under Alaska and Delaware law in order to
consummate the merger contemplated by Section 2.1(b);
(iii) an agreement and plan of merger duly executed
by Buyer (or a wholly-owned subsidiary of Buyer)
(having terms which are reasonably satisfactory to
Buyer and PCLP) in accordance with Section 2.1(c);
and (iv) such articles or certificates of merger duly
executed by Buyer (or a wholly-owned subsidiary of
Buyer) (having terms which are reasonably
satisfactory to Buyer and PCLP) as are required under
Alaska and Delaware law in order to consummate the
merger contemplated by Section 2.1(c).
8.3 a certificate of good standing of Buyer issued by the
Commissioner of Commerce and Economic Development of
Alaska dated within thirty (30) days of the Closing
Date;
REGISTRATION STATEMENT
Page II-56
<PAGE>
8.4 an incumbency and specimen signature certificate,
dated the Closing Date, with respect to the officers
of Buyer executing this Agreement and any other
document delivered hereunder by or on behalf of
Buyer;
8.5 a certificate of Buyer, dated the Closing Date,
signed by a proper officer of Buyer certifying that
(A) except (1) as a result of the taking by any
person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified earlier date, all
of the representations and warranties of Buyer in
this Agreement are true and correct in all material
respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and
(B) Buyer has performed and complied in all material
respects with all of its covenants and agreements set
forth in, and satisfied in all material respects all
conditions required to be satisfied by it pursuant
to, this Agreement except as such covenants,
agreements or conditions shall have been waived by
Sellers at or before the Closing Date;
8.6 a certified copy of resolutions of the board of
directors of Buyer authorizing the execution and
delivery of this Agreement and any other agreements
executed pursuant hereto, and the performance of the
obligations of Buyer hereunder and thereunder;
8.7 counterparts of the Escrow Agreement, the
Registration Rights Agreement, the Voting Agreement,
the Non-Compete Agreement and the Management
Agreement, duly executed by Buyer;
8.8 a counterpart of the MCI Stock Purchase Agreement,
duly executed by MCI and Buyer;
8.9 counterparts of amendments to or waiver under the
Existing Registration Agreements, duly executed by
each of the parties to the Existing Registration
Rights Agreements, having such terms as are
reasonably satisfactory to Sellers;
8.10 an opinion of Buyer's counsel, dated the Closing
Date, covering matters customary with respect to the
transactions contemplated by this Agreement, in form
and substance reasonably satisfactory to Sellers;
8.11 an opinion of special communications, FCC counsel to
Buyer, dated the Closing Date, covering matters
customary with respect to the APUC and FCC aspects of
the transactions contemplated by this
REGISTRATION STATEMENT
Page II-57
<PAGE>
Agreement, in form and substance reasonably
satisfactory to Sellers; and
8.12 Schedules 16 through 20 which have been updated to
reflect any material changes from the date of
execution of this Agreement to the Closing Date;
provided, however, that if any such change has a
material adverse effect on the condition, financial
or otherwise, of Buyer or its assets or businesses,
Sellers shall have the right to terminate this
Agreement with no further obligations to Buyer
hereunder, except as may arise under Sections 19.1
and 19.12.
Drafts of each of the items listed in this Section 8 shall be
delivered by Buyer to Sellers within a reasonable time prior to Closing for
Sellers' review and approval.
Section 9. Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject, at Buyer's option, to
fulfillment of each of the following conditions as of the Closing Date:
9.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Sellers contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any Person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Sellers, and Sellers shall have performed and
complied in all material respects with all of its covenants and agreements set
forth herein and satisfied in all material respects all conditions required to
be satisfied by it pursuant to this Agreement at or before the Closing Date.
9.2 Deliveries Complete. All documents required to have been
delivered by Sellers to Buyer and all actions required to have been taken by
Sellers, at or prior to the Closing Date, shall have been delivered or taken.
9.3 No Adverse Change. Except as contemplated on Schedule 13,
(i) no material adverse change in the CATV Business or the Assets shall have
occurred (other than changes which affect the United States CATV industry
considered as a whole), and (ii) the CATV Business shall not have suffered, on
or prior to Closing, any loss, claim, casualty, or calamity which materially and
adversely affects the CATV Business or the Assets, whether or not covered by
insurance; provided, however, that if Company has repaired at its expense all
damage caused by any loss, casualty, or
REGISTRATION STATEMENT
Page II-58
<PAGE>
calamity prior to the Closing to Buyer's reasonable satisfaction, the condition
set forth in this Section 9.3 shall be deemed satisfied.
9.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Buyer to realize the benefits of the
transactions contemplated herein.
9.5 Cash Flow, Indebtedness. As of the Closing Date, Company's
Operating Cash Flow for the full months in 1996 that precede the Closing shall
be no less than ninety percent (90%) of Company's budgeted Operating Cash Flow
for such period (the difference between (A) such actual Operating Cash Flow to
the extent that it is not less than ninety percent (90%) of such budgeted
Operating Cash Flow, and (B) such budgeted Operating Cash Flow, being referred
to herein as the "Prime Cash Flow Shortfall"). Company's budgeted Operating Cash
Flow for 1996 is $17,600,000. As of the Closing Date, the combined outstanding
subordinated and senior debt (less any positive working capital balance or plus
any working capital deficit, as the case may be, calculated without regard to
the current portion of long term debt) for Company shall not exceed $108,000,000
in the aggregate, plus indebtedness in an amount equal to the sum of (X) the
aggregate amount not exceeding $7,000,000 to be spent (the "Prime Upgrade
Expense") on upgrading the CATV Business (the "Alaska System Upgrade"), (Y) the
aggregate amount of any Prime Cap-Ex Excess excluding any expenditures on the
Alaska System Upgrade (including in such excluded expenditures the Prime Upgrade
Expense), and (Z) the Prime Cash Flow Shortfall.
Section 10. Conditions to Obligations of Sellers
The obligation of Sellers to consummate the transactions
contemplated by this Agreement shall be subject, at the option of Sellers, to
fulfillment of each of the following conditions as of the Closing Date:
10.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Buyer contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any Person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Buyer, and Buyer shall have performed and complied
in all material respects with all of its covenants and agreements set forth
herein, and satisfied in all material respects all conditions required to be
satisfied by it pursuant to this Agreement at or before the Closing Date.
REGISTRATION STATEMENT
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<PAGE>
10.2 Deliveries Complete. All documents required to have been
delivered by Buyer to Sellers and all actions required to have been taken by
Buyer, at or prior to the Closing Date, shall have been delivered or taken.
10.3 No Adverse Change. No material adverse change in Buyer's
business shall have occurred (other than changes which affect the United States
telephone industry considered as a whole). Buyer's business operations shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects Buyer, whether or not covered by
insurance; provided, however, that if Buyer has repaired at its expense all
damage caused by any loss, casualty, or calamity prior to the Closing to
Sellers' reasonable satisfaction, the condition set forth in this Section 10.3
shall be deemed satisfied.
10.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Sellers to realize the benefits of the
transactions contemplated herein.
10.5 Cash Flow; Indebtedness. As of the Closing Date, Buyer's
Operating Cash Flow for the full months in 1996 that precede the Final Closing
shall be no less than ninety percent (90%) of Buyer's budgeted Operating Cash
Flow for such period. Buyer's budgeted Operating Cash Flow for 1996 is
$24,435,000. As of the Closing Date, the combined outstanding subordinated and
senior debt (less any positive working capital balance or plus any working
capital deficit, as the case may be, calculated without regard to the current
portion of long term debt) for Buyer shall not exceed Fifty Million and no/100
Dollars ($50,000,000.00) in the aggregate.
10.6 Director Designees Elected. The two (2) persons
designated by Sellers to serve on Buyer's Board of Directors shall have been
duly elected in accordance with Buyer's Articles of Incorporation and Bylaws, as
amended, and applicable law as contemplated in the Voting Agreement (as that
term is defined in Section 14).
10.7 Registration Statement.on The Registration Statement
shall have been declared effective by the Commission on or prior to the Closing
Date and shall be effective at the time of the Closing, and the Commission shall
not have issued any stop order suspending the effectiveness of the Registration
Statement or any order suspending or preventing the use of any related
prospectus.
10.8 Listing of GCI Shares.The GCI Shares shall have been
listed on each securities exchange on which GCI Class A Stock is then listed and
qualified for trading on each system on which GCI Class A Stock is then
qualified for trading.
REGISTRATION STATEMENT
Page II-60
<PAGE>
Section 11. Conditions to Both Parties Obligations
11.1 Simultaneous Closing. The closing of the transactions
contemplated under the GCI and MCI Stock Purchase Agreement dated May , 1996
(the "MCI Stock Purchase Agreement"), shall occur on the Closing Date
substantially simultaneously with the Closing hereunder, whereby MCI shall
purchase for cash Two Million shares of Buyer's Class A common stock, at a price
equal to $6.50 per share.
11.2 Mergers. The mergers of ACI and PCFI with and into Buyer
(or, at Buyer's election, one or more wholly-owned subsidiaries of Buyer) shall
have become effective under the laws of the States of Alaska and Delaware.
11.3 Consents. All Required Consents and GCI Required Consents
identified on Schedule 4 and 16 as "Material Required Consents" or waivers
thereof shall have been obtained, on terms reasonably satisfactory to Sellers
and Buyer, and shall be in full force and effect as of the Closing Date.
11.4 No Governmental Action. No investigation, action, or
proceeding shall have been commenced by the Department of Justice or the Federal
Trade Commission or any other governmental entity challenging or seeking to
enjoin the consummation of the transactions contemplated by this Agreement and
neither Buyer nor Sellers shall have been notified of a present intention by the
Assistant Attorney General in charge of the Antitrust Division of the Department
of Justice, the Director of the Bureau of Competition of the Federal Trade
Commission or any governmental entity (or their respective designees) to
commence, or recommend the commencement of, such an investigation, action, or
proceeding.
Section 12. Transactions Subsequent to Closing.
12.1 Further Actions. At any time and from time to time after
the Closing, each party hereto agrees, at its own expense (except as otherwise
provided herein), to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the transactions contemplated by
this Agreement.
12.2 Tax Returns. If a short period tax return for the period
ending as of the Closing Date is required under the Internal Revenue Code of
1986, as amended, PIIM shall cause the preparation and filing of all applicable
income tax returns for Company for the period ending as of the Closing Date, and
Buyer and Sellers shall cooperate with PIIM by providing all information
reasonably required by PIIM in connection with the preparation and filing of
such tax returns.
12.3 COBRA Benefits. Company shall comply with all
requirements of COBRA and shall provide continuation coverage for all Employees
of Company
REGISTRATION STATEMENT
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<PAGE>
terminated prior to the Closing Date who elect such continuation coverage under
Company's group health plan which will continue in effect after the Closing
Date.
12.4 PIIM Records Retention. For so long as PIIM manages
Company PIIM shall keep or shall cause Company to keep Company's books and
records relating to periods prior to the Closing Date and to be made available
to Sellers and their authorized representatives during regular business hours
for a period of not less than three (3) years after the Closing Date. No such
books and records will be destroyed during such three (3) year period without at
least thirty (30) days' prior written notice to Sellers describing the items to
be destroyed, during which period Sellers, at their expense, may elect to take
possession of such items.
Section 13. Registration Rights Agreement.
Buyer and Sellers shall execute and deliver at the Closing the
Registration Rights Agreement ("Registration Rights Agreement") in the form
attached hereto as Exhibit B. The distribution at Closing to Sellers of the GCI
Shares and, to the extent required to permit resales or distributions of GCI
Shares by Sellers in the open market or otherwise to the public subsequent to
the Closing, any such subsequent resales or distributions, will be registered
under the Securities Act of 1933, as amended, effective with such distribution
or resale. The Registration Rights Agreement (the "Westmarc Agreement") dated as
of January 18, 1991, between Buyer and Westmarc Communications, Inc., and the
Registration Rights Agreement dated as of March 31, 1993, between Buyer and MCI
(such Agreement and the Westmarc Agreement being referred to collectively as the
"Existing Registration Agreements"), will be amended or their provisions waived,
as appropriate, to provide that shares covered by the particular Existing
Registration Agreement will not be included in the registration of GCI Shares
first referred to above and to provide that the piggyback registration rights
granted to Sellers (and their assignees) in the Registration Rights Agreement
and the piggyback registration rights granted to TGI GCI, as successor to
WestMarc and MCI pursuant to the Existing Registration Agreements shall be pari
passu.
Section 14. Voting Agreement.
At the Closing, Buyer shall deliver to Sellers a fully
executed Voting Agreement among Buyer, Sellers, PIIM, MCI, Ronald A. Duncan,
Robert M. Walp and TCI GCI, Inc. in the form attached hereto as Exhibit C, which
among other things, shall cause Buyer's Board of Directors to include two (2)
additional director positions to be filled by persons to be designated by
Sellers to serve on Buyer's Board of Directors, as of the Closing Date.
REGISTRATION STATEMENT
Page II-62
<PAGE>
Section 15. Management Agreement.
Effective as of the Closing Date, PIIM shall enter into a
management agreement in the form attached hereto as Exhibit D. (the "Management
Agreement") with Buyer, whereby, among other things, PIIM will provide
management services to Company or its successors with respect to the Service
Area for a term of nine (9) years.
Section 16. Agreement Not to Compete.
PIIM, Growth, Holdings, PCLP and Buyer will at the Closing
enter into a Non-Compete Agreement in the form attached hereto as Exhibit E.
Section 17. Survival of Representations and Warranties; Indemnification.
17.1 Survival. Except as otherwise provided, the
representations, warranties, and covenants and related indemnity agreements
contained in or made pursuant to this Agreement (including the Schedules
attached hereto, but excluding covenants made by the parties to the Management
Agreement, the Voting Agreement, the Registration Rights Agreement and the
Non-Compete Agreement, which shall be governed in each case by the terms and
provisions thereof) by Buyer and by Sellers shall survive the Closing and shall
terminate on the first anniversary of the Closing Date. Notwithstanding the
preceding provisions of this Section 17.1, the representations, warranties, and
covenants (and related indemnities) in Sections 3.17 and 3.15.3 shall survive
the Closing for the period of sixty (60) days after the expiration of the
relevant statute of limitations for claims related thereto.
17.2 Indemnity by Sellers. Sellers, jointly and severally,
agree to indemnify, defend, and hold harmless Buyer and its officers, directors,
Affiliates, employees, attorneys, agents and shareholders (the "Buyer's
Indemnitees") against and in respect of any and all claims, suits, actions,
proceedings (formal and informal), investigations, judgments, deficiencies,
losses, damages, settlements, liabilities and expenses (including, without
limitation, reasonable legal fees and expenses of attorneys chosen by the
Buyer's Indemnitees), whether or not disclosed in, or on any Schedule to, this
Agreement (collectively, "Losses"), as and when incurred arising out of or based
upon any breach of any representation, warranty, covenant, or agreement of
Sellers contained in this Agreement or in any other agreement executed and
delivered by Sellers hereunder or in connection herewith. The aggregate
liability of the Sellers under any indemnity for breach by Sellers of a
representation, warranty or covenant shall be limited to the Sellers' Indemnity
Shares and the respective liability of each Seller shall be pro rata among the
Sellers based upon the number of Sellers' Indemnity Shares deposited into the
Escrow Holdback by each such Seller as set forth on Schedule 1A, received by
them on the Closing Date.
REGISTRATION STATEMENT
Page II-63
<PAGE>
17.3 Indemnity by Buyer. Buyer agrees to indemnify, defend,
and hold harmless Sellers and their partners, managers, officers, directors,
Affiliates, employees, attorneys, agents and shareholders (the "Sellers'
Indemnitees") against and in respect of any Losses as and when incurred arising
out of or based upon any breach of any representation, warranty, covenant or
agreement of Buyer contained in this Agreement or in any other agreement
executed and delivered by Buyer hereunder or in connection herewith. Anything to
the contrary in this Agreement notwithstanding, Buyer agrees that the dollar
amount of any Losses to which a Sellers' Indemnitee shall be entitled to receive
from Buyer pursuant to this Section 17.3 shall be equal to (i) the actual dollar
amount of such Losses; divided by (ii) one (1) minus [(A) 11,800,000 divided by
(B) the number of shares of all classes of common stock of GCI, on a fully
diluted basis, which are issued and outstanding as of the date on which the
Claim Notice with respect to such Losses is delivered by such Sellers'
Indemnitee to Buyer pursuant to Section 17.4].
17.4 Defense of Claims. No right to indemnification under this
Section 17 shall be available to any Buyer's Indemnitee or Sellers' Indemnitee
(the "Indemnified Party") unless such Indemnified Party shall have given to the
party obliged to provide indemnification of such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder promptly after
receipt of knowledge by officers or management personnel of the Indemnified
Party of the facts upon which such claim is based; (but in no event later than
fifteen (15) days prior to the time any response to the asserted claim is
required) provided, however, that the failure of any Indemnified Party to so
notify the Indemnitor shall not relieve the Indemnitor from any indemnification
liability it may have except to the extent that failure to so notify the
Indemnitor materially prejudices the Indemnitor's ability to defend against such
claim. Upon receipt by the Indemnitor of the Claim Notice from an Indemnified
Party with respect to any claim of a third party, such Indemnitor may assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Party,
and the Indemnified Party shall cooperate in the defense or prosecution thereof
and shall furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested in connection therewith. The Indemnified Party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Party unless (i) the
Indemnitor shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses available to it, or to any other Indemnified Party who has
submitted a Claim Notice to the Indemnitor, which are different from or
additional to those available to the Indemnitor, in either of which events such
fees and expenses shall be borne by the Indemnitor (but in no event shall the
Indemnitor be required to pay the fees and expenses of more than one counsel
employed by more than one Indemnified Party with respect to any claim) and the
Indemnitor shall not have the right to direct the defense of any such action on
behalf of the Indemnified Party. Each party shall give written notice to the
other of any proposed
REGISTRATION STATEMENT
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<PAGE>
settlement of any claim. The Indemnitor will have the right, in its sole
discretion, to settle any claim for monetary damages for which indemnification
has been sought and is available hereunder, except that neither Indemnitor nor
the Indemnified Party will settle, compromise or make any disposition of any
claim under this Section 17 which would or may result in liability to the
Indemnified Party or Indemnitor, respectively, without the written consent of
Indemnitee or Indemnitor, respectively.
17.5 Threshold; Maximum Indemnification Obligation. Anything
to the contrary in this Agreement notwithstanding, (i) neither Sellers (as a
group), on one hand, nor Buyer, on the other hand, shall be obligated to provide
any indemnification under this Section 17, unless the aggregate amount of Losses
for which it is obligated to provide indemnification exceeds $76,700, in which
event it shall be obligated to provide indemnification for the full amount of
all such Losses; (ii) any indemnification to which a Person may be entitled
under Sections 17.2 or 17.3 shall be effective only if any claim or demand is
asserted within the applicable period specified in Section 17.1; and (iii)
Sellers' liability with respect to all claims under Section 17.2 shall be
limited to, Sellers' Indemnity Shares and the respective liability of each
Seller shall be pro rata among the Sellers based on the number of the Sellers'
Indemnity Shares deposited into the Escrow Holdback by each Seller as set forth
on Schedule 1A, and Buyer's liability with respect to all claims under Section
17.3 shall be limited to Eight Million Seven Hundred Fifty Thousand and no/100
Dollars ($8,750,000.00).
17.6 Exclusive Nature of Indemnification Remedy. Sellers and
Buyer agree that from and after the Closing, their sole and exclusive remedy as
against each other with respect to any Losses claimed by or suffered or incurred
by them shall be their respective rights to indemnification under Sections 17.2,
17.3 and 17.4, as limited by the provisions of Section 17.5 and this Section
17.6, and that they otherwise shall have no recourse against each other with
respect to any Losses under, with respect to, relating to, or arising out of,
this Agreement.
17.7 Determination of Indemnified Amounts. The indemnification
obligations of the parties under this Section 17 shall be subject to the
following:
17.7.1 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 17 as
a result of any Loss suffered by the Indemnified Party shall be reduced to the
extent the amount of such Loss is actually offset by the receipt by the
Indemnified Party of insurance proceeds pursuant to the terms of the insurance
policies, if any, covering such Loss or by the receipt of any recovery by the
Indemnified Party from a third party with respect to such Loss.
17.7.2 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 17 as
a result of any Loss suffered by the Indemnified Party shall be reduced by the
amount of any tax benefit
REGISTRATION STATEMENT
Page II-65
<PAGE>
actually realized by the Indemnified Party with respect to such Loss, to the
extent such benefit actually offsets such Loss, provided that such reduced
amount shall be increased by the amount of any taxes payable by such Indemnified
Party as a result of the Indemnitor's payment of such Loss.
Section 18. Termination.
18.1 Mutual Consent. This Agreement may be terminated by the
written consent of Buyer and Sellers. Upon such termination, no party hereto
shall have any further liability to the other, except as provided in Sections
18.2 or 18.3, as the case may be, and Sections 19.1 and 19.12.
18.2 Default by Sellers. Buyer shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that
Sellers default in the performance of any material obligation hereunder or if
any representation or warranty of Sellers are materially false, and Sellers fail
to correct or satisfy such default or falsity within ten (10) days after written
notice is given to Sellers or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Sellers promptly and
diligently prosecute the cure or satisfaction. If such notice is given within
ten (10) days of the Closing Date, the Closing shall be delayed for the number
of days to permit the cure of the default but in no event more than thirty (30)
days. In the event that Sellers have failed to cure the default within the
required period, Buyer shall be entitled to exercise all of its rights in law or
in equity by reason of the breach by Sellers of this Agreement. If Sellers shall
breach or threaten to breach any of the provisions of this Agreement, Buyer, in
addition to any other remedies it may have at law or in equity, will be entitled
to a restraining order, injunction or other similar remedy in order to
specifically enforce the provisions of this Agreement. Sellers and Buyer
specifically acknowledge that money damages alone would be an inadequate remedy
for the injuries and damage which would be suffered and incurred by Buyer as a
result of a breach by Sellers of any provisions of this Agreement. In the event
that Buyer seeks an injunction hereunder, Sellers hereby waive any requirement
for the posting of a bond or other security. Notwithstanding anything to the
contrary contained in this Section 18.2, Buyer shall have the right to waive any
default by Sellers and require the transactions contemplated by this Agreement
to be consummated on the Closing Date.
18.3 Default by Buyer. Sellers shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that Buyer
defaults in the performance of any material obligation hereunder or if any
representation or warranty of Buyer is materially false, and Buyer fails to
correct or satisfy such default or falsity within ten (10) days after written
notice is given to Buyer or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Buyer promptly and diligently
prosecutes the cure or satisfaction. If such notice is given within ten (10)
days of the Closing Date, the Closing shall be delayed for the number of days to
permit the cure of the default but in no event more than thirty (30) days. In
the event Buyer has
REGISTRATION STATEMENT
Page II-66
<PAGE>
failed to cure the default within the required period, Sellers shall be entitled
to exercise all of their rights at law or in equity by reason of Buyer's breach
of this Agreement. If Buyer shall breach or threaten to breach any of the
provisions of of this Agreement, Sellers, in addition to any other remedies it
may have at law or in equity, will be entitled to a restraining order,
injunction or other similar equitable remedy in order to specifically enforce
the provisions of this Agreement. Sellers and Buyer specifically acknowledge
that money damages alone would be an inadequate remedy for the injuries and
damage which would be suffered and incurred by Sellers as a result of a breach
by Buyer of the provisions of of this Agreement. In the event that Sellers seek
an injunction hereunder, Buyer hereby waives any requirement for the posting of
a bond or other security. Notwithstanding anything to the contrary contained in
this Section 18.3, Sellers shall have the right to waive any default by Buyer
and require the transactions contemplated by this Agreement to be consummated on
the Closing Date.
Section 19. Miscellaneous
19.1 Expenses. Except as otherwise expressly provided in this
Agreement, Company will bear the expenses of Sellers, and Buyer will bear its
own expenses incident to the negotiation, preparation and consummation of this
Agreement and all other agreements executed and delivered by it hereunder or in
connection herewith, including all fees and expenses of its or their respective
counsel and accountants, whether or not the transactions contemplated hereby or
thereby are consummated. Company shall pay all sales and other transfer taxes
and transfer fees, including FCC filing fees, incurred in connection with this
Agreement. Filing fees with respect to any filing mandated by the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 shall be borne equally by
Company and Buyer.
19.2 Modification. This Agreement (including the Exhibits and
Schedules hereto) sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements among
them concerning such subject matter including, without limitation that certain
Letter of Intent dated March 14, 1996, and may be modified only by a written
instrument duly executed by each party hereto.
19.3 Notice. Any notice given pursuant to this Agreement to
any party hereto shall be deemed to have been duly given five (5) business days
after being mailed by registered or certified mail, return receipt requested, or
when received if hand delivered, delivered via overnight messenger service or by
facsimile during the recipient's normal business hours as follows:
REGISTRATION STATEMENT
Page II-67
<PAGE>
If to Sellers: Prime Cable
One American Center
600 Congress Avenue, Suite 3000
Austin, Texas 78701
Attention: William P. Glasgow,
Senior Vice President
Facsimile No.: (512) 476-4869
With copies (which shall not constitute notice) to:
Edens Snodgrass Nichols & Breeland, P.C.
2800 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701
Attention: Patrick K. Breeland
Facsimile: (512) 505-5911
and
Hughes & Luce
900 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701
Attention: William R. Volk
Facsimile: (512) 482-6859
If to Buyer: General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Attention:John M. Lowber, CFO and
Senior Vice President
Facsimile No.: (907) 265-5676
or at such other address as either party shall from time to time designate by
written notice, in the manner provided herein, to the other party hereto. All
references to days in this Agreement shall be deemed to refer to calendar days
unless otherwise specified.
19.4 Waiver. Any waiver must be in writing, and any waiver by
any party of a breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
REGISTRATION STATEMENT
Page II-68
<PAGE>
19.5 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of Sellers and Buyer
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assignable by
any party without the prior written consent of the others Notwithstanding
anything to the contrary contained herein, Buyer may, without the consent of
Sellers, assign its rights under this Agreement to any Affiliate of Buyer;
provided, that General Communication, Inc., shall at all times remain primarily
liable for all obligations of Buyer set forth herein and in any other instrument
or agreement executed or delivered by or on Buyer's behalf in connection with
this Agreement.
19.6 No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
19.7 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
effect at the option of the party for whose benefit such provision was made.
19.8 Captions. The Article and Section titles used in this
Agreement are inserted as a matter of convenience and for reference only and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any of the provisions hereof.
19.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
19.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Alaska without giving effect to
conflict of laws.
19.11 Incorporation by Reference. The Exhibits and Schedules
attached hereto are an integral part of this Agreement and are incorporated
herein by reference.
19.12 Confidentiality. The parties will hold and cause their
officers, directors, employees, attorneys, investors, accountants,
representatives, agents, consultants, and advisors to hold in strict confidence
the provisions of this Agreement as well as all information (other than such
information as may be publicly available) furnished in connection with the
transactions contemplated by this Agreement, except as otherwise required by
law, and except as to disclosure to the parties' respective agents, advisors and
financial institutions; and, if the Closing hereunder shall not occur, the
parties will (i) refrain from using any such information in any manner (except
in connection with any litigation among the parties arising hereunder) and (ii)
promptly return all such information to the party from whom it was received or,
alternatively,
REGISTRATION STATEMENT
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<PAGE>
promptly destroy all such information and verify such destruction in writing to
the party from whom it was received. Neither party shall issue any press release
or otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the other
party, which consent shall not be unreasonably withheld.
19.13 Appointment of Sellers' Agent. By executing this
Agreement, each of the Sellers hereby appoints PIIM, with full power of
substitution, as its agent and attorney-in-fact ("Sellers' Agent"), to act for
it and in its name in connection with all matters relating to this Agreement,
and each of them gives Sellers' Agent full power and authority to execute and
deliver the Escrow Agreement, and to deliver certificates for its shares of GCI
Class A Stock representing its respective portion of the Escrow Holdback,
together with stock assignments or other appropriate instruments of assignment
therefor, to sue and be sued on behalf of all Sellers with respect to matters
arising under this Agreement or the Escrow Agreement, to bind Sellers in
connection with the resolution of any dispute under this Agreement, to execute
amendments to this Agreement, to give and receive notices and to execute any
instruments and documents that Sellers' Agent may determine necessary in the
exercise of its authority pursuant to this power of attorney, all without notice
to any of them and with the same effect as if they had themselves taken such
action; and each of them acknowledges that Buyer may rely and act upon any
action taken by Sellers' Agent and upon any instruments signed by it with the
same force and effect as if they had themselves so acted; provided, that
Sellers' Agent will provide each Seller with reasonable notice of, and the
opportunity to consult with Sellers' Agent regarding, any proposed settlement or
other resolution of any dispute under this Agreement; and provided, further.
that anything to the contrary in the foregoing notwithstanding, Sellers' Agent
shall have no authority to enter into any amendment of this Agreement which
would (1) change the form of payment of the Purchase Price to consideration
other than shares of GCI Class A Stock or decrease the Purchase Price payable
hereunder by an amount in excess of five percent (5%) of the stated Purchase
Price, or (2) provide for any additional personal liability of Sellers to Buyer
with respect to the representations, warranties, covenants or agreements made by
Sellers herein, including, without, limitation extending the time periods set
forth in Section 17.1. Each of the Sellers agrees that in any action brought by
Buyer under this Agreement relating to the Escrow Agreement, the only necessary
party shall be Sellers' Agent.
REGISTRATION STATEMENT
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
GENERAL COMMUNICATION, INC.
By /s/
John M. Lowber, Senior Vice President
PRIME VENTURE I HOLDINGS, L.P.
By: Its General Partners
Prime Venture I, Inc.
By /s/
Name:
Its:
and
Prime II Management Group, Inc.
By /s/
Name:
Its:
PRIME CABLE GROWTH PARTNERS, L.P.
By: Its General Partners
Prime Venture I, Inc.
By /s/
Name:
Its:
and
REGISTRATION STATEMENT
Page II-71
<PAGE>
Prime Venture I Holdings, L.P.
By: Its General Partners
Prime Venture I, Inc.
By /s/
Name:
Its:
Prime II Management Group, Inc.
By /s/
Name:
Its:
PRIME CABLE LIMITED PARTNERSHIP
By: Prime Cable G.P., Inc.
Its: General Partner
By /s/
Name:
Its:
BANCBOSTON CAPITAL, INC.
By /s/
Name:
Its:
FIRST CHICAGO INVESTMENT CORPORATION
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-72
<PAGE>
MADISON DEARBORN PARTNERS V
By /s/
Name:
Its:
PRIME VENTURE II, L.P.
By: Prime Investors, L.P.,
Its: General Partner
By: Prime II Management, L.P.,
Its: General Partner
By: Prime II Management, Inc.,
Its General Partner
By /s/
Name:
Its:
AUSTIN VENTURES, L.P.
By: AV Partners, L.P.
Its: General Partner
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-73
<PAGE>
WILLIAM BLAIR VENTURE PARTNERS III
LIMITED PARTNERSHIP
By: William Blair Venture Management Company
Its: General Partner
By /s/
Name:
Its:
CENTENNIAL FUND II, L.P.
By: Centennial Holdings II, L.P.,
Its: General Partner
By /s/
Name:
Its:
CENTENNIAL FUND III, L.P.
By: Centennial Holdings III, L.P.,
Its: General Partner
By /s/
Name:
Its: General Partner
CENTENNIAL BUSINESS DEVELOPMENT FUND, LTD.
By: Centennial Business Development Company
Its: General Partner
By /s/
Name:
Title: General Partner
REGISTRATION STATEMENT
Page II-74
<PAGE>
AGREED AS TO SECTION 15:
PRIME II MANAGEMENT, L.P.
By: Prime II Management, Inc.
Its: General Partner
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-75
<PAGE>
EXHIBIT A
Escrow Agreement
This Escrow Agreement ("Agreement") is dated as of
, 199 and entered into among National Bank of Alaska ("Escrow
Agent"), Prime II Management. L.P. ("Sellers' Agent"), as the designated agent
for the parties named on Schedule 1 attached hereto (collectively, "Sellers"),
and General Communication, Inc., an Alaska corporation ("GCI"). Sellers and GCI
are collectively referred to in this Agreement as "Transaction Parties."
Sellers' Agent, Sellers and GCI are parties to a Securities Purchase and Sale
Agreement dated as of May 2, 1996 ( "Purchase Agreement").
For valuable consideration, the parties agree as follows:
1. Escrow Agent. The Transaction Parties appoint and designate
Escrow Agent as escrow agent for the purposes set forth in this Agreement, and
Escrow Agent accepts such appointment on the terms provided in this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish and
maintain an escrow account (which, together with all funds, instruments and
securities delivered to Escrow Agent by and on behalf of Sellers or GCI, and all
earnings thereon, are referred to collectively as the "Escrow Fund"). Upon the
execution of this Agreement, Sellers will cause delivery to Escrow Agent One
Million Ninety Three Thousand Seven Hundred and Fifty (1,093,750) shares of
Class A common stock, no par value ("GCI Class A Stock"), of GCI ("Sellers'
Escrow Shares"). Upon execution hereof, GCI will cause delivery to Escrow Agent
of any of (A) One Million Ninety Three Thousand Seven Hundred and Fifty
(1,093,750) shares of GCI Class A Stock (the "GCI Escrow Shares"); or (B) an
irrevocable letter of credit (in form and substance reasonably satisfactory to
Sellers) issued by [ ] for the benefit of the Escrow Agent in the
face amount of Eight Million Seven Hundred Fifty Thousand and no/100 Dollars
($8,750,000.00) (the "Escrow L/C"), or (C) immediately available funds in the
amount of Eight Million Seven Hundred Fifty Thousand and no/100 Dollars
($8,750,000.00) (the "GCI Cash Deposit," and together with any funds held as a
result of a draw by the Escrow Agent under the Escrow L/C, the "Escrow Cash").
The GCI Escrow Shares, the Escrow L/C or the GCI Cash Deposit, whichever is
actually delivered to Escrow Agent by GCI hereunder may from time to time be
referred to as the "GCI Escrow Deposit". Escrow Agent will hold and disburse the
Escrow Fund in accordance with this Agreement. The Transaction Parties agree
that the value of a share of GCI Class A Stock for purposes of this Agreement is
Eight Dollars ($8.00) ("GCI Share Price").
3. Investment of Escrow Fund. Escrow Agent will invest the
Escrow Cash, if any, and any cash otherwise held in the Escrow Fund, and the
Earnings (as defined in Section 6 of this Agreement) from the investment
thereof, in Investment
REGISTRATION STATEMENT
Page II-76
<PAGE>
Securities (as jointly directed by the Transaction Parties) or in other
investments if directed by the joint written instructions of the Transaction
Parties and Escrow Agent shall separately account for the Earnings received with
respect to the Sellers' Escrow Shares and the Earnings received with respect to
the GCI Escrow Deposit. The term "Investment Securities" means (i) United States
government securities or securities of agencies of the United States government
which are guaranteed by the United States government, (ii) commercial paper
issued by corporations, each of which will have a consolidated net worth of at
least $250 million and each of which conducts a substantial part of its business
in the United States of America, maturing within 180 days from the date of the
original issue thereof but in no event later than the Escrow Disbursement Date
except if a GCI Claim Certificate or a Sellers' Claim Certificate (as defined
below) has been delivered to Escrow Agent, and carrying the highest rating by
Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Corporation
("S&P"), and (iii) certificates of deposit maturing within 180 days of the date
of purchase but in no event later than the Escrow Disbursement Date except if a
GCI Claim Certificate or a Sellers' Claim Certificate has been delivered to
Escrow Agent, which are issued by any United States national or state bank whose
long term debt rating is rated A3 or better by Moody's or A- or better by S&P
and which has capital, surplus and undivided profits totaling more than $250
million. Escrow Agent shall provide a monthly report to Sellers' Agent and to
GCI, which report shall include a list of the holdings in the Escrow Fund and
all transactions relating thereto.
4. Disbursement of Sellers' Escrow Deposit.
(a) Except as otherwise provided in this Section
4(a), Escrow Agent will disburse the Sellers' Escrow Deposit to Sellers' Agent
(or as directed by Sellers' Agent in a written certificate delivered by Sellers'
Agent to Escrow Agent prior to the Escrow Disbursement Date, as defined below)
on , 199 [181 days after the Closing Date] ("Escrow Disbursement
Date"). If, prior to the Escrow Disbursement Date, Escrow Agent receives a
certificate signed on behalf of GCI (a "GCI Claim Certificate") in the form of
Exhibit A with completed information concerning the nature and amount of an
indemnification claim by GCI under the Purchase Agreement ("GCI Claim Amount")
which will in no event exceed Eight Million Seven Hundred Fifty Thousand and
no/100 Dollars ($8,750,000.00), Escrow Agent will retain in the Escrow Fund that
number of the Sellers' Escrow Shares, at a price per share equal to the GCI
Share Price (the "Retained Sellers' Shares"), as is equal to the certified GCI
Claim Amount for disbursement in accordance with Section 4(a)(i) or (ii) as
applicable. Escrow Agent will disburse the remainder of the Sellers' Escrow
Shares (and all Earnings thereon) that are not required to be retained pursuant
to the preceding sentence to Sellers' Agent on the Escrow Disbursement Date. If
a GCI Claim Certificate is delivered to Escrow Agent prior to the Escrow
Disbursement Date, Escrow Agent will retain the Retained Sellers' Shares in the
Escrow Fund pursuant to this Agreement until either:
REGISTRATION STATEMENT
Page II-77
<PAGE>
(i) Escrow Agent receives joint written
instructions signed on behalf of Sellers' Agent and
GCI specifying the method for disbursing the Retained
Sellers' Shares in which case such shares and all
Earnings thereon will be disbursed promptly by Escrow
Agent in accordance with such instructions; or
(ii) Escrow Agent receives an official
copy of a final, non-appealable order issued by a
court of competent jurisdiction specifying the method
for disbursement of the Retained Sellers' Shares and
all Earnings thereon will be disbursed promptly by
Escrow Agent in accordance with such instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the Sellers' Escrow Shares in accordance
with any joint written instructions signed by the Transaction Parties.
(c) All disbursements of funds, if any, in the Escrow
Fund pursuant to this Section 4 will be by wire or interbank transfer of
immediately available funds to the account or accounts designated in writing by
Sellers' Agent or GCI, as applicable.
(d) GCI will deliver a copy of any GCI Claim
Certificate to Sellers' Agent contemporaneously with or before delivery of the
GCI Claim Certificate to Escrow Agent.
5. Disbursement of the GCI Escrow Deposit.
(a) Except as otherwise provided in this Section
5(a), Escrow Agent will disburse the GCI Escrow Deposit to GCI on the Escrow
Disbursement Date. If, prior to the Escrow Disbursement Date, Escrow Agent
receives a certificate signed on behalf of Sellers' Agent (a "Sellers' Claim
Certificate") in the form of Exhibit B with completed information concerning the
nature and amount of an indemnification claim by Sellers' Agent or Sellers under
the Purchase Agreement ("Sellers' Claim Amount") which will in no event exceed
Eight Million Seven Hundred Fifty Thousand and no/100 Dollars ($8,750,000.00),
Escrow Agent will draw all sums available under the Escrow L/C in accordance
with the terms thereof if Escrow Agent is holding the Escrow L/C and retain in
the Escrow Fund (x) that number of the GCI Escrow Shares, at a price per share
equal to the GCI Share Price (the "Retained GCI Shares"), as is equal to the
certified Sellers' Claim Amount if Escrow Agent is holding GCI Escrow Shares, or
(y) an amount of the Escrow Cash equal to the Sellers' Claim Amount ("Retained
GCI Cash") if GCI
REGISTRATION STATEMENT
Page II-78
<PAGE>
originally delivered the Escrow L/C or the GCI Cash Deposit as the GCI Escrow
Deposit, for disbursement in accordance with Section 5(a)(i) or (ii) as
applicable. Escrow Agent will disburse the remainder of the GCI Escrow Shares or
the Escrow Cash, as the case may be, that is not required to be retained
pursuant to the preceding sentence to GCI on the Escrow Disbursement Date. If a
Sellers' Claim Certificate is delivered to Escrow Agent prior to the Escrow
Disbursement Date, Escrow Agent will retain the Retained GCI Shares or the
Retained GCI Cash, as the case may be, in the Escrow Fund pursuant to this
Agreement until either:
(i) Escrow Agent receives joint written
instructions signed on behalf of Sellers' Agent and
GCI specifying the method for disbursing the Retained
GCI Shares or the Retained GCI Cash, as the case may
be, in which case such shares or cash, as the case
may be, and Earnings thereon will be disbursed
promptly by Escrow Agent in accordance with such
instructions; or
(ii) Escrow Agent receives an official
copy of a final, non-appealable order issued by a
court of competent jurisdiction specifying the method
for disbursement of the Retained GCI Shares or the
Retained GCI Cash, as the case may be, in which case
such shares and Earnings thereon will be disbursed
promptly by Escrow Agent in accordance with such
instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the GCI Escrow Deposit in accordance with
any joint written instructions signed by Sellers' Agent and GCI.
(c) All disbursements of funds, if any, in the Escrow
Fund pursuant to this Section 5 will be by wire or interbank transfer of
immediately available funds to the account or accounts designated in writing by
Sellers' Agent or GCI, as applicable.
(d) Sellers' Agent will deliver a copy of any
Sellers' Claim Certificate to GCI contemporaneously with or before delivery of
the Sellers' Claim Certificate to Escrow Agent.
6. Disbursement of Earnings, etc. The interest, earnings
and/or gains ("Earnings") received by Escrow Agent with respect to the Escrow
Securities, the Escrow
REGISTRATION STATEMENT
Page II-79
<PAGE>
Cash or from the investment of any other cash held in the Escrow Fund will be
reinvested by Escrow Agent as permitted in Section 3 of this Agreement. With a
disbursement of all or a portion of the Escrow Fund pursuant to Sections 4 or 5
of this Agreement, Escrow Agent will distribute to the Transaction Party
receiving such disbursement a proportionate share of the Earnings from the
investment of that particular portion of the Escrow Fund.
7. Rights, Duties and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or
determine the performance or nonperformance of any provision of any agreement
between the Transaction Parties, including, but not limited to, the Purchase
Agreement, which will not bind Escrow Agent in any manner. Escrow Agent assumes
no responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement.
(b) Escrow Agent will not be personally liable for
any act it may do or omit to do under this Agreement as such agent while acting
in good faith and in the exercise of its own best judgment, and any act done or
omitted by it in accordance with the written advice of its counsel will be
conclusive evidence of such good faith unless, in any event, the same
constitutes gross negligence or willful misconduct. Escrow Agent will have the
right at any time to consult with its counsel upon any question arising under
this Agreement and will incur no liability for any delay reasonably required to
obtain the advice of counsel.
(c) Other than those notices or demands expressly
provided in this Agreement, Escrow Agent is expressly authorized to disregard
any and all notices or demands given by Sellers' Agent or GCI, or by any other
person, firm or corporation, excepting only orders or process of court, and
Escrow Agent is expressly authorized to comply with and obey any and all final
process, orders, judgments, or decrees of any court, and to the extent Escrow
Agent obeys or complies with any thereof of any court, it will not be liable to
any party to this Agreement or to any other person, firm or corporation by
reason of such compliance.
(d) In consideration of the acceptance of this Escrow
by Escrow Agent, GCI agrees for it and its successors and assigns, to pay to
Escrow Agent its charges, fees and reasonable expenses as contemplated by this
Agreement. The escrow fees or charges will be Two Thousand and no/100 Dollars
($2,000.00). Such sum is intended as compensation for Escrow Agent's ordinary
services as contemplated by this Agreement, including, without limitation, (i)
the investment of funds held in the Escrow Fund and the reinvestment thereof and
of Earnings and (ii) the disbursement thereof and of any of the Escrow Fund to
the Transaction Parties. In the event Escrow
REGISTRATION STATEMENT
Page II-80
<PAGE>
Agent renders services not provided for in this Agreement, Escrow Agent will be
entitled to receive from the transaction parties reasonable compensation and
reasonable costs, if any, for such extraordinary services.
(e) Escrow Agent will be under no duty or obligation
to ascertain the identity, authority or right of Sellers' Agent or GCI (or their
agents) to execute or deliver or purport to execute or deliver this Agreement or
any certificates, documents or papers or payments deposited or called for or
given under this Agreement.
(f) Escrow Agent will not be liable for the outlawing
of any rights under any statute of limitations or by reason of laches in respect
of this Agreement or any documents or papers deposited with Escrow Agent.
(g) In the event of any dispute among the parties to
this Agreement as to the facts or as to the validity or meaning of any provision
of this Agreement, or any other fact or matter relating to this Agreement or to
the transactions between Sellers' Agent and GCI, Escrow Agent is instructed that
it will be under no obligation to act, except in accordance with this Agreement
or under process or order of court or, if there be no such process or order,
until it has filed or caused to be filed an appropriate action interpleading
Sellers' Agent and GCI and delivering the Escrow Fund( or the portion of the
Escrow Fund in dispute) to such court, and Escrow Agent will sustain no
liability for its failure to act pending such process of court or order or
interpleader of action.
8. Modification of Agreement. The provisions of this Agreement
may be supplemented, altered, amended, modified, or revoked by writing only,
signed by GCI and Sellers' Agent and approved in writing by Escrow Agent, and
upon payment of all fees, costs and expenses incident thereto.
9. Assignment of Agreement. No assignment, transfer,
conveyance or hypothecation of any right, title or interest in and to the
subject matter of this Agreement will be binding upon any party, including
Escrow Agent, unless all fees, costs, and expenses incident thereto have been
paid and then only by the assent thereto by all parties in writing.
10. Miscellaneous.
(a) All notices and communications under this
Agreement will be in writing and will be deemed to be duly given if sent by
registered mail, return receipt requested, personal delivery or telecopier, as
follows:
1
<PAGE>
To Escrow Agent: National Bank of Alaska
Escrow Department
301 W. Northern Lights Boulevard
Anchorage, Alaska 99503
Attention: Michael Walton, Vice President
Telecopy: (907) 265-2139
To GCI at: General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503-2781
Attention:John M. Lowber, CFO and Senior
Vice President
Telecopy: (907) 265-5676
With a copy (which will not constitute
notice) to:
Hartig, Rhodes, Norman, Mahoney &
Edwards, P.C.
717 K Street
Anchorage, Alaska 99501-3397
Attention: Bonnie J. Stratton, Esq.
Telecopy: (907) 277-4352
To Sellers at: c/o Prime II Management, L.P.
3000 One American Center
600 Congress Avenue
Austin, TX 78701
Attention:President
Telecopy: (512) 476-4869
With a copy (which will not constitute
notice) similarly addressed to the
attention of:
Rudolph Green
and
With a copy (which will not constitute
notice) to:
Edens Snodgrass Nichols & Breeland, P.C.
2800 Franklin Plaza
111 Congress Avenue
Austin, TX 78701
Attention: Patrick K. Breeland
Telecopy: (512) 505-5911
REGISTRATION STATEMENT
Page II-82
<PAGE>
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any such notice or communication
given in the manner specified in this Section 10(a) will be deemed to have been
given as of the date received. In the event that Escrow Agent, in its sole
discretion, determines that an emergency exists, Escrow Agent may use such other
means of communication as Escrow Agent deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement GCI and Sellers' Agent are to deliver a jointly signed writing to
Escrow Agent or jointly advise Escrow Agent in writing, such writing may in each
and all cases be signed jointly or in counterparts and such counterparts will be
deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from
its duties or obligations under this Agreement by giving notice in writing of
such resignation to the Transaction Parties at least 30 days in advance of such
resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by the Transaction Parties of
a successor escrow agent, which will be a federally chartered bank having
combined capital and surplus of at least $100,000,000.00; provided, that if any
such appointment of any successor agent is not effectuated within 30 days of
such written notice, Escrow Agent may file an action for interpleader and
deposit all funds with a court of competent jurisdiction, all as provided for in
Section 7(g). Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by GCI, Sellers' Agent, Escrow
Agent and the successor escrow agent. Any successor escrow agent appointed under
the provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent.
(e) GCI and Sellers' Agent (on behalf of Sellers)
hereby jointly and severally agree to indemnify Escrow Agent for, and to hold it
harmless against any loss, liability or reasonable out-of-pocket expense arising
out of or in connection with this Agreement and carrying out its duties
hereunder, including the reasonable out-of-pocket costs and expenses of
defending itself against any claim of liability, except in those cases where
Escrow Agent has been guilty of gross negligence or willful misconduct
(provided, that in no event will the Transaction Parties be liable for any
allocated cost or expense of persons regularly employed by Escrow Agent).
Anything in this Agreement to the contrary notwithstanding, in no event will
Escrow Agent be liable for special, indirect or consequential loss or damage of
any kind whatsoever (including, but
REGISTRATION STATEMENT
Page II-83
<PAGE>
not limited to, lost profits), even if Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(f) The Transaction Parties are providing Escrow
Agent with their Tax Identification Number (TIN) as assigned by the Internal
Revenue Service below their signatures to this Agreement. All Earnings will be
allocated and paid as provided herein and reported by the recipient to the
Internal Revenue Service as having been so allocated and paid. Anything to the
contrary in this Agreement notwithstanding, Sellers' Escrow Shares will at all
times be owned of record and beneficially by Sellers and Sellers will at all
times be entitled to exercise sole voting power and, subject to Section 4, the
power to dispose of or transfer, Sellers' Escrow Shares.
(g) In the event funds transfer written instructions
are given (other than in writing at the time of execution of the Agreement),
whether in writing or by telecopier, Escrow Agent is authorized, but not
obligated, to seek confirmation of such instructions by telephone call-back to
the person or persons designated on Schedule 2 to this Agreement, and Escrow
Agent may rely upon the confirmations of anyone purporting to be the persons so
designated. The persons and telephone numbers for call-backs may be changed only
in a writing actually received and acknowledged by Escrow Agent. The parties to
this Agreement acknowledge that such security procedure is commercially
reasonable.
(h) This Agreement will be governed by and construed
in accordance with the law of the State of Alaska without regard to its
principles of conflicts of laws and any action brought under this Agreement will
be brought in the courts of the State of Alaska, located in the Third Judicial
District at Anchorage. Each party hereto irrevocably waives any objection on the
grounds of venue, forum non-convenience or any similar grounds and irrevocably
consents to service of process by mail or in any other manner permitted by
applicable law and consents to the jurisdiction of such courts.
(i) Except as otherwise specified herein, each of the
parties will pay all costs and expenses incurred or to be incurred by it in
negotiating and preparing this Escrow Agreement and in closing and carrying out
the transactions contemplated by this Escrow Agreement.
(j) If any legal action or proceeding is brought for
the enforcement of this Escrow Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Escrow Agreement, the successful or prevailing party or parties will be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
REGISTRATION STATEMENT
Page II-84
<PAGE>
The parties have caused this Agreement to be signed
the day and year first above written.
NATIONAL BANK OF ALASKA, N.A.
By /s/
Roderick R. Shipley,
Senior Vice President
SELLERS' AGENT:
PRIME II MANAGEMENT, L.P.
By: Prime II Management, Inc.
Its: General Partner
By: /s/
Its:
TIN: (1)
GCI:
GENERAL COMMUNICATION, INC.
By: /s/
Name:
Title:
TIN:
- --------------------------
(1) Agent for Sellers.
REGISTRATION STATEMENT
Page II-85
<PAGE>
Schedule 1
Sellers
1. Prime Venture I Holdings, L.P.
2. Prime Cable Growth Partners, L.P.
3. Prime Venture II, L.P.
4. Prime Cable Limited Partnership
5. BancBoston Capital, Inc.
6. First Chicago Investment Corporation
7. Madison Dearborn Partners V
8. Austin Ventures, L.P.
9. William Blair Venture Partners III Limited Partnership
10. Centennial Fund II, L.P.
11. Centennial Fund III, L.P.
12. Centennial Business Development Fund, Ltd.
REGISTRATION STATEMENT
Page II-86
<PAGE>
Schedule 2
Telephone Number(s) for Call-Banks and
Person(s) Designated to Confirm Funds Transfer Instructions
If to GCI:
Name Telephone Number
1. John M. Lowber (907) 265-5604
2. (907) 265-5600
3. (907) 265-5600
If to Sellers:
Name Telephone Number
1. Gretchen Ellis (512) 476-7888
2. Karen Miller (512) 476-7888
3. Rudolph Green (512) 476-7888
Telephone call-backs will be made to each of GCI and Sellers' Agent if joint
instructions are required pursuant to the Agreement.
REGISTRATION STATEMENT
Page II-87
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of General Communication, Inc.
("GCI"), certifies as follows:
A. GCI, Sellers et al. are parties to that
certain Securities Purchase and Sale
Agreement dated as of April , 1996.
B. GCI in good faith believes that Sellers
(as defined in the Purchase Agreement)
have breached certain representations,
warranties, covenants or obligations made
by Sellers in the Purchase Agreement or
are obligated to indemnify GCI with
respect to certain claims. In particular,
GCI in good faith is asserting claims
against Sellers based on the following:
[reasonably detailed description of claim
and reference to portion of Purchase
Agreement in question to be inserted by
GCI at time of delivery of Certificate].
C. Attached to this Certificate is a copy of
GCI's notice to Sellers relating to the
claim pursuant to the Purchase Agreement.
GCI intends to pursue the claim with due
diligence. GCI in good faith believes the
amount of its claim described in its
notice is $ .
D. GCI is furnishing this Certificate to
National Bank of Alaska which is acting
as Escrow Agent pursuant to the terms of
an Escrow Agreement dated
, 199 among GCI, Prime
II Management, L.P. (as Sellers' Agent)
and National Bank of Alaska has delivered
or contemporaneously is delivering a copy
of this Certificate to Sellers' Agent as
well.
This Certificate is signed this day of , 199 .
General Communication, Inc.
By: /s/
Name:
Title:
REGISTRATION STATEMENT
Page II-88
<PAGE>
Receipt of this Certificate is acknowledged this day of
, 199 .
NATIONAL BANK OF ALASKA
By: /s/
Name:
Title:
REGISTRATION STATEMENT
Page II-89
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of ("Sellers'
Agent") certifies as follows:
A. , General Communication, Inc. ("GCI")
et al. are parties to that certain Securities Purchase and Sale Agreement dated
as of April , 1996 ("Purchase Agreement").
B. Sellers' Agent in good faith believes that GCI has breached
certain representations, warranties, covenants or obligations made by GCI in the
Purchase Agreement or is obligated to indemnify Sellers (as that term is defined
in the Purchase Agreement), with respect to certain claims. In particular,
Sellers' Agent in good faith is asserting claims against GCI based on the
following:
[reasonably detailed description of claim and reference to portion of Purchase
Agreement in question to be inserted by Sellers' Agent at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of Sellers' Agent
notice to GCI relating to the claim pursuant to the Purchase Agreement. Sellers'
Agent intends to pursue the claim with due diligence. Sellers' Agent in good
faith believes the amount of the claim described in its notice is $ .
D. Sellers' Agent is furnishing this Certificate to National
Bank of Alaska which is acting as Escrow Agent pursuant to the terms of an
Escrow Agreement dated , 199 among GCI, Sellers' Agent and
National Bank of Alaska. Sellers' Agent has delivered or contemporaneously is
delivering a copy of this Certificate to GCI as well.
This Certificate is signed this day of
, 199 .
PRIME II MANAGEMENT, L.P.
By: Prime II Management, Inc.
Its: General Partner
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-90
<PAGE>
Receipt of this Certificate is acknowledged this day of
, 199 .
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-91
<PAGE>
EXHIBIT B
Registration Rights Agreement
This Registration Rights Agreement ("Agreement"), dated as of
this day of , 1996, is between General Communication, Inc., an
Alaska corporation ("GCI"), and the respective owners of: (i) all the limited
partner interests in Prime Cable of Alaska, L.P. ("Prime") held by Prime Venture
I Holdings, L.P. ("Holdings") and Prime Cable Growth Partners, L.P. ("Growth"),
(ii) all of the capital stock of Alaska Cable, Inc. ("ACI," a Prime limited
partner), (iii) all of the capital stock of Prime Cable Fund I, Inc. ("PCFI," a
Prime general partner), and (iv) all of the profit participation interests in
Prime (such owners, Prime Cable Limited Partnership, the holders of all the
capital stock of PCFI and ACI, and Prime Venture I Holdings, L.P., collectively,
"Sellers").
RECITALS
A. Sellers have acquired in aggregate Eleven Million Eight
Hundred (11,800,000) shares of GCI's Class A Common Stock, no par value. All
such shares of GCI's Class A Common Stock which Sellers now own and any
securities issued in exchange for or in respect of such stock, whether pursuant
to a stock dividend, stock split, stock reclassification or otherwise are
collectively referred to in this Agreement as the "Registrable Shares."
B. GCI desires to grant registration rights to Sellers and any
successors and assigns of Sellers as the holders of all or any portion of the
Registrable Shares. Sellers and such successors and assigns are referred to in
this Agreement as the "Holders," or, individually as a "Holder."
AGREEMENT
In consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Demand Registration.
(a) GCI hereby covenants and agrees that the
distribution to Holders of the Registrable Shares pursuant to that Prime
Securities Purchase and Sale Agreement dated May 2, 1996 ("Prime SPA") shall be
registered under the Securities Act of 1933, as amended, pursuant to a
registration statement (the "Original Registration Statement") that is effective
as of the date hereof. GCI shall keep the prospectus that is a part of the
Original Registration Statement for the GCI Shares current for a period of at
least two (2) years from the date hereof to permit such distribution and, if
required, resales of Registrable Securities by Holders, to the extent that such
sales are required to be registered. Each Holder hereby covenants and agrees (i)
not to sell any Registrable Shares during the first ninety (90) day period (the
"First Lock-Out Period")
REGISTRATION STATEMENT
Page II-92
<PAGE>
following the Final Closing Date (as defined in the Prime SPA), and (ii) not to
sell more than twenty percent (20%) of such Holder's Registrable Shares during
the fifty-nine (59) day period (the "Second Lock-Out Period") immediately
following the First Lock-Out Period. Each of the Registrable Shares shall bear
the legend set forth on Annex 1 hereto to evidence the covenants and agreements
set forth in the immediately preceding sentence; and once such covenants and
agreements are no longer applicable, GCI will issue new certificates to the
holders of the Registrable Shares without such legends. Any and all remaining
Registrable Shares may be sold following the Second Lock-Out Period. If further
required to permit resales of the Registrable Shares by Holders, Holders shall
at any time and from time to time after the date the Original Registration
Statement is no longer effective, have the right to require registration under
the Securities Act of 1933, as amended ("Securities Act"), of all or any portion
of the Registrable Shares on the terms and subject to the conditions set forth
in this Agreement.
(b) Upon receipt by GCI of a Holder's written request
for registration, GCI shall (i) promptly notify each other Holder in writing of
its receipt of such initial written request for registration, and (ii) as soon
as is practicable, but in no event more than sixty (60) days after receipt of
such written request, file with the Securities and Exchange Commission
("Commission"), and use reasonable commercial efforts to effect the registration
under a registration statement under the Securities Act ("Registration
Statement") for the Registrable Shares specified in the initial written request
and any other written request from any other Holder received by GCI within
twenty (20) days of GCI giving the notice specified in clause (i) hereof under
the Securities Act in accordance with the intended method of distribution
thereof.
(c) If so requested by any Holder requesting
participation in a public offering or distribution of Registrable Shares
pursuant to this Section 1 or Section 2 of this Agreement ("Selling Holder"),
the Registration Statement shall provide for delayed or continuous offering of
the Registrable Shares pursuant to Rule 415 promulgated under the Securities Act
or any similar rule then in effect ("Shelf Offering"). If so requested by the
Selling Holders, the public offering or distribution of Registrable Shares under
this Agreement shall be pursuant to a firm commitment underwriting, the managing
underwriter of which shall be an investment banking firm selected and engaged by
the Selling Holders and approved by GCI, which approval shall not be
unreasonably withheld. GCI shall enter into the same underwriting agreement as
shall the Selling Holders, containing representations, warranties and agreements
not substantially different from those customarily made by an issuer in
underwriting agreements with respect to secondary distributions. GCI, as a
condition to fulfilling its obligations under this Agreement, may require the
underwriters to enter into an agreement in customary form indemnifying GCI
against any Losses (as defined in Section 6) that arise out of or are based upon
an untrue statement or an alleged untrue statement or omission or alleged
omission in the Disclosure Documents (as defined in
REGISTRATION STATEMENT
Page II-93
<PAGE>
Section 6) made in reliance upon and in conformity with written information
furnished to GCI by the underwriters specifically for use in the preparation
thereof.
(d) Each Selling Holder may, before such a
Registration Statement becomes effective, withdraw its Registrable Shares from
sale, should the terms of sale not be reasonably satisfactory to such Selling
Holder; if all Selling Holders who are participating in such registration so
withdraw, however, such registration shall be deemed to have occurred for the
purposes of Section 4 of this Agreement, unless such Selling Holders pay (pro
rata, in proportion to the number of Registrable Shares requested to be
included) within twenty (20) days after any such withdrawal, all of GCI's
out-of-pocket expenses incurred in connection with such registration.
(e) Notwithstanding the foregoing, GCI shall not be
obligated to effect a registration pursuant to Sections 1(b) or (c) during the
period starting with the date sixty (60) days prior to GCI's estimated date of
filing of, and ending on a date six (6) months following the effective date of,
a registration statement pertaining to an underwritten public offering of equity
securities for GCI's account, provided that (i) GCI is actively employing in
good faith all reasonable efforts to cause such registration statement to become
effective and that GCI's estimate of the date of filing on such registration
statement is made in good faith, and (ii) GCI shall furnish to the Holders a
certificate signed by GCI's President stating that in the Board of Directors'
good-faith judgment, it would be seriously detrimental to GCI or its
shareholders for a Registration Statement to be filed in the near future; and in
such event, GCI's obligations to file a Registration Statement shall be deferred
for a period not to exceed six (6) months.
2. Incidental Registration. Each time that GCI proposes to
register any of its equity securities under the Securities Act (other than a
registration effected solely to implement an employee benefit or stock option
plan or to sell shares obtained under an employee benefit or stock option plan
or a transaction to which Rule 145 or any other similar rule of the Commission
under the Securities Act is applicable), GCI will give written notice to the
Holders of its intention to do so. Each of the Selling Holders may give GCI a
written request to register all or some of its Registrable Shares in the
registration described in GCI's written notice as set forth in the foregoing
sentence, provided that such written request is given within twenty (20) days
after receipt of any such GCI notice. Such request will state (i) the amount of
Registrable Shares to be disposed of and the intended method of disposition of
such Registrable Shares, and (ii) any other information GCI reasonably requests
to properly effect the registration of such Registrable Shares. Upon receipt of
such request, GCI will use its best efforts promptly to cause all such
Registrable Shares intended to be disposed of to be registered under the
Securities Act so as to permit their sale or other disposition (in accordance
with the intended methods set forth in the request for registration), unless the
sale is a firmly underwritten public offering for GCI's account and the
underwriter determines reasonably and in good faith in writing that the
inclusion of such securities would adversely affect the offering or materially
increase the offering's costs. In which case such securities and
REGISTRATION STATEMENT
Page II-94
<PAGE>
all other securities to be registered, other than those to be offered for GCI's
account, shall be excluded to the extent the underwriter determines. The number
of secondary shares included in such registration shall be shared pro rata by
all security holders having contractual registration rights based upon the
amount of GCI's securities requested by such security holders to be sold
thereunder. GCI's obligations under this Section 2 shall apply to a registration
to be effected for securities to be sold for GCI's account as well as a
registration statement which includes securities to be offered for the account
of other holders of GCI equity securities having contractual registration
rights. However, the registration rights granted pursuant to the provisions of
this Section 2 are subject to the registration rights granted by GCI pursuant to
(a) the Registration Rights Agreement dated as of January 18, 1991, between GCI
and WestMarc Communications, Inc.; (b) the Registration Rights Agreements dated
as of March 31, 1993, and , 1996, both between GCI and MCI
Telecommunications Corporation; (c) the Registration Rights Agreement dated as
of , 1996, between GCI and the owners of Alaskan Cable Network,
Inc.; and (d) the Registration Rights Agreement dated as of ,
1996, between GCI and the owners of Alaska Cablevision, Inc, the effect of which
agreements is that all parties hereto and thereto have pro rata piggy-back
Registration Rights.
In connection with a registration to be effected pursuant to
this Section 2, the Selling Holders shall enter into the same underwriting
agreement as shall GCI and the other selling security holders, if any, provided
that such underwriting agreement contains representations, warranties and
agreements on the part of the Selling Holders that are not substantially
different from those customarily made by selling security holders in
underwriting agreements with respect to secondary distributions.
If, at any time after giving notice of GCI's intention to
register any of its securities under this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
GCI shall determine for any reason not to register such securities, GCI may, at
its election, give notice of such determination to Holders and thereupon will be
relieved of its obligation to register the Registrable Shares in connection with
such registration.
3. Expenses of Registration. GCI shall pay all costs and
expenses incident to GCI's performance of or compliance with this Agreement,
including without limitation all expenses incurred in connection with the
registration of the Registrable Shares, fees and expenses of compliance with
Securities or blue sky laws, printing expenses, messenger, delivery and shipping
expenses fees and expenses of counsel for GCI and for certified public
accountants and underwriting expenses (but not fees), except that each Selling
Holder shall pay all fees and disbursements of such Selling Holder's own
attorneys and accountants, and all transfer taxes and brokerage and
underwriters' discounts and commissions directly attributable to the Registrable
Shares being offered and sold by such Selling Holder.
REGISTRATION STATEMENT
Page II-95
<PAGE>
4. Limitations on Registration Rights. Notwithstanding the
provisions of Sections 1(b) or (c) of this Agreement, GCI shall not be required
to effect any registration under that Section if (i) the request(s) for
registration cover an aggregate number of Registrable Shares having an aggregate
Market Value of less than Two Million Five Hundred Thousand and no/100 Dollars
($2,500,000.00) as of the date of the last of such requests, (ii) GCI has
previously filed two (2) registration statements under the Securities Act
pursuant to Section 1 (excluding the Original Registration Statement which was
effected in connection with the distribution of the Registrable Shares to the
Sellers pursuant to the Prime SPA), (iii) GCI, in order to comply with such
request, would be required to (A) undergo a special interim audit or (B) prepare
and file with the Commission, sooner than would otherwise be required, pro forma
or other financial statements relating to any proposed transaction, or (iv) if,
in the opinion of counsel to GCI, which opinion of counsel shall be acceptable
to the Holders a registration is not required in order to permit resale by the
Holders in accordance with the intended method of distribution set forth in the
requests of registration. The first demand registration under this Agreement may
be requested only by the Holders of a minimum of twenty-five percent (25%) of
the Registrable Shares. "Market Value" as used in this Agreement shall mean, as
to each class of Registrable Shares at any date, the average of the daily
closing prices for such class of Registrable Shares, for the ten (10)
consecutive trading days before the day in question. The closing price for
shares of such class for each day shall be the last reported sale price regular
way, or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case on the
composite tape, or if the shares of such class are not quoted on the composite
tape, on the principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), on which shares of
such class are listed or admitted to trading, or if they are not listed or
admitted to trading on any such exchange, the closing sale price (or the average
of the quoted closing bid and asked price if no sale is reported) as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if the shares of such class are not
quoted on NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by any market maker in the securities of such class
who is a member of the National Association of Securities Dealers, Inc., or in
the absence of such closing bid and asked price, as determined by such other
method as GCI's Board of Directors shall from time to time deem to be fair.
5. Obligations with Respect to Registration.
(a) If and whenever GCI is obligated by the
provisions of this Agreement to effect the registration of any Registrable
Shares under the Securities Act, GCI shall promptly:
(i) Prepare and file with the Commission
a registration statement with respect to such Registrable Shares and use
reasonable
REGISTRATION STATEMENT
Page II-96
<PAGE>
commercial efforts to cause such registration statement to become effective,
provided that before filing a registration statement, or prospectus or any
amendment or supplements thereto, GCI will furnish to the counsel selected by
the Holders of a majority of the Registrable Shares covered by such registration
statement copies of all such statements proposed to be filed, which documents
shall be subject to the review of such counsel;
(ii) Prepare and file with the Commission
any amendments and supplements to the Registration Statement and to the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated thereunder with respect
to the disposition of all Registrable Shares covered by the Registration
Statement for the period required to effect the distribution of such Registrable
Shares. However, in no event shall GCI be required to do so (i) in the case of a
Registration Statement filed pursuant to Sections 1(b) or (c), for a period of
more than two hundred seventy (270) days following the effective date of the
Registration Statement and (ii) in the case of a Registration Statement filed
pursuant to Section 2, for a period exceeding the greater of (A) the period
required to effect the distribution of securities for GCI's account and (B) the
period during which GCI is required to keep such Registration Statement in
effect for the benefit of selling security holders other than the Selling
Holders;
(iii) Notify the Selling Holders and
their underwriters, and confirm such advice in writing, (A) when a Registration
Statement becomes effective, (B) when any post-effective amendment to a
Registration Statement becomes effective, and (C) of any request by the
Commission for additional information or for any amendment of or supplement to a
Registration Statement or any prospectus relating thereto;
(iv) Furnish at GCI's expense to the
Selling Holders such number of copies of a preliminary, final, supplemental or
amended prospectus, in conformity with the requirements of the Securities Act
and the rules and regulations promulgated thereunder, as may reasonably be
required in order to facilitate the disposition of the Registrable Shares
covered by a Registration Statement, but only while GCI is required under the
provisions hereof to cause a Registration Statement to remain effective;
(v) Register or qualify at GCI's expense
the Registrable Shares covered by a Registration Statement under such other
securities or blue sky laws of such jurisdictions in the United States as the
Selling Holders shall reasonably request, and do any and all other acts and
things which may be necessary to enable each Selling Holder whose Registrable
Shares are covered by such Registration Statement to consummate the disposition
in such jurisdictions of such Registrable Shares. Provided, however, that GCI
shall in no event be required to qualify to do business as a foreign
REGISTRATION STATEMENT
Page II-97
<PAGE>
corporation or as a dealer in any jurisdiction where it is not so qualified, to
amend its articles of incorporation or to change the composition of its assets
at the time to conform with the securities or blue sky laws of such
jurisdiction, to take any action that would subject it to service of process in
suits other than those arising out of the offer and sale of the Registrable
Shares covered by the Registration Statement or to subject itself to taxation in
any jurisdiction where it has not therefore done so;
(vi) Notify each Seller of Registrable
Shares, at any time when a prospectus relating thereto 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 a material fact necessary to make
the statements therein not misleading, and, at the request of any such seller,
GCI will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to purchasers of Registrable Shares, 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;
(vii) Cause all such Registrable Shares
to be listed on each securities exchange on which similar securities issued by
GCI are then listed and to be qualified for trading on each system on which
similar securities issued by GCI are from time to time qualified;
(viii) Provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such registration statement and thereafter maintain such a transfer agent and
registrar;
(ix) Enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the shares of Registrable Shares being
sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares;
(x) Make available for inspection by any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent corporate documents and
properties of GCI, and cause GCI's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(xi) Otherwise use reasonable commercial
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as reasonably practicable,
all earning statements as and
REGISTRATION STATEMENT
Page II-98
<PAGE>
when filed with the Commission, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xii) permit any holder of Registrable
Shares which might be deemed, in the sole and exclusive judgment of such holder,
to be an underwriter or a controlling person of GCI, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to GCI in writing, which in the
reasonable judgment of such holder and its counsel should be included; and
(xiii) In the event of the issuance of
any stop order suspending the effectiveness of a registration statement, or of
any order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Shares included in such
registration statement for sale in any jurisdiction, GCI will use reasonable
commercial efforts to promptly obtain the withdrawal of such order.
(b) GCI's obligations under this Agreement with
respect to the Selling Holder shall be conditioned upon the Selling Holder's
compliance with the following:
(i) Such Selling Holder shall cooperate
with GCI in connection with the preparation of the Registration Statement, and
for so long as GCI is obligated to file and keep effective the Registration
Statement, shall provide to GCI, in writing, for use in the Registration
Statement, all such information regarding the Selling Holder and its plan of
distribution of the Registrable Shares as may be necessary to enable GCI to
prepare the Registration Statement and prospectus covering the Registrable
Shares, to maintain the currency and effectiveness thereof and otherwise to
comply with all applicable requirements of law in connection therewith;
(ii) During such time as the Selling
Holder may be engaged in a distribution of the Registration Shares, such Selling
Holder shall comply with Rules 10b-2, 10b-6 and 10b-7 promulgated under the
Exchange Act and pursuant thereto it shall, among other things: (A) not engage
in any stabilization activity in connection with GCI's securities in
contravention of such rules; (B) distribute the Registrable Shares solely in the
manner described in the Registration Statement; (C) cause to be furnished to
each broker through whom the Registrable Shares may be offered, or to the
offeree if an offer is not made through a broker, such copies of the prospectus
covering the Registrable Shares and any amendment or supplement thereto and
documents incorporated by reference therein as may be required by law; and (D)
not bid for or purchase any GCI securities or attempt to induce any person to
purchase any GCI securities other than as permitted under the Exchange Act;
(iii) If the Registration Statement
provides for a Shelf Offering, then at least ten (10) business days prior to any
distribution of the Registrable
REGISTRATION STATEMENT
Page II-99
<PAGE>
Shares, any Selling Holder who is an "affiliated purchaser" (as defined in Rule
10b-6 promulgated under the Exchange Act) of GCI shall advise GCI in writing of
the date on which the distribution by such Selling Holder will commence, the
number of the Registrable Shares to be sold and the manner of sale. Such Selling
Holder also shall inform GCI when each distribution of such Registrable Shares
is over; and
(iv) GCI shall not grant any conflicting
registration rights to other holders of its shares, to the extent that such
rights would prevent Holders from timely exercising their rights hereunder.
6. Indemnification.
(a) By GCI. In the event of any registration under
the Securities Act of any Registrable Shares pursuant to this Agreement, GCI
shall indemnify and hold harmless any Selling Holder, any underwriter of such
Selling Holder, each officer, director, employee or agent of such Selling
Holder, and each other person, if any, who controls such Selling Holder or
underwriter within the meaning of Section 15 of the Securities Act, against any
losses, costs, claims, damages or liabilities, joint or several (or actions in
respect thereof) ("Losses"), incurred by or to which each such indemnified party
may become subject, under the Securities Act or otherwise, but only to the
extent such Losses arise out of or based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, in any preliminary prospectus (if used
prior to the effective date of such Registration Statement) or in any final
prospectus or in any post effective amendment or supplement thereto (if used
during the period GCI is required to keep the Registration Statement effective)
("Disclosure Documents"), (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements made therein not misleading or (iii) any violation of any federal or
state securities laws or rules or regulations thereunder committed by GCI in
connection with the performance of its obligations under this Agreement. GCI
will reimburse each such indemnified party for all legal or other expenses
reasonably incurred by such party in connection with investigating or defending
any such claims, including, subject to such indemnified party's compliance with
the provisions of the last sentence of subsection (c) of this Section 6, any
amounts paid in settlement of any litigation, commenced or threatened, so long
as GCI's counsel agrees with the reasonableness of such settlement Provided,
however, that GCI shall not be liable to an indemnified party in any such case
to the extent that any such Losses arise out of or are based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission (x) made
in any such Disclosure Documents in reliance upon and in conformity with written
information furnished to GCI by or on behalf of such indemnified party
specifically for use in the preparation thereof, (y) made in any preliminary or
summary prospectus if a copy of the final prospectus was not delivered to the
person alleging any loss, claim, damage or liability for which Losses arise at
or prior to the written confirmation of the sale of such
REGISTRATION STATEMENT
Page II-100
<PAGE>
Registrable Shares to such person and the untrue statement or omission concerned
had been corrected in such final prospectus or (z) made in any prospectus used
by such indemnified party if a court of competent jurisdiction finally
determines that at the time of such use such indemnified party had actual
knowledge of such untrue statement or omission or (ii) the delivery by an
indemnified party of any prospectus after such time as GCI has advised such
indemnified party in writing that the filing of a post-effective amendment or
supplement thereto is required, except the prospectus as so amended or
supplemented, or the delivery of any prospectus after such time as GCI's
obligation to keep the same current and effective has expired.
(b) By the Selling Holders. In the event of any
registration under the Securities Act of any Registrable Shares pursuant to this
Agreement, each Selling Holder shall, and shall cause any underwriter retained
by it who participates in the offering to agree to, indemnify and hold harmless
GCI, each of its directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls GCI within
the meaning of Section 15 of the Securities Act, against any Losses, joint or
several, incurred by or to which such indemnified party may become subject under
the Securities Act or otherwise, but only to the extent such Losses arise out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any of the Disclosure Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein not misleading, if the
statement or omission was in reliance upon and in conformity with written
information furnished to GCI by such indemnifying party specifically for use in
the preparation thereof, (ii) the delivery by such indemnifying party of any
prospectus after such time as GCI has advised such indemnifying party in writing
that the filing of a post-effective amendment or supplement thereto is required,
except the prospectus as so amended or supplemented, or after such time as the
obligation of GCI to keep the Registration Statement effective and current has
expired or (iii) any violation by such indemnifying party of its obligations
under Section 5(b) of this Agreement or any information given or representation
made by such indemnifying party in connection with the sale of the Selling
Holder's Registrable Shares which is not contained in and not in conformity with
the prospectus (as amended or supplemented at the time of the giving of such
information or making of such representation). Each Selling Holder shall, and
shall cause any underwriter retained by it who participates in the offering to
agree to, reimburse each such indemnified party for all legal or other expenses
reasonably incurred by such party in connection with investigating or defending
any such claim, including, subject to such indemnified party's compliance with
the provisions of the last sentence of subsection (c) of this Section 6, any
amounts paid in settlement of any litigation, commenced or threatened.
(c) Third Party Claims. Promptly after the receipt by
any party hereto of notice of any claim, action, suit or proceeding by any
person who is not a party to this Agreement (collectively, an "Action") which is
subject to indemnification hereunder, such party ("Indemnified Party") shall
give reasonable written notice to the
REGISTRATION STATEMENT
Page II-101
<PAGE>
party from whom indemnification is claimed ("Indemnifying Party"). The
Indemnified Party shall be entitled, at the Indemnifying Party's sole expense
and liability, to exercise full control of the defense, compromise or settlement
of any such Action unless the Indemnifying Party, within a reasonable time after
the giving of such notice by the Indemnified Party, shall (i) admit in writing
to the Indemnified Party, the Indemnifying Party's liability to the Indemnified
Party for such Action under the terms of this Section 6, (ii) notify the
Indemnified Party in writing of the Indemnifying Party's intention to assume the
defense thereof and (iii) retain legal counsel reasonably satisfactory to the
Indemnified Party to conduct the defense of such Action. The Indemnified Party
and the Indemnifying Party shall cooperate with the party assuming the defense,
compromise or settlement of any such Action in accordance herewith in any manner
that such party reasonably may request. If the Indemnifying Party so assumes the
defense of any such Action, the Indemnified Party shall have the right to employ
separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof. The fees and expenses of such separate
counsel shall be the Indemnified Party's sole expense, unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) any relief
other than the payment of money damages is sought against the Indemnified Party
or (iii) the Indemnified Party shall have been advised by its counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, and in any such case
the fees and expenses of such separate counsel shall be borne by the
Indemnifying Party. No Indemnifying Party shall admit liability or settle or
compromise any such Action in which any relief other than the payment of money
damages is sought against any Indemnified Party unless the Indemnified Party
consents in writing to such compromise or settlement, which consent shall not be
unreasonably withheld. No Indemnified Party shall settle or compromise any such
Action for which it is entitled to indemnification hereunder without the
Indemnifying Party's prior written consent, unless the Indemnifying Party shall
have failed, after reasonable notice thereof, to undertake control of such
Action in the manner provided above in this Section 6.
(d) Contribution. If the indemnification provided for
in subsections (a) or (b) of this Section 6 is unavailable to or insufficient to
hold the Indemnified Party harmless under subsections (a) or (b) above in
respect of any Losses referred to therein for any reason other than as specified
therein, then the Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and such Indemnified Party on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault 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 (or omitted to be supplied by) GCI or the
Selling Holder (or underwriter) and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or
REGISTRATION STATEMENT
Page II-102
<PAGE>
payable by an Indemnified Party as a result of the Losses referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7. Miscellaneous.
(a) Notices. All notices, requests, demands, waivers
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or mailed, certified or registered mail with postage prepaid, or sent
by facsimile, as follows:
(i) if to GCI at:
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
ATTN: Chief Financial Officer
Facsimile: (907) 265-5676
(ii) if to Sellers, at:
c/o Prime II Management, L.P.
3000 One American Center
600 Congress Avenue, Suite 3000
Austin, Texas 78701
Attn: President
Facsimile: (512) 476-4869
With a copy (which will not
constitute notice) similarly
addressed to the attention of:
Rudolph Green
and
REGISTRATION STATEMENT
Page II-103
<PAGE>
With a copy (which will not
constitute notice) to:
Edens Snodgrass Nichols & Breeland,
P.C.
2800 Franklin Plaza
111 Congress Plaza
Austin, TX 78701
Attention: Patrick K. Breeland,
Esq.
Telecopy: (512) 505-5911
(iii) if to any Holders other than
Sellers, at the address provided to
GCI (and if none provided, to
Sellers at the above address)
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
(b) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto and supersedes all prior agreements
and understandings, oral and written, between the parties hereto with respect to
the subject matter hereof.
(c) Binding Effect; Benefit. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied is intended to confer on any person other than the parties hereto or
their respective successors and assigns (including, in the case of Sellers, any
successor or assign of Sellers as the holder of Registrable Shares), any rights,
remedies, obligations or liabilities under or by reason of this Agreement, other
than rights conferred upon indemnified persons under Section 6.
(d) Amendment and Modification. This Agreement may be
amended or modified only by an instrument in writing signed by or on behalf of
each party and any other person then a Holder. Any term or provision of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof.
(e) Section Headings. The section headings contained
in this Agreement are inserted for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
REGISTRATION STATEMENT
Page II-104
<PAGE>
(g) Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Alaska, without regard to the conflict
of laws and rules thereof.
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GENERAL COMMUNICATION, INC.
By /s/
John M. Lowber, Senior Vice
President
PRIME VENTURE I HOLDINGS, L.P.
By: Its General Partners
Prime Venture I, Inc.
By: /s/
Name:
Title:
and
Prime II Management Group, Inc.
By: /s/
Name:
Title:
PRIME CABLE GROWTH PARTNERS, L.P.
By: Its General Partners
Prime Venture I, Inc.
By: /s/
Name:
Title:
and
REGISTRATION STATEMENT
Page II-105
<PAGE>
Prime Venture I Holdings, L.P.
By: Its General Partners
Prime Venture I, Inc.
By: /s/
Name:
Title:
and
Prime II Management Group, Inc.
By: /s/
Name:
Title:
PRIME CABLE LIMITED PARTNERSHIP
By: Prime Cable, G.P., Inc.
Its: General Partner
By: /s/
Name:
Title:
BANCBOSTON CAPITAL, INC.
By: /s/
Name:
Title:
FIRST CHICAGO INVESTMENT
CORPORATION
By: /s/
Name:
Title:
REGISTRATION STATEMENT
Page II-106
<PAGE>
MADISON DEARBORN PARTNERS
By: /s/
Name:
Title:
PRIME VENTURE II, L.P.
By: Prime Investors, L.P.
Its: General Partner
By: Prime II Management, L.P.
Its: General Partner
By: Prime II Management, Inc.
Its: General Partner
By: /s/
Name:
Title:
AUSTIN VENTURES, L.P.
By: AV Partners, L.P.
Its: General Partner
By: /s/
Name:
Title:
WILLIAM BLAIR VENTURE PARTNERS III
LIMITED PARTNERSHIP
By: William Blair Venture
Management Company
Its: General Partner
By: /s/
Name:
Title: General Partner
REGISTRATION STATEMENT
Page II-107
<PAGE>
CENTENNIAL FUND II, L.P.
By: Centennial Holdings II, L.P.
Its: General Partner
By: /s/
Name:
Title: General Partner
CENTENNIAL FUND III, L.P.
By: Centennial Holdings III, L.P.
Its: General Partner
By: /s/
Name:
Title: General Partner
CENTENNIAL BUSINESS DEVELOPMENT
FUND LTD.
By: Centennial Business Development
Company
Its: General Partner
By: /s/
Name:
Title: General Partner
REGISTRATION STATEMENT
Page II-108
<PAGE>
EXHIBIT C
Voting Agreement
THIS VOTING AGREEMENT ("Agreement") is entered into effective
on the day of , 1996, by and between Prime II Management,
L.P. ("Prime"), as the designated agent for the parties named on Annex 1
attached hereto (collectively, "Prime Sellers"), MCI Telecommunications
Corporation, Ronald A. Duncan, Robert M. Walp, and TCI GCI, Inc. (Prime, as
designated agent for the Prime Sellers, "Duncan," "Walp," and "TCI GCI,"
respectively, or individually, "Party" and collectively, "Parties"), all of whom
are shareholders of General Communication, Inc., an Alaska corporation ("GCI"),
as identified in this Agreement.
WHEREAS, the Parties are as of the date of this Agreement, the
owners of the amounts of GCI's Class A and Class B common stock as set forth in
this Agreement;
WHEREAS, the Parties desire to combine their votes as
shareholders of GCI in the election of certain positions of the Board of
Directors ("Board") of GCI and specifically to vote on certain issues as set
forth in this Agreement;
WHEREAS, the Parties desire to establish their mutual rights
and obligations in regard to the Board and those certain issues to come before
the shareholders or before the Board;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained in this Agreement, the Parties agree as follows:
Section 1. Shares. The shares of GCI's Class A and Class B
common stock subject to this Agreement will consist of those shares held by each
Party as set forth in this Section 1 and any additional shares of GCI's voting
stock acquired in any manner by any one or more of the Parties ("Shares"):
(1) Prime - ( )
shares of Class A common stock;
(2) MCI - 8,251,509 Shares of Class A common
stock and 1,275,791 Shares of Class B
common stock, which total to an aggregate
of 21,009,419 votes for MCI;
(3) Duncan - 852,775 Shares of Class A common
stock and 233,708 Shares of Class B
common stock, which total to an aggregate
of 3,189,855 votes for Duncan;
REGISTRATION STATEMENT
Page II-109
<PAGE>
(4) Walp - 534,616 Shares of Class A common
stock and 301,049 Shares of Class B
common stock, which total to an aggregate
of 3,545,106 votes for Walp; and
(5) TCI GCI - 590,043 Shares of Class B
common stock, which totals to an
aggregate of 5,900,430 votes for TCI GCI.
Section 2. Voting. (a) All of the Shares will, during the term
of this Agreement, be voted as one block in the following matters:
(1) For so long as the full membership on the
Board is at least eight, the election to
the Board of individuals recommended by a
Party ("Nominees"), with the allocation
of such recommendations to be in the
following amounts and by the following
identified Parties:
(A) For recommendations from MCI,
two Nominees;
(B) For recommendations from Duncan
and Walp, one Nominee from
each;
(C) For recommendations from TCI
GCI, two Nominees; and
(D) For recommendations from Prime,
two (2) nominees, for so long
as (i) the Prime Sellers (and
their distributees who agree in
writing to be bound by the
terms of this Agreement)
collectively own at least ten
percent of the issued and
then-outstanding shares of
GCI's Class A common stock, and
(ii) that certain Management
Agreement between Prime and GCI
dated of even date herewith
("Prime Management Agreement")
is in full force and effect. If
either of these conditions are
not satisfied, then Prime shall
only be entitled to recommend
one Nominee. If neither of
these conditions are met, Prime
shall not be entitled to
recommend any Nominee at that
time;
(2) To the extent possible, to cause the full
membership of the Board to be maintained
at not less than eight members;
(3) Other matters to which the Parties
unanimously agree.
REGISTRATION STATEMENT
Page II-110
<PAGE>
(b) The Parties will abide by the classification
by the Board of a Nominee in accordance with the provisions for classification
of the Board as set forth in Article V(b) of GCI's Articles of Incorporation and
Section 2(b) of GCI's Article IV of Bylaws which classification was, as of the
date of this Agreement, for Nominees allocated to MCI as follows: one in Class I
and one in Class III, and for Nominees allocated to Prime as follows: one in
Class II and one in Class III, and for Nominees allocated to TCI GCI as follows:
one in Class II and one in Class III.
(c) The Parties understand that to insure the
election of their allocated Nominees, the Shares must constitute sufficient
voting power to cause those elections and that as new shares are issued by GCI
through the exercise of warrants and options, acquisitions by employee benefit
plans, or otherwise, the number of outstanding shares of voting common stock
will increase, making the percentage which the Shares represent of the
outstanding shares decrease.
(d) The Parties will take such action as is
necessary to cause the election to the Board of each Party's Nominee(s).
Section 3. Manner of Voting. Votes, for purposes of this
Section 3, will be as determined by written ballot upon each matter to be voted
upon. Should such a matter require shareholder action, e.g., election of
Nominees to the Board or should the Board choose to present the matter for
shareholder consent, approval or ratification, such balloting must take place so
that the results are received by GCI at its principal executive offices not less
than 120 calendar days in advance of the date of GCI's proxy statement released
to security holders in connection with the previous year's annual meeting of
security holders.
Section 4. Limitation on Voting. Except as set forth in (a) of
Section 2 of this Agreement, the Agreement will not extend to voting upon other
questions and matters on which shareholders will have the right to vote under
GCI's Articles of Incorporation, GCI's Bylaws of the Company, or the laws of the
State of Alaska.
Section 5. Term of Agreement. (a) The term of this Agreement
will be through the completion of the annual meeting of GCI's shareholders
taking place in June, 2001 or until there is only one Party to the Agreement,
whichever occurs first; provided that the Parties may extend the term of this
Agreement only upon unanimous vote and written amendment to this Agreement.
(b) Except as provided in (a) and (d) of this
Section 5, a Party (other than Prime) will be subject to this Agreement until
the Party disposes of more than 25% of the votes represented by the Party's
holdings of common stock which equates to the following (adjusted for stock
splits) for each party:
REGISTRATION STATEMENT
Page II-111
<PAGE>
1. MCI - 5,252,355 votes;
2. Duncan - 797,464 votes;
3. Walp - 886,277 votes; and
4. TCI GCI - 1,475,108 votes.
(c) Should one party dispose of an amount of its
portion of the Shares in excess of the limit as set forth in (b) of this Section
5, each other Party will have the right to withdraw and terminate that Party's
rights and obligations under this Agreement by giving written notice to the
other Parties.
(d) Anything to the contrary in this Agreement
notwithstanding each Party shall remain a Party to this Agreement with respect
to its obligation to vote (a) for Prime's Nominee(s) pursuant to Section 2(a)(1)
above, and (b) to maintain at least an eight (8) member Board pursuant to
Section 2(a)(2) above only, for so long as either (i) the Prime Sellers (and
their distributees who agree in writing to be bound by the terms of this
Agreement) collectively own at least ten percent (10%) of the issued and
then-outstanding shares of GCI's Class A common stock or (ii) the Prime
Management Agreement is in effect. Upon each request, Prime shall, within a
reasonable period of time after delivery by GCI to Prime of GCI's shareholders
list showing the number of shares of GCI common stock owned by each such
shareholder, provide GCI with its certificate, in form and substance reasonably
satisfactory to GCI, confirming the Prime Sellers' aggregate, then-current
percentage ownership of GCI Class A common stock.
Section 6. Binding Effect. The Parties will, during the term
of this Agreement, be fully subject to its provisions. There will be no
prohibition against transfer or other assignment of Shares under the terms of
this Agreement. Should a Party transfer or otherwise assign Shares, and the new
holder of those Shares will not have any rights under, nor be subject to the
terms of, this Agreement, except that any assignee which is an affiliate or
subsidiary entity of a Party shall be bound by, and have the benefits of, this
Agreement; provided, however, that anything to the contrary in the foregoing
notwithstanding, any distributee of a Prime Seller that agrees in writing to be
bound by the terms of this Agreement will have rights under and be subject to
the terms of this Agreement.
Section 7. GCI's Agreement. GCI agrees (i) to submit the
Nominees selected pursuant to Section 2(a) above in its proxy materials
delivered to GCI's shareholders in connection with each election of GCI
directors; and (ii) not to take any action inconsistent with the agreements of
the Parties set forth herein.
REGISTRATION STATEMENT
Page II-112
<PAGE>
Section 8. Notices. Notices required or otherwise given under
this Agreement will be given by hand delivery or certified mail to the following
addresses, unless otherwise changed by a Party with notice to the other Parties:
To Prime: Prime II Management, L.P.
600 Congress Avenue, Suite 3000
Austin, Texas 78701
Attn: President
With copies (which shall not constitute
notice) to:
Edens Snodgrass Nichols & Breeland, P.C.
2800 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701
ATTN: Patrick K. Breeland
To MCI: MCI Telecommunications Corporation
1133 19th Street, N.W.
Washington, D.C. 20035
ATTN: Douglas Maine, Chief Financial Officer
To Duncan: Ronald A. Duncan
President and Chief Executive Officer
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
To Walp: Robert A. Walp
Vice Chairman
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
To TCI GCI : Larry E. Romrell, President
TCI GCI, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Section 9. Performance. The Parties agree that damages are not
an adequate remedy for a breach of the terms of this Agreement. Should a Party
be in breach of a term of this Agreement, one or more of the other Parties may
seek the specific performance or injunction of that Party under the terms of
this Agreement by bringing an appropriate action in a court in Anchorage,
Alaska.
REGISTRATION STATEMENT
Page II-113
<PAGE>
Section 10. Governing Law. The terms of this Agreement will be
governed by and construed in accordance with the laws of the State of Alaska.
Section 11. Amendments. This Agreement constitutes the entire
Agreement between the Parties, and any amendment of it must be in writing and
approved by all Parties.
Section 12. Group. Prior to a Party filing a Schedule 13D or
an amendment to such a schedule pursuant to the Securities Exchange Act of 1934,
the Party will provide a written notice to each of the other Parties within five
days after the triggering event under that schedule and at least two days prior
to the filing of that schedule or amendment, as the case may be, and further
provide to any other Party any information or documentation reasonably requested
by that Party in this regard.
Section 13. Termination of Prior Agreement. This Agreement
supersedes and replaces in its entirety that certain Voting Agreement dated
effective as of March 31, 1993, by and between MCI, Duncan, Walp and TCI GCI, as
successor in interest to WestMarc Communications, Inc.
Section 14. Severability. If a court of competent jurisdiction
finds any portion of this Agreement invalid or not enforceable, this Agreement
shall be automatically reformed to carry out the intent of the Parties as nearly
as possible without regard to the portion so invalidated. If this entire
Agreement is determined to be limited in duration by a court of competent
jurisdiction, the Parties agree to enter into a new Agreement which carries
forward the intent of the Parties upon such termination.
IN WITNESS WHEREOF, the Parties set their hands to this
Agreement, effective on the first date above written.
PRIME II MANAGEMENT, L.P.
By Prime II Management, Inc.
Its General Partner
By /s/
Name:
Its:
MCI TELECOMMUNICATIONS
CORPORATION
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-114
<PAGE>
/s/
RONALD A. DUNCAN
/s/
ROBERT M. WALP
TCI GCI, INC.
By /s/
Name:
Its:
GENERAL COMMUNICATION, INC.
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-115
<PAGE>
EXHIBIT D
Management Agreement
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and
entered into as of , 1996, by and between Prime II
Management, L.P., a Delaware limited partnership ("Prime"), and General
Communication, Inc., an Alaska corporation ("GCI").
RECITALS
WHEREAS, GCI has, effective on the date hereof, consummated
the acquisition of the ownership interests in Prime Cable of Alaska, L.P.
("Company"), which Company operates certain cable television systems servicing
the Municipality of Anchorage and its environs, Eagle River, Chugiak, Fort
Richardson, Elmendorf Air Force Base, the City of Bethel and its environs, and
the City of Kenai and the Kenai Peninsula Borough, all in the State of Alaska
(the "Alaska System"); and
WHEREAS, Prime is experienced in the operation and management
of cable television systems such as the Alaska System; and
WHEREAS, GCI desires to retain the services of Prime in
connection with the management and operation of the Alaska System and, if
acquired, the Alaska cable television businesses and systems currently owned,
directly or indirectly, by (i) Jack Kent Cooke Incorporated, (ii) Alaska
Cablevision, Inc., (iii) McCaw/Rock Homer Cable System and (iv) McCaw/Rock
Seward Cable System (collectively, the "Systems");
NOW, THEREFORE, for and in consideration of the foregoing and
the mutual covenants as herein set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the execution and delivery hereof, the parties hereto agree as follows:
AGREEMENT
Section 1. Engagement. GCI hereby engages Prime to oversee,
manage and supervise the Systems' development and operation, and Prime hereby
accepts such engagement, subject to and upon the terms and conditions set forth
herein.
Section 2. Management Standards. Prime shall use reasonable
commercial efforts in managing, promoting and supervising the Systems and in
supervising any persons or entities employed in connection therewith. In
performing its obligations hereunder, Prime shall be held to that standard of
care as would be exercised by an ordinary prudent multiple systems operator of
cable television systems operating such systems on its own behalf and under
similar circumstances.
REGISTRATION STATEMENT
Page II-116
<PAGE>
Section 3. Term. The term of this Agreement shall commence
upon the date hereof, and shall continue in effect for a period of nine (9)
years hereafter, unless earlier terminated as provided in Section 9 hereof.
Section 4. Duties and Authority of Prime. Prime shall provide,
or cause the employees of the Systems to provide, the following services for the
account of, and on GCI's behalf, and shall have the following power and
authority with respect to the operation and management of the Systems during the
term of this Agreement:
(a) Engineering services for the Systems;
(b) Coordination and supervision of all phases of the
construction and expansion of the Systems, if any, including,
by way of illustration and not in limitation, the selection
and appointment of all subcontractors, equipment suppliers and
vendors;
(c) Purchasing, out of the Systems' funds available
therefore, certain materials and supplies, if any, necessary
to operate the Systems;
(d) Subject to the provisions of all applicable
certificates of public convenience and necessity, franchises
or ordinances or other binding contracts or legislation, the
selection and pricing of all programming and services to be
provided to the customers of the Systems with authority hereby
conferred on Prime to enter into programming contracts in its
name, or otherwise, on behalf of the Company;
(e) Assistance with the formulation and
implementation of all advertising, marketing and sales
programs;
(f) Assistance with budgeting;
(g) Maintenance of all accounting, bookkeeping,
billing, collections and other financial systems and records
relating to the Systems and the preparation of appropriate
periodic financial reports and other information for the
Systems and those required to be furnished to the lenders to
the Systems;
(h) Engaging engineers, consultants and other
qualified professionals, as required, for the Systems;
(i) Preparing and filing, or causing to be prepared
and filed, as necessary, periodic reports to governmental and
regulatory agencies;
REGISTRATION STATEMENT
Page II-117
<PAGE>
(j) Maintenance of ancillary records relative to the
Systems' operation;
(k) Preparation of business plans, financial
projections for the Systems and the evaluation of capital
expenditures proposals; and
(l) Make available, at the usual and customary
allocated costs to Company in accordance with past practices,
to GCI and Company those Other Required Assets listed on
Schedule 15 to the Securities Purchase and Sale Agreement
dated May 2, 1996, between GCI and the listed Sellers, as
items B, C, D, F and G, as necessary to operate the Systems.
Nothing in this Agreement shall be construed to diminish the
rights and authority of the entities owning the Systems to retain ultimate
control over the operation of any and all Federal Communications Commission
licensed facilities used in conjunction with the operation of the Systems.
During the term of this Agreement, GCI and Prime anticipate that Prime shall
fully coordinate and cooperate with GCI during a transistioning of the
above-listed responsibilities from Prime to GCI, upon mutually convenient times
and methodologies; provided, that Prime shall at all times while this Agreement
is in effect make all decisions regarding the programming for the Systems.
Section 5. Systems Operating Accounts. Prime shall establish
and maintain with one or more banks reasonably acceptable to GCI one or more
checking accounts ("Systems Operating Accounts") for the deposit of all funds
collected by the Systems. Prime shall have the right and authority to make
deposits to and withdrawals from the Systems Operating Accounts and to make
payment therefrom for the discharge of Prime's responsibilities and duties under
this Agreement, including the regular recurring operating expenses of the
Systems, and to make payment to Prime of its fees earned under this Agreement.
In no event shall Prime be responsible for the payment from its own funds of any
sums pursuant to this Agreement or otherwise in connection with the performance
of its services hereunder. Prime may disburse or have disbursed from the Systems
Operating Accounts the regular recurring operating expenses of the Systems, as
well as extraordinary expenses, including by way of illustration and not in
limitation, (i) salaries, withholding taxes, unemployment insurance
contributions and other similar fees, expenses and taxes relating to employees
of Prime or of the Systems engaged in the construction, expansion, management
and operation of the Systems, (ii) expenses (including fees charged by
professionals) incurred in the collection of revenue or in any other manner
connected with the construction, operation, maintenance and repair of the
Systems, (iii) costs of construction, operation and maintenance of the Systems
and the components thereof, and (iv) costs of all materials, equipment, tools,
supplies and services necessary for proper operation, maintenance and repair of
the Systems.
REGISTRATION STATEMENT
Page II-118
<PAGE>
Section 6. Management Fee. For as long as this Agreement is in
effect, GCI shall pay to Prime a management fee (the "Management Fee") on an
annualized basis in the following amounts:
Year One $1,000,000.00
Year Two $ 750,000.00
Thereafter $ 500,000.00
Such Management Fee shall be paid in equal monthly installments on the last day
of each month.
Any portion of the Management Fee which shall be past due as a
result of the operation of Section 7.7 of that certain Amended and Restated
Company Loan Agreement dated March 7, 1996, as amended from time to time, among
Company, the banks named therein (the "PCOA Banks"), Toronto Dominion (Texas),
Inc. ("TD Bank"), Credit Lyonnais Cayman Island Branch, The Chase Manhattan
Bank, N.A. and NationsBank of Texas, N.A., as managing agents (the "Managing
Agents"), and TD Bank, as administrative agent for the Managing Agents and the
PCOA Banks (the "Administrative Agent") whereby Prime has agreed to defer its
right to receive a portion of the payments due hereunder, or otherwise, shall
bear interest at a rate per annum equal to seventeen and one-half percent
(17.5%) until paid. Prime may deduct the Management Fee and such other amounts
to which it may be entitled hereunder from funds on hand in the Systems
Operating Accounts. The Management Fee described in this Section is intended to
be a net fee payable to Prime and any costs, expenses, salaries, insurance
premiums, fees of professionals, utilities and other expenses whatsoever
incurred by Prime shall be treated as operating expenses of the Systems which
Prime may deduct, on a monthly basis, from the Systems Operating Accounts,
including, without limitation, travel and entertainment expenses reasonably
incurred by Prime in connection with trips by Prime employees on visits to and
from the Systems. It is not anticipated that such travel and entertainment
expenses shall exceed Two Hundred Thousand Dollars ($200,000.00) on an
annualized basis. The foregoing notwithstanding, Prime shall only be reimbursed
for administrative salaries of Prime employees who in the proper operation of
any of the Systems are required to fill, on a temporary basis, a position
normally held by an employee of one of the Systems who has resigned, been
terminated, died, become disabled or taken a vacation or leave of absence, and
any such reimbursement shall be at the lower of (i) Prime's actual cost or (ii)
the cost of obtaining comparable administrative services from independent
parties in the same geographic location. All rebates, discounts or commissions
collected by Prime or credited to Prime's use relating to the purchasing of
supplies or the rendering of services for the Systems shall be credited to the
Systems Operating Accounts.
Section 7. Indemnification by Prime. Prime shall indemnify the
Company and GCI and such parties' officers, directors and controlling persons
and hold them harmless from any and all claims, damages, liabilities, costs and
expenses
REGISTRATION STATEMENT
Page II-119
<PAGE>
(including reasonable attorneys' fees and court costs) incurred by reason of the
performance of Prime's duties hereunder, to the extent that such claims,
damages, liabilities, costs and expenses are due to the proven fraud, gross
negligence, willful misconduct of, or violation of this Agreement by Prime,
provided that, such indemnification shall extend only to actual claims, damages,
liabilities, costs and expense and shall not extend in the case of the Company
or GCI or their officers, directors and controlling persons, to losses or
damages constituting diminution in value of any investment in GCI, the System or
the Company.
Section 8. Indemnification by GCI. GCI shall indemnify Prime,
and its partners and their respective officers, directors, employees (to the
extent that such officers and employees have been selected by Prime with
reasonable care and have been subject to the reasonable supervision of Prime),
owners and control persons (individually, an "Indemnitee") and their
representatives and hold them harmless from any and all claims, damages,
liabilities, costs and expenses (including reasonable attorneys', accountants'
and other experts' fees and court costs) which they may incur by reason of the
performance of Prime's duties hereunder if the Indemnitee acted in good faith
and in a manner it reasonably believed to be in the Systems' best interests, and
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, except where such claims, damages, liabilities, costs and
expenses are due to the proven fraud, gross negligence or willful misconduct of
such Indemnitee.
Section 9. Termination. This Agreement shall terminate:
(i) with respect to any cable television
system owned by the Company prior to the term specified in Section 3 hereof upon
the termination or revocation of the Company's cable television certificate of
public convenience and necessity or franchise for such cable television system;
(ii) upon the sale of all or
substantially all of the assets of the Systems or the sale of all of the equity
interests of the owner of the Systems;
(iii) upon Prime's material breach of
this Agreement and failure to cure same or commence cure within thirty (30) days
after Prime's receipt of notice from GCI;
(iv) upon GCI's material breach of this
Agreement and failure to cure same or commence cure (if curable) within thirty
(30) days after GCI's receipt of notice from Prime; or
(v) after the second anniversary from
the date of this Agreement, at the option of either Prime or GCI.
REGISTRATION STATEMENT
Page II-120
<PAGE>
If either GCI or Prime shall voluntarily or involuntarily
enter into a bankruptcy or other insolvency proceeding or if either party files
any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief from creditors under
any present or future statute, law, or regulation of any jurisdiction, or should
either party petition or apply to any tribunal for the appointment of any
receiver or any trustee for it or for all or any substantial part of its
property, or if there is commenced against either party any such proceeding
which shall remain undischarged for a period of 60 days or more, or either party
shall seek, approve, consent to or acquiesce in any such proceeding or in the
appointment of any trustee, receiver, liquidator or fiscal agent for the
respective party or for all or any substantial part of such party's property or
should any event occur requiring the dissolution or liquidation of either party
or should any judgment be entered requiring such dissolution or liquidation and
not be set aside or stayed within thirty (30) days after the entry thereof,
then, in any such event, the other party may terminate this Agreement at its
sole option and discretion by giving the other party at least thirty (30) days'
written notice of such termination, which notice must be given within sixty (60)
days after the date such terminating party receives notice of the occurrence
giving rise to the option to terminate. Upon termination of this Agreement (i)
all records in the possession of Prime relating to the maintenance and operation
of the Systems together with all supplies and other items of property owned by
the Systems and in Prime's possession shall be delivered to GCI within thirty
(30) days of such written termination notice, and (ii) Prime's right to
compensation shall cease as of the date of termination, provided that Section 8
hereof providing indemnification to Prime shall remain in effect, and Prime
shall be entitled to be fully compensated for services rendered and expenses
incurred prior to the date of termination.
Section 10. Miscellaneous Provisions.
(a) Assignment. Prime shall be entitled to (i) assign as
collateral its right to receive compensation hereunder, and (ii) assign its
rights and obligations hereunder to any partnership of which Prime is the
general partner and owns at least twenty-five percent (25%) of the equity
ownership thereof but may not otherwise assign this Agreement and its other
rights, duties and obligations hereunder to any person without GCI's prior
written consent. GCI may not assign any of its rights and obligations under this
Agreement to any person without Prime's prior written consent; except that GCI
may assign its rights and obligations under this Agreement to an affiliate of
GCI provided that GCI shall remain primarily liable at all times for all of its
obligations hereunder irrespective of any such assignment.
(b) Successors Bound. Subject to the provisions of paragraph
10(a) immediately above, this Agreement shall be binding upon and insure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
REGISTRATION STATEMENT
Page II-121
<PAGE>
(c) Section Headings. The section headings in this Agreement
are for reference purposes only and shall not affect the interpretation of this
Agreement.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
memoranda, arrangements and understandings relating to the subject matter
hereof. No representation, warranty, promise, inducement or statement of
intention with respect to the subject matter hereof has been made by any party
which is not contained in this Agreement, and no party shall be bound by, or be
liable for, any alleged representation, promise, inducement or statement of
intention not contained herein.
(e) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws, and not the law of conflicts,
of the State of Alaska. Any legal proceedings concerning this Agreement shall be
brought and maintained in the Third Judicial District, State of Alaska, at
Anchorage.
(g) Severability. If any provision of this Agreement or the
application thereof to any person, entity or circumstance shall for any reason
or to any extent be invalid or unenforceable, the remainder of this Agreement
and the application of such provision to other persons, entities or
circumstances shall not be affected thereby, but, rather, shall be enforced to
the extent consistent with the intent of the parties hereto and permitted by
law. Furthermore, in lieu of such an illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid or enforceable.
(h) Attorneys' Fees. If any action, including, without
limitation, arbitration, should arise among the parties hereto under this
Agreement, the prevailing party in such action shall be reimbursed for all
reasonable expenses incurred in connection with such action, including
reasonable attorneys', accountants', and other experts' fees.
(i) Pronouns and Number. Whenever the context so requires, the
masculine shall include the feminine and neuter, and the singular shall include
the plural, and conversely.
(j) Further Assurances. The parties hereto agree to execute
any and all such further agreements, instruments or documents, and to take any
and all such further action, as may be necessary or desirable to carry into
effect the purpose and intent of this Agreement.
REGISTRATION STATEMENT
Page II-122
<PAGE>
(k) Amendments; Waivers. This Agreement cannot be changed or
terminated orally and no waiver of compliance with any provision or condition
hereof and no consent provided for herein shall be effective unless evidenced by
an instrument in writing duly executed by the party hereto sought to be charged
with such waiver or consent. No waiver of any term or provision hereof shall be
construed as a further or continuing waiver of such term or provision or any
other term or provision.
IN WITNESS HEREOF, the parties have set their hands effective
as of the date first written
above.
PRIME II MANAGEMENT, L.P.
By Prime II Management, Inc.
Its General Partner
By: /s/
Name:
Its: Vice President
GENERAL COMMUNICATION, INC.
By: /s/
John M. Lowber,
Senior Vice President
REGISTRATION STATEMENT
Page II-123
<PAGE>
EXHIBIT E
Non-Compete Agreement
, 1996
Gentlemen:
Reference is made to that certain Securities Purchase and Sale
Agreement dated as of April , 1996, (the "Agreement") between Prime
Venture I Holdings, L.P. ("Holdings"), Prime Cable Growth Partners, L.P.
("Growth"), Prime Cable Limited Partnership ("Prime L.P."), the other sellers
named therein ("Sellers"), Prime II Management, L.P. ("PIIM"), and General
Communication, Inc. ("Buyer"). This letter is being delivered to you pursuant to
Section 16 of the Agreement. Capitalized terms used herein, unless otherwise
defined herein, shall have the meanings ascribed to them in the Agreement.
Growth, Holdings, PCLP and PIIM agree that for a period of two
(2) years after the termination of that Management Agreement between PIIM and
GCI of even date it will not, and PIIM will cause its key employees for so long
as such employees are employed by PIIM, not to, directly or indirectly, own,
manage, operate, control, participate or become interested in, or be connected
with (as an employee, consultant, partner, officer, director, shareholder or
investor, other than through ownership of up to a twenty-five percent (25%)
equity interest in any person or entity), any business competing with Company in
the provision of cable television services within the Service Areas.
If the terms or provisions of this Non-Compete Agreement are
breached or threatened to be breached, PIIM, Growth, Holdings and Prime L.P.,
each for and on behalf of itself and its Affiliates, employees, officers,
directors and shareholders, expressly consent that, in addition to any other
remedy Buyer may have, Buyer may apply to any court of competent jurisdiction
for injunctive relief in order to prevent the continuation of any existing
breach or the occurrence of any threatened breach.
If any provision of this Non-Compete Agreement is determined
to be unreasonable or unenforceable, such provision and the remainder of this
Non-Compete Agreement shall not be declared invalid, but rather shall be
modified and enforced to the maximum extent permitted by law.
REGISTRATION STATEMENT
Page II-124
<PAGE>
Buyer may not assign any of its rights under this Agreement to
any person without the prior written consent of the parties hereto; except that
Buyer may assign its rights under this Agreement to an affiliate of Buyer.
Very truly yours,
PRIME CABLE GROWTH PARTNERS, L.P.
By Its General Partners
Prime Venture I, Inc.
By: /s/
Name:
Its:
and
Prime Venture I Holdings, L.P.
By: Its General Partners
Prime Venture I, Inc.
By: /s/
Name:
Its:
and
Prime II Management Group, Inc.
By: /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-125
<PAGE>
PRIME VENTURE I HOLDINGS. L.P.
By Its General Partners
Prime Venture I Holdings, L.P.
By: /s/
Name:
Its:
and
Prime II Management Group, Inc.
By: /s/
Name:
Its:
PRIME CABLE LIMITED PARTNERSHIP
By Prime Cable G.P., Inc.
Its General Partner
By: /s/
Name:
Its:
PRIME II MANAGEMENT, L.P.
By Prime II Management, Inc.
Its General Partner
By: /s/
Name:
Its:
ACCEPTED AND AGREED:
General Communication, Inc.
By: /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-126
<PAGE>
EXHIBIT 2.1, Schedule 1A
<TABLE>
<CAPTION>
Sellers'
Total Indemnity Non-Indemnity
Sellers Shares Shares Shares
- ------- ------ ------ ------
<S> <C> <C> <C>
Holdings 494,905 41,986 452,919
Growth 2,721,974 230,926 2,491,048
PCLP 2,227,071 188,938 2,038,133
BBC 332,323 74,530 257,793
FCIC 301,407 67,597 233,810
MDP 30,916 6,934 23,982
ACI --- --- ---
PVII 1,237,262 104,965 1,132,297
Holdings 742,357 62,979 679,378
AV 989,809 83,972 905,837
WBVP 1,237,262 104,965 1,132,297
CFII 247,452 20,993 226,459
CFIII 742,357 62,979 679,378
CBDF 494,905 41,986 452,919
---------- --------- ----------
11,800,000 1,093,750 10,706,250
</TABLE>
REGISTRATION STATEMENT
Page II-127
<PAGE>
ATTACHMENT A TO SCHEDULE 14
ALASKA CABLE, INC. SHAREHOLDERS
Number of
Shares Class/Series of
Name Owned Common Stock
---- ----- ------------
A. Class A Common Stock
--------------------
1. Austin Ventures, L.P. 800 Class A, Series Two
2. William Blair Venture
Partners III Limited
Partnership 1,000 Class A, Series Two
3. Centennial Fund II, L.P. 200 Class A, Series Two
4. Centennial Fund III, L.P. 600 Class A, Series Two
5. Centennial Business
Development Fund, Ltd. 400 Class A, Series Two
6. Prime Venture II, L.P. 1,000 Class A, Series One
7. Prime Venture I
Holdings, L.P. 600 Class A, Series One
-----
TOTAL 4,600
===== =====
B. Class B Common Stock
--------------------
1. Prime Venture II, L.P. 5 Class B
2. Prime Venture
I Holdings, L.P. 5 Class B
3. Prime Cable Growth
Partners, L.P. 11 Class B
-----
TOTAL
=====
REGISTRATION STATEMENT
Page II-128
<PAGE>
EXHIBIT 2.2.1
AGREEMENT AND PLAN OF MERGER
OF
ALASKA CABLE, INC.
a Delaware corporation
WITH AND INTO
GCI CABLE, INC.
an Alaska corporation
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of the day of , 1996, pursuant to Alaska Statute 10.06.562 and
Section 252 of the Delaware General Corporation Law, by and between Alaska
Cable, Inc., a Delaware corporation ("ACI"), and GCI Cable, Inc., an Alaska
corporation ("GCI Cable, Inc.").
R E C I T A L S
WHEREAS, ACI is a corporation duly organized and existing under the laws of
the State of Delaware with authorized capital consisting of 4,621 shares,
classified as (i) 4,600 shares of class A common stock, par value $.10 per share
("ACI Class A Stock"), of which 4,600 shares are issued and outstanding, and
(ii) 21 shares of class B common stock, par value $.10 per share ("ACI Class B
Stock"), of which 21 shares are issued and outstanding; and
WHEREAS, GCI Cable, Inc. is a corporation duly organized and existing under
the laws of the State of Alaska with authorized capital consisting of 1,000
shares, classified as common stock, no par value, of which 100 shares are issued
and outstanding; and
WHEREAS, the parties hereto desire that ACI be merged with and into GCI
Cable, Inc. under the Articles of Incorporation of GCI Cable, Inc. and with the
name "GCI Cable, Inc." pursuant to the terms and conditions of this Agreement;
and
WHEREAS, the Sole Director of ACI has approved and adopted this Agreement by
written consent dated as of , 1996;
WHEREAS, the stockholders of ACI have approved and adopted this Agreement by
unanimous written consent dated as of , 1996;
WHEREAS, the Directors of GCI Cable, Inc. have approved and adopted this
Agreement by unanimous written consent dated as of , 1996; and
WHEREAS, the sole stockholder of GCI Cable, Inc. has approved and adopted
this Agreement by written consent dated as of , 1996;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, GCI Cable, Inc. and ACI hereby agree as follows:
REGISTRATION STATEMENT
Page II-129
<PAGE>
A G R E E M E N T
1. Merger of ACI with and into GCI Cable, Inc.. At the Effective
Time (as defined herein), GCI Cable, Inc. and ACI hereby agree that ACI shall
merge with and into GCI Cable, Inc., and GCI Cable, Inc. shall be the surviving
corporation of such merger (the "Merger"), pursuant to the provisions of Alaska
Statute 10.06.562 and Section 252 of the Delaware General Corporation Law.
Following the Merger, the separate corporate existence of ACI shall cease, and
GCI Cable, Inc. shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence.
2. Name and Location of the Surviving Corporation. The name of the
Surviving Corporation shall be and remain "GCI Cable, Inc." The established
offices and business locations of both GCI Cable, Inc. and ACI, if any, shall be
the offices and locations of the Surviving Corporation.
3. Certificate of Incorporation and Bylaws. At the Effective Time,
the Articles of Incorporation and the Bylaws (as then constituted) of GCI Cable,
Inc. shall be and remain the Articles of Incorporation and Bylaws of the
Surviving Corporation, until such Articles of Incorporation or Bylaws are
amended, altered or repealed as provided by law.
4. Directors. At the Effective Time, the sole director of ACI, and
the directors of GCI Cable, Inc., immediately prior to the Effective Time shall
cease to be directors, the number of directors of the Surviving Corporation
shall at the Effective Time be five, and the directors of the Surviving
Corporation shall at the Effective Time be Ronald A. Duncan, Larry E. Romrell,
Donne F. Fisher, Robert M. Walp and Carter F. Page who, subject to the Bylaws of
the Surviving Corporation and the laws of the State of Alaska, shall serve until
their respective successors are elected or appointed and qualified or until such
person's earlier death, incapacity, resignation or removal.
5. Officers. At the Effective Time, the officers of ACI and GCI
Cable, Inc. immediately prior to the Effective Time shall cease to be officers,
and the officers of the Surviving Corporation shall be the following persons,
each of whom, subject to the Bylaws of the Surviving Corporation and to the laws
of the State of Alaska, shall hold office from the Effective Time until his or
her successor is duly elected or appointed and qualified or until the earlier of
his or her death, incapacity, resignation or removal:
Name Office To Be Held
---- -----------------
Ronald A. Duncan President
John M. Lowber Treasurer and Secretary
6. Effect of Merger. At the Effective Time, GCI Cable, Inc. shall
receive all of the property, rights, privileges, franchises, patents,
trademarks, trade names, licenses, registrations and other assets of every kind
and description of ACI, including, without limitation, all goodwill associated
therewith, such assets shall be vested in and devolve upon GCI Cable, Inc.
without further act and deed, and GCI Cable, Inc. shall assume all the
liabilities of every kind and description of ACI.
7. Conversion of Shares and Other Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of GCI Cable, Inc.,
ACI or the holder of any of the shares and other securities of GCI Cable, Inc.
or ACI, the following will occur:
(a) Each share of GCI Cable, Inc. Common Stock issued
and outstanding immediately prior to the Effective Time, shall
remain one share of GCI Cable, Inc. Common Stock.
REGISTRATION STATEMENT
Page II-130
<PAGE>
(b) Each share of ACI Class A Stock issued and
outstanding immediately prior to the Effective Time, shall be
converted into 1,237.261739 shares of Class A Common Stock, no
par value ("GCI Class A Common Stock"), of General
Communication, Inc., an Alaska corporation and the owner of
all of the issued and outstanding capital stock of GCI Cable,
Inc., at the Effective Time. Each share of ACI Class B Stock
issued and outstanding immediately prior to the Effective
Time, shall be exchanged for cash in the amount of $1.00 per
share at the Effective Time. The transfer books of ACI shall
be closed and no transfer of ACI Class A Stock or ACI Class B
Stock shall be made at or after the Effective Time.
8. Effective Time. The Merger shall become effective on the date
that (i) a Certificate of Merger shall have been filed with the Secretary of
State of the State of Delaware in accordance with Section 252 of the General
Corporation Law of the State of Delaware (the "Effective Time"), and (ii)
Articles of Merger shall have been filed with the Commissioner of the Department
of Commerce of the State of Alaska in accordance with Alaska Statute 10.06.552.
9. Condition to Effectiveness. Unless otherwise agreed by GCI Cable,
Inc., it shall be a condition precedent to the obligation of GCI Cable, Inc. to
consummate the Merger that all of the stockholders of ACI shall have given their
consent to the Merger, such that no stockholder of ACI will have appraisal
rights under Section 262 of the General Corporation Law of the State of Delaware
as a result of or with respect to the Merger.
10. ACI Dividend. ACI and GCI Cable, Inc. acknowledge and agree that
ACI shall, immediately prior to the Effective Time, be entitled to declare and
pay to its stockholders a dividend consisting of all cash on hand and any tax
refund receivables held by ACI immediately prior to the Effective Time. GCI
Cable, Inc. agrees that in the event that any such tax refund receivable is
actually paid to ACI or GCI Cable, Inc. after the, Effective Time, GCI Cable,
Inc. will promptly remit the same to the stockholders of ACI as of the Effective
Time as their respective interests appear as set forth in the Purchase Agreement
(as that term is defined in Section 14 below).
11. ACI's Liabilities. ACI has no known liabilities, obligations or
commitments of any kind, other than those liabilities disclosed in writing to
GCI Cable, Inc. by ACI. Prior to the Effective Time, ACI will pay or discharge
all of ACI's known liabilities, obligations and commitments. ACI and GCI Cable,
Inc. agree that a breach of ACI's representations and covenants in this Section
11 shall be deemed to be a breach under Section 3.27 of the Purchase Agreement,
which shall be subject to the provisions of Sections 17.1 through 17.7 of the
Purchase Agreement; provided, however, that anything in Sections 17.1 through
17.7 of the Purchase Agreement notwithstanding, GCI Cable, Inc.'s sole recourse
with respect to any such breach by ACI shall (i) be limited to those shares of
GCI Class A Common Stock which are deposited into the Escrow Holdback (as that
term is defined in Section 2.3 of the Purchase Agreement) by the stockholders of
ACI as a portion of the Sellers' Indemnity Shares (as that term is defined in
Section 2.3 of the Purchase Agreement), and (ii) be pro rata among the
stockholders of ACI.
12. Termination. This Agreement may be terminated and abandoned by
decision of the Board of Directors of any corporation that is a party hereto,
notwithstanding approval of this Agreement by the stockholders of all or any of
the corporations that are parties hereto, at any time prior to the Effective
Time. In the event of the termination and abandonment of this Agreement, this
Agreement shall become void and have no effect, without any liability on the
part of the party or parties electing so to terminate, or their respective
directors, officers or stockholders in respect of this Agreement, except for
liability of the parties for their respective expenses.
13. Amendment or Modification. This Agreement may be amended or
modified at any time prior to the Effective Time, provided, however, that any
amendment or modification subsequent to the
REGISTRATION STATEMENT
Page II-131
<PAGE>
adoption of this Agreement by the stockholders of any corporation that is a
party hereto and who are entitled to vote thereon may not alter or change:
(a) the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series
thereof of such corporation, except as approved by such
stockholders of each of the corporations that are parties
hereto;
(b) any term of the Articles of Incorporation of GCI
Cable, Inc. except as approved by such stockholders of each of
the corporations that are parties hereto; or
(c) any of the terms or conditions of this Agreement
if such alteration or change would adversely affect the
holders of any class or series thereof of such corporation,
except as approved by the holders of the class or series so
affected.
14. Agreement of Parties. This Agreement is subject to the terms and
provisions of that certain Securities Purchase and Sale Agreement dated May 2,
1996 (the "Purchase Agreement") by and among General Communication, Inc., the
stockholders of ACI, et al., and in the event of any conflict between the terms
of this Agreement and the terms and provisions of the Purchase Agreement, the
terms and provisions of the Purchase Agreement shall govern and control.
15. Further Assurances. Each party hereto agrees from time to time,
as and when requested by the other party hereto, or by its successors or
assigns, to execute and deliver, or cause to be executed and delivered, all such
deeds and instruments and to take or cause to be taken such further or other
acts, either before or after the Effective Time, as may be deemed necessary or
desirable in order to vest in and confirm to the Surviving Corporation title to
and possession of any assets of ACI acquired or to be acquired by reason of or
as a result of the Merger and otherwise to carry out the intent and purposes
hereof, and the officers and directors of the parties hereto are fully
authorized in the name of their respective corporations to take any and all such
actions.
16. Headings; Gender; Plurals. All sections and articles referred to
herein are sections and articles of this Agreement. Descriptive headings as to
the contents of particular articles and sections are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement. Each use herein of the masculine, neuter or feminine gender shall be
deemed to include the other genders and each use herein of the plural shall
include the singular and vice versa, in each case as the context requires or as
is otherwise appropriate.
17. Severability. In the event that any provision of this Agreement
is held to be illegal, invalid or unenforceable under present or future laws,
then (i) such provision shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
were not a part hereof; (ii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by such illegal,
invalid or unenforceable provision or by its severance from this Agreement; and
(iii) there shall be added automatically as a part of this Agreement a provision
as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and still be legal, valid and enforceable.
18. Multiple Counterparts. For the convenience of the parties hereto
and to facilitate the filing and recording of this Agreement, this Agreement may
be executed in multiple counterparts, each of which shall be deemed an original,
and all counterparts hereof so executed by the parties hereto, whether or not
such counterpart shall bear the execution of each of the parties hereto, shall
be deemed to be, and shall be construed as, one and the same Agreement.
REGISTRATION STATEMENT
Page II-132
<PAGE>
19. Consents. The parties hereto acknowledge that the Merger is
subject to the obtaining of applicable consent of Alaska Public Utilities
Commission and of the Federal Communications Commission, and that such consents
have been obtained.
** The remainder of this page intentionally left blank. **
IN WITNESS WHEREOF, GCI Cable, Inc. and ACI have caused this Agreement to be
signed in their respective corporate names as of the date and year first above
written.
/s/
ALASKA CABLE, INC.
ATTEST: (A Delaware corporation)
By: By:
Its: Its:
/s/
GCI CABLE, INC.
(An Alaska corporation)
ATTEST:
By: By:
Its: Its:
REGISTRATION STATEMENT
Page II-133
<PAGE>
EXHIBIT 2.2.2
CERTIFICATE OF MERGER MERGING
ALASKA CABLE, INC.
INTO GCI CABLE, INC.
Pursuant to the provisions of Section 251(c) of the General Corporation Law
of the State of Delaware and Alaska Statute 10.06.552, Alaska Cable, Inc., a
corporation organized and existing under the laws of the State of Delaware, and
GCI Cable, Inc., a corporation organized and existing under the laws of the
State of Alaska, do hereby certify that:
1. GCI Cable, Inc. is the surviving corporation of a merger between Alaska
Cable, Inc., a Delaware corporation, and GCI Cable, Inc., an Alaska corporation.
2. An Agreement and Plan of Merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with (i) Subsection 251(c) of the General Corporation Law of the State of
Delaware in the case of Alaska Cable, Inc., and (ii) Alaska Statute 10.06.544 in
the case of GCI Cable, Inc., the surviving corporation.
3. The name of the surviving corporation is "GCI Cable, Inc.," an Alaska
corporation.
4. The Articles of Incorporation of GCI Cable, Inc., the surviving
corporation, shall be its Articles of Incorporation.
5. The executed Agreement and Plan of Merger is on file at the principal
place of business of GCI Cable, Inc., which is 2550 Denali Street, Suite 1000,
Anchorage, Alaska 99503.
6. A copy of the Agreement and Plan of Merger will be furnished by GCI Cable,
Inc., the surviving corporation, on request and without cost, to any stockholder
of Alaska Cable, Inc. or GCI Cable, Inc.
7. GCI Cable, Inc., the surviving corporation, hereby (i) agrees that it may
be served with process in the State of Delaware in any proceeding for
enforcement of any obligation of Alaska Cable, Inc., as well as for enforcement
of any obligation of GCI Cable, Inc., the surviving corporation, including any
suit or other proceeding to enforce the right of any stockholders as determined
in appraisal proceedings pursuant to section 262 of the Delaware General
Corporation Law, and (ii) irrevocably appoints the Secretary of State of the
State of Delaware as its agent to accept service of process in any such suit or
other proceedings at the address set forth in paragraph 5 above, to which a copy
of such process shall be mailed by the Secretary of State of the State of
Delaware to GCI Cable, Inc.
8. To facilitate execution, this Certificate of Merger may be executed in any
number of counterparts as may be convenient or necessary, and it shall not be
necessary that the signatures of all parties hereto or thereto be contained on
any one counterpart hereof or thereof. Additionally, the parties hereto agree
that for purposes of facilitating the execution of the Certificate of Merger (a)
the signature pages taken from separate individually executed counterparts of
this Certificate of Merger may be combined to form multiple fully executed
counterparts and (b) a facsimile transmission shall be deemed to be an original
signature. All executed counterparts of this Certificate of Merger shall be
deemed to be originals, but all such counterparts taken together or
collectively, as the case may be, shall constitute one and the same Certificate
of Merger.
REGISTRATION STATEMENT
Page II-134
<PAGE>
IN WITNESS WHEREOF, this Certificate of Merger has been duly adopted by the
constituent corporations in accordance with the provisions of Alaska Statute
10.06.530 et seq. and the Delaware General Corporation, approval has been given
to such adoption by the holders of not less than the minimum number of votes
necessary for such adoption in accordance with Alaska Statute 10.06.544 and
Section 228 of the Delaware General Corporation Law, and written notice has been
given as provided in said Section 228, and this Certificate of Merger has been
executed as of the day of , 1996.
ALASKA CABLE, INC.
(A Delaware corporation)
By: /s/
Its:
ATTEST:
By: /s/
Its:
GCI CABLE, INC.
(A Delaware corporation)
By: /s/
Its:
ATTEST:
By: /s/
Its:
REGISTRATION STATEMENT
Page II-135
<PAGE>
EXHIBIT 2.2.3
ARTICLES OF
Merger
Between
GCI CABLE, INC.
and
ALASKA CABLE, INC.
The undersigned corporations, pursuant to Sections 10.06.550 and 10.06.562 of
the Alaska Corporation Code, hereby execute the following Articles of Merger:
FIRST: The names of the corporations proposing to merge and the names of the
states under the laws of which such corporations are organized are as follows:
Name of Corporation State of Incorporation
------------------- ----------------------
GCI Cable, Inc. Alaska
Alaska Cable, Inc. Delaware
SECOND: GCI Cable, Inc., an Alaska corporation, and the surviving corporation
in the merger, is complying with Chapter 06 of the Alaska Corporations Code with
respect to the merger of domestic corporations.
THIRD: The laws of the State of Delaware, the state under which Alaska Cable,
Inc., the merged corporation in the merger is organized, permit such merger and
Alaska Cable, Inc. is complying with those laws in effecting the merger.
FOURTH: The surviving corporation, GCI Cable, Inc., is to be governed by the
laws of the State of Alaska.
FIFTH: The plan of merger is as set forth on Exhibit A attached hereto.
SIXTH: The number of shares outstanding of each corporation which is a party
to the merger is as follows:
Name of Corporation No. of Shares Outstanding
------------------- -------------------------
GCI Cable, Inc. 100
Alaska Cable, Inc. 4,621
SEVENTH: The number of shares outstanding of each corporation which is a
party to the merger voted for and against the plan are as follows:
REGISTRATION STATEMENT
Page II-136
<PAGE>
No. of Shares Voted No. of Shares Voted
Name of Corporation in Favor of Plan Against Plan
------------------- ---------------- ------------
GCI Cable, Inc. 100 -0-
Alaska Cable, Inc. 4,621 -0-
EIGHTH: The plan of merger was adopted by resolution of the Board of
Directors of Alaska Cable, Inc., the merged corporation, on the day of
, 1996, and was adopted by resolution of the Board of Directors of GCI
Cable, Inc., the surviving corporation, on the day of , 1996.
NINTH: The effective date of the merger is of , 1996.
TENTH: To facilitate execution, these Articles of Merger may be executed in
any number of counterparts as may be convenient or necessary, and it shall not
be necessary that the signatures of all parties hereto or thereto be contained
on any one counterpart hereof or thereof. Additionally, the parties hereto agree
that for purposes of facilitating the execution of these Articles of Merger (a)
the signature pages taken from separate individually executed counterparts of
these Articles of Merger may be combined to form multiple fully executed
counterparts and (b) a facsimile transmission shall be deemed to be an original
signature. All executed counterparts of these Articles of Merger shall be deemed
to be originals, but all such counterpart taken together or collectively, as the
case may be, shall constitute one and the same Articles of Merger.
Signed this day of ,1996.
MERGED CORPORATION:
Alaska Cable, Inc.
(A Delaware corporation)
By:
Name:
Title:
ATTEST:
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-137
<PAGE>
SURVIVING CORPORATION:
GCI Cable, Inc.
(An Alaska corporation)
By:
Its:
ATTEST:
By:
Name:
Title:
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
The foregoing instrument was acknowledged before me this day of
, 1996, by ,
of Alaska Cable, Inc., the merged corporation, on behalf of the
merged corporation.
My commission expires .
STATE OF ALASKA )
)
ANCHORAGE RECORDING DISTRICT )
The foregoing instrument was acknowledged before me this day of
, 1996, by ,
of GCI Cable, Inc., the surviving corporation, on behalf of
the surviving corporation.
My commission expires .
REGISTRATION STATEMENT
Page II-138
<PAGE>
EXHIBIT 2.3.1
AGREEMENT AND PLAN OF MERGER
OF
PRIME CABLE FUND I, INC.
a Delaware corporation
WITH AND INTO
GCI CABLE, INC.
an Alaska corporation
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of the day of , 1996, pursuant to Alaska Statute 10.06.562 and
Section 252 of the Delaware General Corporation Law, by and between Prime Cable
Fund I, Inc., a Delaware corporation ("PCFI"), and GCI Cable, Inc., an Alaska
corporation ("GCI Cable, Inc.").
R E C I T A L S
WHEREAS, PCFI is a corporation duly organized and existing under the laws of
the State of Delaware with authorized capital consisting of 1,000 shares,
classified as common stock, par value $.50 per share ("PCFI Class A Stock"), of
which 1,000 shares are issued and outstanding,
WHEREAS, GCI Cable, Inc. is a corporation duly organized and existing under
the laws of the State of Alaska with authorized capital consisting of 1,000
shares, classified as common stock, no par value, of which 100 shares are issued
and outstanding; and
WHEREAS, the parties hereto desire that PCFI be merged with and into GCI
Cable, Inc. under the Articles of Incorporation of GCI Cable, Inc. and with the
name "GCI Cable, Inc." pursuant to the terms and conditions of this Agreement;
and
WHEREAS, the Directors of PCFI have approved and adopted this Agreement by
written consent dated as of , 1996;
WHEREAS, the sole stockholder of PCFI has approved and adopted this Agreement
by unanimous written consent dated as of , 1996;
WHEREAS, the Directors of GCI Cable, Inc. have approved and adopted this
Agreement by written consent dated as of , 1996; and
WHEREAS, the sole stockholder of GCI Cable, Inc. has approved and adopted
this Agreement by written consent dated as of , 1996;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, GCI Cable, Inc. and PCFI hereby agree as follows:
REGISTRATION STATEMENT
Page II-139
<PAGE>
A G R E E M E N T
1. Merger of PCFI with and into GCI Cable, Inc.. At the Effective Time (as
defined herein), GCI Cable, Inc. and PCFI hereby agree that PCFI shall merge
with and into GCI Cable, Inc., and GCI Cable, Inc. shall be the surviving
corporation of such merger (the "Merger"), pursuant to the provisions of Alaska
Statute 10.06.562 and Section 252 of the Delaware General Corporation Law.
Following the Merger, the separate corporate existence of PCFI shall cease, and
GCI Cable, Inc. shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence.
2. Name and Location of the Surviving Corporation. The name of the
Surviving Corporation shall be and remain "GCI Cable, Inc." The established
offices and business locations of both GCI Cable, Inc. and PCFI, if any, shall
be the offices and locations of the Surviving Corporation.
3. Certificate of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and the Bylaws (as then constituted) of GCI Cable,
Inc. shall be and remain the Articles of Incorporation and Bylaws of the
Surviving Corporation, until such Articles of Incorporation or Bylaws are
amended, altered or repealed as provided by law.
4. Directors. At the Effective Time, the sole director of PCFI, and the
directors of GCI Cable, Inc., immediately prior to the Effective Time shall
cease to be directors, the number of directors of the Surviving Corporation
shall at the Effective Time be five, and the directors of the Surviving
Corporation shall at the Effective Time be Ronald A. Duncan, Larry E. Romrell,
Donne F. Fisher, Robert M. Walp and Carter F. Page who, subject to the Bylaws of
the Surviving Corporation and the laws of the State of Alaska, shall serve until
their respective successors are elected or appointed and qualified or until such
person's earlier death, incapacity, resignation or removal.
5. Officers. At the Effective Time, the officers of PCFI and GCI Cable,
Inc. immediately prior to the Effective Time shall cease to be officers, and the
officers of the Surviving Corporation shall be the following persons, each of
whom, subject to the Bylaws of the Surviving Corporation and to the laws of the
State of Alaska, shall hold office from the Effective Time until his or her
successor is duly elected or appointed and qualified or until the earlier of his
or her death, incapacity, resignation or removal:
Name Office To Be Held
---- -----------------
Ronald A. Duncan President
John M. Lowber Treasurer and Secretary
6. Effect of Merger. At the Effective Time, GCI Cable, Inc. shall receive
all of the property, rights, privileges, franchises, patents, trademarks, trade
names, licenses, registrations and other assets of every kind and description of
PCFI, including, without limitation, all goodwill associated therewith, such
assets shall be vested in and devolve upon GCI Cable, Inc. without further act
and deed, and GCI Cable, Inc. shall assume all the liabilities of every kind and
description of PCFI.
7. Conversion of Shares and Other Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of GCI Cable, Inc., PCFI
or the holder of any of the shares and other securities of GCI Cable, Inc. or
PCFI, the following will occur:
(a) Each share of GCI Cable, Inc. Common Stock issued
and outstanding immediately prior to the Effective Time, shall
remain one share of GCI Cable, Inc. Common Stock.
REGISTRATION STATEMENT
Page II-140
<PAGE>
(b) Each share of PCFI Stock issued and outstanding
immediately prior to the Effective Time, shall be converted
into 2,227.071 shares of Class A Common Stock, no par value,
of General Communication, Inc., an Alaska corporation and the
owner of all of the issued and outstanding capital stock of
GCI Cable, Inc., at the Effective Time. The transfer books of
PCFI shall be closed and no transfer of PCFI Stock shall be
made at or after the Effective Time.
8. Effective Time. The Merger shall become effective on the date that (i) a
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware in accordance with Section 252 of the General Corporation Law
of the State of Delaware (the "Effective Time"), and (ii) Articles of Merger
shall have been filed with the Commissioner of the Department of Commerce of the
State of Alaska in accordance with Alaska Statute 10.06.552.
9. PCFI Dividend. PCFI and GCI Cable, Inc. acknowledge and agree that PCFI
shall, immediately prior to the Effective Time, be entitled to declare and pay
to its stockholders a dividend consisting of all cash on hand and any tax refund
receivables held by PCFI immediately prior to the Effective Time. GCI Cable,
Inc. agrees that in the event that any such tax refund receivable is actually
paid to PCFI or GCI Cable, Inc. after the Effective Time, GCI Cable, Inc. will
promptly remit the same to Prime Cable Limited Partnership (the sole stockholder
of PCFI as of the Effective Time).
10. PCFI's Liabilities. PCFI has no known liabilities, obligations or
commitments of any kind, other than those liabilities disclosed in writing to
GCI Cable, Inc. by PCFI. Prior to the Effective Time, PCFI will pay or discharge
all of PCFI's known liabilities, obligations and commitments. PCFI and GCI
Cable, Inc. agree that a breach of PCFI's representations and covenants in this
Section 10 shall be deemed to be a breach under Section 3.27 of the Purchase
Agreement (as that term is defined in Section 13 below), which shall be subject
to the provisions of Sections 17.1 through 17.7 of the Purchase Agreement;
provided, however, that anything in Sections 17.1 through 17.7 of the Purchase
Agreement notwithstanding, GCI Cable, Inc.'s sole recourse with respect to any
such breach by PCFI shall be limited to those shares of GCI Class A Common Stock
which are deposited into the Escrow Holdback (as that term is defined in Section
2.3 of the Purchase Agreement) by the sole stockholder of PCFI as a portion of
the Sellers' Indemnity Shares (as that term is defined in Section 2.3 of the
Purchase Agreement).
11. Termination. This Agreement may be terminated and abandoned by decision
of the Board of Directors of any corporation that is a party hereto,
notwithstanding approval of this Agreement by the stockholders of all or any of
the corporations that are parties hereto, at any time prior to the Effective
Time. In the event of the termination and abandonment of this Agreement, this
Agreement shall become void and have no effect, without any liability on the
part of the party or parties electing so to terminate, or their respective
directors, officers or stockholders in respect of this Agreement, except for
liability of the parties for their respective expenses.
12. Amendment or Modification. This Agreement may be amended or modified at
any time prior to the Effective Time, provided, however, that any amendment or
modification subsequent to the adoption of this Agreement by the stockholders of
any corporation that is a party hereto and who are entitled to vote thereon may
not alter or change:
(a) the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series
thereof of such corporation, except as approved by such
stockholders of each of the corporations that are parties
hereto;
(b) any term of the Articles of Incorporation of GCI
Cable, Inc. except as approved by such stockholders of each of
the corporations that are parties hereto; or
REGISTRATION STATEMENT
Page II-141
<PAGE>
(c) any of the terms or conditions of this Agreement
if such alteration or change would adversely affect the
holders of any class or series thereof of such corporation,
except as approved by the holders of the class or series so
affected.
13. Agreement of Parties. This Agreement is subject to the terms and
provisions of that certain Securities Purchase and Sale Agreement dated May 2,
1996 (the "Purchase Agreement") by and among General Communication, Inc., the
sole stockholder of PCFI, et al., and in the event of any conflict between the
terms of this Agreement and the terms and provisions of the Purchase Agreement,
the terms and provisions of the Purchase Agreement shall govern and control.
14. Further Assurances. Each party hereto agrees from time to time, as and
when requested by the other party hereto, or by its successors or assigns, to
execute and deliver, or cause to be executed and delivered, all such deeds and
instruments and to take or cause to be taken such further or other acts, either
before or after the Effective Time, as may be deemed necessary or desirable in
order to vest in and confirm to the Surviving Corporation title to and
possession of any assets of PCFI acquired or to be acquired by reason of or as a
result of the Merger and otherwise to carry out the intent and purposes hereof,
and the officers and directors of the parties hereto are fully authorized in the
name of their respective corporations to take any and all such actions.
15. Headings; Gender; Plurals. All sections and articles referred to herein
are sections and articles of this Agreement. Descriptive headings as to the
contents of particular articles and sections are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement. Each use herein of the masculine, neuter or feminine gender shall be
deemed to include the other genders and each use herein of the plural shall
include the singular and vice versa, in each case as the context requires or as
is otherwise appropriate.
16. Severability. In the event that any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws, then (i)
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision were not a
part hereof; (ii) the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by such illegal, invalid or
unenforceable provision or by its severance from this Agreement; and (iii) there
shall be added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and still be legal, valid and enforceable.
17. Multiple Counterparts. For the convenience of the parties hereto and to
facilitate the filing and recording of this Agreement, this Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
and all counterparts hereof so executed by the parties hereto, whether or not
such counterpart shall bear the execution of each of the parties hereto, shall
be deemed to be, and shall be construed as, one and the same Agreement.
18. Consents. The parties hereto acknowledge that the Merger is subject to
the obtaining of applicable consent of Alaska Public Utilities Commission and of
the Federal Communications Commission, and that such consents have been
obtained.
** The remainder of this page intentionally left blank. **
REGISTRATION STATEMENT
Page II-142
<PAGE>
IN WITNESS WHEREOF, GCI Cable, Inc. and PCFI have caused this Agreement to be
signed in their respective corporate names as of the date and year first above
written.
PRIME CABLE FUND I, INC.
ATTEST: (A Delaware corporation)
By: By:
Its: Its:
GCI CABLE, INC.
(An Alaska corporation)
ATTEST:
By: By:
Its: Its:
REGISTRATION STATEMENT
Page II-143
<PAGE>
EXHIBIT 2.3.2
CERTIFICATE OF MERGER MERGING
PRIME CABLE FUND I, INC.
INTO GCI CABLE, INC.
Pursuant to the provisions of Section 251(c) of the General Corporation Law
of the State of Delaware and Alaska Statute 10.06.552, Prime Cable Fund I, Inc.,
a corporation organized and existing under the laws of the State of Delaware,
and GCI Cable, Inc., a corporation organized and existing under the laws of the
State of Alaska, do hereby certify that:
1. GCI Cable, Inc. is the surviving corporation of a merger between Prime
Cable Fund I, Inc., a Delaware corporation, and GCI Cable, Inc., an Alaska
corporation.
2. An Agreement and Plan of Merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with (i) Subsection 251(c) of the General Corporation Law of the State of
Delaware in the case of Prime Cable Fund I, Inc., and (ii) Alaska Statute
10.06.544 in the case of GCI Cable, Inc., the surviving corporation.
3. The name of the surviving corporation is "GCI Cable, Inc.," an Alaska
corporation.
4. The Articles of Incorporation of GCI Cable, Inc., the surviving
corporation, shall be its Articles of Incorporation.
5. The executed Agreement and Plan of Merger is on file at the principal
place of business of GCI Cable, Inc., which is 2550 Denali Street, Suite 1000,
Anchorage, Alaska 99503.
6. A copy of the Agreement and Plan of Merger will be furnished by GCI Cable,
Inc., the surviving corporation, on request and without cost, to any stockholder
of Prime Cable Fund I, Inc. or GCI Cable, Inc.
7. GCI Cable, Inc., the surviving corporation, hereby (i) agrees that it may
be served with process in the State of Delaware in any proceeding for
enforcement of any obligation of Prime Cable Fund I, Inc. as well as for
enforcement of any obligation of GCI Cable, Inc., the surviving corporation,
including any suit or other proceeding to enforce the right of any stockholders
as determined in appraisal proceedings pursuant to section 262 of the Delaware
General Corporation Law, and (ii) irrevocably appoints the Secretary of State of
the State of Delaware as its agent to accept service of process in any such suit
or other proceedings at the address set forth in paragraph 5 above, to which a
copy of such process shall be mailed by the Secretary of State of the State of
Delaware to GCI Cable, Inc.
8. To facilitate execution, this Certificate of Merger may be executed in any
number of counterparts as may be convenient or necessary, and it shall not be
necessary that the signatures of all parties hereto or thereto be contained on
any one counterpart hereof or thereof. Additionally, the parties hereto agree
that for purposes of facilitating the execution of the Certificate of Merger (a)
the signature pages taken from separate individually executed counterparts of
this Certificate of Merger may be combined to form multiple fully executed
counterparts and (b) a facsimile transmission shall be deemed to be an original
signature. All executed counterparts of this Certificate of Merger shall be
deemed to be originals, but all such counterparts taken together or
collectively, as the case may be, shall constitute one and the same Certificate
of Merger.
REGISTRATION STATEMENT
Page II-144
<PAGE>
IN WITNESS WHEREOF, this Certificate of Merger has been duly adopted by the
constituent corporations in accordance with the provisions of Alaska Statute
10.06.530 et seq. and the Delaware General Corporation, approval has been given
to such adoption by the holders of not less than the minimum number of votes
necessary for such adoption in accordance with Alaska Statute 10.06.544 and
Section 228 of the Delaware General Corporation Law, and written notice has been
given as provided in said Section 228, and this Certificate of Merger has been
executed as of the day of , 1996.
PRIME CABLE FUND I, INC.
(A Delaware corporation)
By:
Its:
ATTEST:
By:
Its:
GCI CABLE, INC.
(An Alaska corporation)
By:
Its:
ATTEST:
By:
Its:
REGISTRATION STATEMENT
Page II-145
<PAGE>
EXHIBIT 2.3.3
ARTICLES OF
Merger
Between
GCI CABLE, INC.
and
PRIME CABLE FUND I, INC.
The undersigned corporations, pursuant to Sections 10.06.550 and 10.06.562 of
the Alaska Corporation Code, hereby execute the following Articles of Merger:
FIRST: The names of the corporations proposing to merge and the names of the
states under the laws of which such corporations are organized are as follows:
Name of Corporation State of Incorporation
------------------- ----------------------
GCI Cable, Inc. Alaska
Prime Cable Fund I, Inc. Delaware
SECOND: GCI Cable, Inc., an Alaska corporation, and the surviving corporation
in the merger, is complying with Chapter 06 of the Alaska Corporations Code with
respect to the merger of domestic corporations.
THIRD: The laws of the State of Delaware, the state under which Prime Cable
Fund I, Inc., the merged corporation in the merger is organized, permit such
merger and Prime Cable Fund I, Inc. is complying with those laws in effecting
the merger.
FOURTH: The surviving corporation, GCI Cable, Inc., is to be governed by the
laws of the State of Alaska.
FIFTH: The plan of merger is as set forth on Exhibit A attached hereto.
SIXTH: The number of shares outstanding of each corporation which is a party
to the merger is as follows:
Name of Corporation No. of Shares Outstanding
------------------- -------------------------
GCI Cable, Inc. 100
Prime Cable Fund I, Inc. 1,000
SEVENTH: The number of shares outstanding of each corporation which is a
party to the merger voted for and against the plan are as follows:
No. of Shares Voted No. of Shares Voted
Name of Corporation in Favor of Plan Against Plan
------------------- ------------------- -------------------
GCI Cable, Inc. 100 -0-
Prime Cable Fund I, Inc. 1,000 -0-
REGISTRATION STATEMENT
Page II-146
<PAGE>
EIGHTH: The plan of merger was adopted by resolution of the Board of
Directors of Prime Cable Fund I, Inc., the merged corporation, on the day
of , 1996, and was adopted by resolution of the Board of Directors
of GCI Cable, Inc., the surviving corporation, on the day of , 1996.
NINTH: The effective date of the merger is of , 1996.
TENTH: To facilitate execution, these Articles of Merger may be executed in
any number of counterparts as may be convenient or necessary, and it shall not
be necessary that the signatures of all parties hereto or thereto be contained
on any one counterpart hereof or thereof. Additionally, the parties hereto agree
that for purposes of facilitating the execution of these Articles of Merger (a)
the signature pages taken from separate individually executed counterparts of
these Articles of Merger may be combined to form multiple fully executed
counterparts and (b) a facsimile transmission shall be deemed to be an original
signature. All executed counterparts of these Articles of Merger shall be deemed
to be originals, but all such counterpart taken together or collectively, as the
case may be, shall constitute one and the same Articles of Merger.
Signed this day of ,1996.
MERGED CORPORATION:
Prime Cable Fund I, Inc.
(A Delaware corporation)
By:
Name:
Title:
ATTEST:
By:
Name:
Title:
SURVIVING CORPORATION:
GCI Cable, Inc.
(An Alaska corporation)
By:
Its:
ATTEST:
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-147
<PAGE>
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
The foregoing instrument was acknowledged before me this day of
, 1996, by ,
of Prime Cable Fund I, Inc., the merged corporation, on
behalf of the merged corporation.
My commission expires .
STATE OF ALASKA )
)
ANCHORAGE RECORDING DISTRICT )
The foregoing instrument was acknowledged before me this day of
, 1996, by ,
of GCI Cable, Inc., the surviving corporation, on behalf of
the surviving corporation.
My commission expires .
REGISTRATION STATEMENT
Page II-148
<PAGE>
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
dated as of
April 15, 1996
among
GENERAL COMMUNICATION, INC.
[or its wholly-owned subsidiary]
an Alaska corporation
("Buyer")
and
ALASKAN CABLE NETWORK/FAIRBANKS, INC.
an Alaska corporation
("ACNFI")
and
ALASKAN CABLE NETWORK/JUNEAU, INC.
an Alaska corporation
("ACNJ")
and
ALASKAN CABLE NETWORK/KETCHIKAN-SITKA, INC.
an Alaska corporation
("ACNKS")
(ACNFI, ACNJ, ACNKS, collectively, "Companies" or, individually, a "Company")
REGISTRATION STATEMENT
Page II-149
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Definitions...................................................................................156
1.1 Affiliate.....................................................................................156
1.2 APUC..........................................................................................156
1.3 APUC Certificate..............................................................................156
1.4 Assets........................................................................................156
1.5 Basic CATV Services...........................................................................157
1.6 Basic Subscriber..............................................................................157
1.7 CATV..........................................................................................157
1.8 CATV Business.................................................................................157
1.9 CATV Franchise Agreement......................................................................157
1.10 CATV Instruments..............................................................................157
1.11 CATV System...................................................................................157
1.12 Closing and Closing Date......................................................................158
1.13 COBRA.........................................................................................158
1.14 Company Contracts.............................................................................158
1.15 Employees.....................................................................................158
1.16 Employee Plans................................................................................158
1.17 Encumbrance...................................................................................158
1.18 Equipment.....................................................................................158
1.19 Equivalent Basic Subscribers or EBS's.........................................................158
1.20 ERISA.........................................................................................159
1.21 Excluded Assets...............................................................................159
1.22 FCC...........................................................................................159
1.23 Financial Statements..........................................................................159
1.24 Governmental Authority........................................................................159
1.25 Intangibles...................................................................................159
1.26 Legal Requirement.............................................................................159
1.27 MDU Agreements................................................................................160
1.28 MDU Complex...................................................................................160
1.29 Operating Cash Flow...........................................................................160
1.30 Pay TV........................................................................................160
1.31 Pay Units.....................................................................................160
1.32 Permitted Encumbrances........................................................................160
1.33 Person........................................................................................161
1.34 Purchase Price................................................................................161
1.36 Required Consents.............................................................................161
1.37 Security Interest.............................................................................161
1.38 Service Area..................................................................................161
1.39 Share Holdback................................................................................161
REGISTRATION STATEMENT
Page II-150
<PAGE>
1.40 Subscribers...................................................................................161
1.41 System........................................................................................162
Section 2. Sale of Assets................................................................................162
2.1 Sale of Assets................................................................................162
2.2 Purchase Price................................................................................162
2.3 Share Holdback................................................................................162
Section 3. Companies' Representations, Warranties, and Covenants.........................................162
3.1 Organization and Qualification................................................................162
3.2 Authority.....................................................................................163
3.3 Enforceability................................................................................163
3.4 Cash Flow.....................................................................................163
3.5 Assets........................................................................................163
3.6 Governmental Permits..........................................................................164
3.7 Company Contracts.............................................................................164
3.8 Records.......................................................................................164
3.9 No Breach or Violation........................................................................164
3.10 No Finders or Brokers.........................................................................165
3.11 Schedules.....................................................................................165
3.12 Compliance with Laws..........................................................................165
3.13 Financial Statements..........................................................................165
3.14 Tax Returns and Other Reports.................................................................166
3.15 Transfer Taxes................................................................................166
3.16 Real Property.................................................................................166
3.17 Employees.....................................................................................168
3.18 Employee Benefits.............................................................................169
3.19 Litigation and Violations.....................................................................173
3.20 Disclosure....................................................................................173
3.21 Investment Company............................................................................173
3.22 CATV Instruments and Company Contracts........................................................173
3.23 FCC Compliance................................................................................174
3.24 APUC Compliance...............................................................................175
3.25 Patents, Trademarks, and Copyrights...........................................................175
3.26 No Other Assets or Liabilities................................................................175
3.27 Required Consents.............................................................................175
3.28 Overbuilds....................................................................................176
3.29 Subscriber Numbers............................................................................176
3.30 No Insolvency.................................................................................176
3.31 Compliance with Law...........................................................................176
3.32 Holding Period................................................................................177
3.33 Disclosure....................................................................................177
REGISTRATION STATEMENT
Page II-151
<PAGE>
Section 4. Assumed Liabilities and Excluded Assets.......................................................178
4.1 Assignment and Assumption.....................................................................178
4.2 Excluded Assets...............................................................................178
Section 5. Buyer's Representations, Warranties, and Covenants............................................178
5.1 Organization and Authority....................................................................178
5.2 Capitalization................................................................................178
5.3 Enforceability................................................................................179
5.4 Records.......................................................................................179
5.5 No Breach or Violation........................................................................179
5.6 Compliance with Laws..........................................................................180
5.7 Financial Statements..........................................................................180
5.8 Tax Returns and Other Reports.................................................................180
5.9 Transfer Taxes................................................................................181
5.10 Litigation and Violations.....................................................................181
5.11 Disclosure....................................................................................181
5.12 Investment Company............................................................................181
5.13 No Finders or Brokers.........................................................................181
5.14 No Insolvency.................................................................................181
Section 6. Conduct Prior to Closing......................................................................181
6.1 Operation in Ordinary Course..................................................................181
6.2 Agents........................................................................................182
6.3 Franchise Extensions..........................................................................182
6.4 Company Contracts.............................................................................182
6.5 No New Buyer Securities.......................................................................183
6.6 Employees.....................................................................................183
6.7 Access to Premises and Records................................................................183
6.8 Existing Relationships........................................................................184
6.9 Required Consents.............................................................................184
6.10 Compliance with CLI Standards.................................................................184
6.11 MDU Agreements................................................................................184
6.12 Public Announcements..........................................................................184
6.13 Due Diligence.................................................................................185
6.14 Correction of any Noncompliance Prior to Closing..............................................185
6.15 Leased Equipment..............................................................................185
6.16 Estoppel Certificates, Nondisturbance Agreements
and Franchise Renewals........................................................................185
6.17 Title Commitments and Surveys.................................................................186
6.18 HSR Notification..............................................................................187
6.19 No Shopping...................................................................................187
6.20 Notification of Certain Matters...............................................................187
6.21 Risk of Loss; Condemnation....................................................................188
6.22 Lien and Judgment Searches....................................................................188
REGISTRATION STATEMENT
Page II-152
<PAGE>
6.23 Transfer Taxes................................................................................189
6.24 Letter to Programmers.........................................................................189
6.25 Updated Schedules.............................................................................189
6.26 Use of Companies' Names.......................................................................189
6.27 Subscriber Billing Services...................................................................189
6.28 Satisfaction of Conditions....................................................................190
Section 7. Closing.......................................................................................190
Section 8. Deliveries by Companies at Closing............................................................190
Section 9. Deliveries by Buyer at Closing................................................................193
Section 10. Conditions to Obligations of Buyer............................................................194
10.1 Accuracy of Representations and Compliance with Conditions....................................194
10.2 Deliveries Complete...........................................................................194
10.3 No Adverse Change.............................................................................194
10.4 Restraint of Proceedings......................................................................195
10.5 Inspection....................................................................................195
10.6 Cash Flow.....................................................................................195
Section 11. Conditions to Obligations of Companies........................................................195
11.1 Accuracy of Representations and Compliance with Conditions....................................195
11.2 Deliveries Complete...........................................................................195
11.3 No Adverse Change.............................................................................196
11.4 Restraint of Proceedings......................................................................196
Section 12. Conditions to Both Parties' Obligations.......................................................196
12.1 Consents......................................................................................196
12.2 No Governmental Action........................................................................196
12.3 Waiver of Conditions..........................................................................196
Section 13. Transactions Subsequent to Closing............................................................196
13.1 Further Actions...............................................................................196
13.2 COBRA Benefits................................................................................197
Section 14. Registration Rights Agreement.................................................................197
Section 15. Agreement Not to Compete......................................................................197
15.1 Agreement.....................................................................................197
15.2 Breach of Agreement...........................................................................197
15.3 Enforceability................................................................................197
Section 16. Survival of Representations and Warranties; Indemnification...................................197
REGISTRATION STATEMENT
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<PAGE>
16.1 Survival......................................................................................197
16.2 Indemnity by Companies........................................................................198
16.3 Indemnity by Buyer............................................................................198
16.4 Defense of Claims.............................................................................198
16.5 Right to Offset...............................................................................199
16.6 Determination of Indemnified Amounts..........................................................200
Section 17. Termination...................................................................................200
17.1 Mutual Consent................................................................................200
17.2 Default by Companies..........................................................................200
17.3 Default by Buyer..............................................................................201
Section 18. Miscellaneous.................................................................................201
18.1 Expenses......................................................................................201
18.2 Modification..................................................................................202
18.3 Attorneys' Fees...............................................................................202
18.4 Right to Specific Performance.................................................................202
18.5 Notice........................................................................................202
18.6 Waiver........................................................................................203
18.7 Binding Effect; Assignment....................................................................203
18.8 No Third Party Beneficiaries..................................................................203
18.9 Rights Cumulative.............................................................................203
18.10 Further Actions...............................................................................203
18.11 Severability..................................................................................203
18.12 Captions......................................................................................203
18.13 Counterparts..................................................................................204
18.14 Governing Law.................................................................................204
18.15 Incorporation by Reference....................................................................204
18.16 Construction..................................................................................204
18.17 Confidentiality...............................................................................204
</TABLE>
EXHIBITS
A - Registration Rights Agreement
B - Bill of Sale
C - Nondisturbance and Attornment Agreements
D - Assumption Agreement
E - Assignment of Lease
F - Guaranty
G - Non-Compete Agreement
H - Letter to Programmers
I - FIRPTA Affidavit
J - Opinion of Company's Counsel
REGISTRATION STATEMENT
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<PAGE>
K - Opinion of Company's FCC Counsel
SCHEDULES
1 - The CATV Business (including Rate Schedule)
2 - CATV Instruments
3 - Company Contracts
4 - Required Consents
5 - Equipment and Vehicles Owned
6 - Real Property Owned
7 - Security Interests to Be Discharged Prior to Closing and
Permitted Security Interests
8 - Proceedings and Judgments
9 - Employee Matters
10 - Excluded Assets
REGISTRATION STATEMENT
Page II-155
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of
April 15, 1996, among General Communication, Inc., an Alaska corporation [or its
wholly-owned subsidiary] ("Buyer"), and Alaskan Cable Network/Fairbanks, Inc.,
an Alaska corporation, ("ACNFI"), Alaskan Cable Network/Juneau, Inc. ("ACNJ"),
Alaska Cable Network/Ketchikan-Sitka, Inc. ("ACNKS") (ACNI, ACNJ and ACNKS,
collectively "Companies" or individually a "Company"). This Agreement states the
terms upon which Companies agrees to sell to Buyer, and Buyer agrees to purchase
from Companies, all of Companies' Assets (as defined below).
WHEREAS, Companies are engaged in the business of providing
cable television services to subscribers in and around the Service Areas
(defined below); and
WHEREAS, Buyer desires to purchase and Companies desire to
sell all of Companies' Assets used or useful in connection with the CATV
Business (defined below);
In consideration of the terms, conditions, and agreements
contained in this Agreement, the parties agree as follows:
Section 1 Definitions
1.1 Affiliate. "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with a person or entity;
"control" means the ownership, directly or indirectly, of equity securities or
other ownership interests in a person or entity by another person or entity,
which represent more than 50% of the voting power or equity ownership in such
person or entity.
1.2 APUC. "APUC" shall mean the Alaska Public Utilities
Commission.
1.3 APUC Certificate. "APUC Certificate" shall mean the
applicable certificate of public convenience and necessity issued by APUC, being
Certificate No. 252 (Fairbanks), No. 156 (Juneau), No. 144 (Ketchikan and Sitka)
for the Service Areas legally described herein.
1.4 Assets. "Assets" shall include all properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description, that are owned, held, used, or useful in the CATV
Business located in and around the Service Areas in which Companies have any
right, title or interest, including but not limited to the CATV Instruments, the
Intangibles, Company Contracts, the Equipment, and the Real Property, but
excluding any Excluded Assets set forth on Schedule 10.
REGISTRATION STATEMENT
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<PAGE>
1.5 Basic CATV Services. "Basic CATV Services" shall mean CATV
programming sold to Subscribers as a package and delivered to such Subscribers
by coaxial cable, including broadcast and satellite service programming for
which a Subscriber pays a fixed monthly fee to the applicable Company, but not
including Pay TV.
1.6 Basic Subscriber. "Basic Subscriber" shall mean any person
who on a non-seasonal basis pays Company the full monthly price (without senior
citizen or other discount) for Basic CATV Services in accordance with standard
rates charged by Companies as set forth on Schedule 1, who was not solicited
since December 31, 1995, to purchase such services by any promotions, offers of
discounts, or extraordinary marketing techniques which promotions, discounts, or
marketing techniques were inconsistent with Companies' previous business
practices, who has paid in full without discount at least one monthly bill
generated in the ordinary course of business for CATV services, who is not
pending disconnection for any reason, and who is not delinquent in payment for
such CATV services. For this purpose, a Subscriber shall be delinquent if any
part of his or her account is more than 59 days past due from the invoice date.
1.7 CATV. "CATV" shall mean cable television.
1.8 CATV Business. "CATV Business" shall refer to all of the
Assets and business of the CATV Systems as presently conducted by Companies in
and around the Service Areas as described on Schedule 1 to this Agreement.
1.9 CATV Franchise Agreement. "CATV Franchise Agreements"
shall refer to (i) that certain CATV Franchise Agreement for Fort
Wainwright/Greely, No. F65501-91-00008, the Operational Contracting Office/LGCV,
on behalf of the United States of America, dated March 22, 1991; and (ii) that
certain CATV Franchise Agreement for Eielson AFB, No. F65503-80-0003\P00015, the
Operational Contracting Office/LGCV, on behalf of the United States of America,
dated December 1, 1989.
1.10 CATV Instruments. "CATV Instruments" shall refer to all
material intangible CATV channel distribution rights owned, used, or held for
use by Companies, all franchise agreements, pole attachment rights, leases,
licenses, easements, crossing permits and service agreements, as described on
Schedule 2 to this Agreement.
1.11 CATV System. "CATV System" shall refer to a complete CATV
reception and distribution system of the applicable Company which is part of
Companies' CATV Business and consisting of one or more headends, equipment,
Subscriber drops and associated electronic equipment, which is, or is capable of
being, without modification, operated as an independent system without
interconnections to other systems. Any systems which are interconnected or which
are served in total or in part by a common headend shall be considered a single
CATV System.
REGISTRATION STATEMENT
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<PAGE>
1.12 Closing and Closing Date. "Closing" shall refer to the
consummation of the transactions contemplated by this Agreement, to take place
at a meeting held at the place and on the date ("Closing Date") specified in
Section 7 of this Agreement.
1.13 COBRA. "COBRA" shall be as defined in Section 3.17.
1.14 Company Contracts. "Company Contracts" shall refer to all
contracts and agreements pertaining to the lawful ownership, operation, and
maintenance of the CATV Business or used in the CATV Business, other than CATV
Instruments, as described on Schedule 3 to this Agreement.
1.15 Employees. "Employees" shall be as defined in Section
3.17.
1.16 Employee Plans. "Employee Plans" shall be as defined in
Section 3.18.
1.17 Encumbrance. Any mortgage, lien, security interest,
security agreement, conditional sale or other title retention agreement,
limitation, pledge, option, charge, assessment, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer or any
exception to or defect in title or other ownership interest (including
reservations, rights-of-way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.18 Equipment. "Equipment" shall refer to all material
tangible personalty, electronic devices, trunk and distribution coaxial and
optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals,
grounding and pole hardware, Subscriber's devices (including, without
limitation, converters, encoders, transformers behind television sets and
fittings), "headend" (origination, earth stations, transmission and distribution
system) hardware, test equipment, vehicles, and other personal property and
facilities owned, leased, used, or held for use in the CATV Business, as
described on Schedule 5 to this Agreement.
1.19 Equivalent Basic Subscribers or EBS's. "Equivalent Basic
Subscribers" or "EBS's" shall mean at a specified date a number representing the
sum of the equivalent of Basic Subscribers of each franchise area in the CATV
Systems derived by dividing (a) the total monthly billings for sales by
Companies of Basic CATV Services for the most recent month ended prior to such
specified date to single family households which pay less than the full
non-discounted monthly price for Basic CATV Services and to bulk accounts
(provided that in no event shall such billings include more than a single
month's charges for any such single family household or single bulk account), by
(b) the full non-discounted monthly price charged by a Company to single family
households for Basic CATV Services in accordance with standard rates charged by
a Company at the Closing Date in such franchise area; provided, however, that in
no
REGISTRATION STATEMENT
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<PAGE>
event shall such standard rates charged by Companies at the Closing Date be less
than those set forth on Schedule 1. For purposes of the foregoing, there shall
be excluded (a) all billings to any discounted single family household or bulk
account which is more than 59 days past due from the invoice date (whether for
Basic CATV Services or Pay TV or otherwise); (b) all billings to any discounted
single family household or bulk account which has not paid at least one month's
payment for Basic CATV Services, including payment of all installation charges
owed and due; (c) that portion of the billings to each discounted single family
household or bulk account which represents an installation or other
non-recurring charge, a charge for any outlet or connection other than the first
outlet or first connection in any single family household or, with respect to a
bulk account, in any residential unit (e.g. individual apartment or rental
unit), a charge for any tiered service (whether or not included within Pay TV),
or a pass-through charge for copyright fees, sales taxes, etc.; (d) all billings
to any discounted single family household or bulk account which is pending
disconnection for any reason; and (e) all billings to any discounted single
family household or bulk account which was solicited since December 31, 1995, by
any promotions, offers of discounts, or extraordinary marketing techniques which
promotions, discounts, or marketing techniques were inconsistent with Companies'
previous business practices.
1.20 ERISA. "ERISA" shall be as defined in Section 3.17.
1.21 Excluded Assets. "Excluded Assets" shall refer to those
Assets which will not be owned by Company on the Closing Date as listed on
Schedule 10.
1.22 FCC. "FCC" shall mean the Federal Communications
Commission.
1.23 Financial Statements. "Financial Statements" shall be as
defined in Section 3.13.
1.24 Governmental Authority. (a) The United States of America,
(b) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (c) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof, or (d) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.25 Intangibles. "Intangibles" shall mean all material
general intangibles including, but not limited to, Subscriber lists, accounts
receivable, claims (excluding any claims relating to Excluded Assets), patents,
copyrights, and goodwill, if any.
1.26 Legal Requirement. Any statute, ordinance, code, law,
rule, regulation, order or other requirement, standard or procedure enacted,
adopted or applied by any Governmental Authority, including judicial decisions
applying common law or interpreting any other Legal Requirement.
REGISTRATION STATEMENT
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<PAGE>
1.27 MDU Agreements. "MDU Agreements" shall mean the fully
executed agreements required by Section 6.11 hereof.
1.28 MDU Complex. "MDU Complex" shall mean any apartment,
condominium, or townhome complex or mobile home park and any other multiple unit
dwelling project subject to common ownership which currently receives cable
television service from the CATV Business.
1.29 Operating Cash Flow. Means, for any period of
determination, for the Companies, total consolidated operating revenues for such
period minus the sum of (a) costs for such period, plus (b) operating expenses
for such period, excluding depreciation, amortization and the other non-cash
items attributable to such period and expenses related to management overhead,
all calculated for such period for the Companies' subsidiaries on a consolidated
basis in accordance with GAAP consistently applied.
1.30 Pay TV. "Pay TV" shall mean premium programming services
selected by and sold to Subscribers for monthly fees in addition to the fee for
Basic CATV Services.
1.31 Pay Units. "Pay Units" shall mean each Pay TV service
subscribed for by all Basic Subscribers.
1.32 Permitted Encumbrances. "Permitted Encumbrances" shall
mean: (i) liens for taxes, assessments and governmental charges not yet due and
payable, or the validity of which are being contested diligently and in good
faith, and installments of special assessments not yet due and payable; (ii)
statutory liens arising in connection with the ordinary course of business not
yet delinquent or the validity of which are being contested diligently and in
good faith; (iii) zoning laws and ordinances and similar governmental
regulations; (iv) rights reserved to any municipality or government, statutory
or public authority to regulate the affected property; and (v) as to Real
Property interests, any liens, encumbrances, easements, rights-of-way,
servitude, permits, leases, other minor title defects, conditions, covenants and
restrictions, and minor imperfections or irregularities in title which are both
reflected in the public records and excepted from coverage in the Schedule B to
any title policy issued pursuant to Section 6.17 hereof. The foregoing
notwithstanding, "Permitted Encumbrances" shall not include any item of which
Companies have warranted the absence elsewhere in this Agreement and furthermore
shall not prevent or inhibit in any way the conduct of Companies' CATV Business.
No implication is made from the foregoing or any reference to Permitted
Encumbrances in this Agreement or in any documents or instruments delivered in
connection herewith that Buyer shall be or shall become liable or responsible
for any liens, taxes, assessments, charges, or statutory liens described in (i)
or (ii) above accruing or arising prior to the Closing Date or which are imposed
or assessed against
REGISTRATION STATEMENT
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<PAGE>
Companies; and Companies shall remain fully liable and responsible therefor and
shall indemnify and hold Buyer harmless from and against any thereof pursuant to
Section 16.
1.33 Person. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.34 Purchase Price. The "Purchase Price" for Companies'
Assets shall be as defined in Section 2.2.
1.35 Real Property. "Real Property" shall mean all realty,
including appurtenances, improvements, and fixtures located thereon and any
other interests in real property owned by Companies and used or held for use in
the CATV Business, including, without limitation, fee interests in Companies'
offices and headend sites, leasehold interests, easements, wire crossing permits
and rights of entry described on Schedule 6 to this Agreement.
1.36 Required Consents. "Required Consents" shall mean all
governmental franchises, approvals, licenses, consents, and any and all other
authorizations or approvals and consents, necessary and required for Companies
to transfer and convey, and Buyer to purchase, the Assets, and for Buyer to
conduct Companies' CATV Business at the places and in the manner in which such
CATV Business is presently conducted and will be conducted on the Closing Date.
All Required Consents are listed on Schedule 4 to this Agreement.
1.37 Security Interest. "Security Interest" shall mean any
mortgage, lien, security interest, security agreement, limitation, pledge,
option, charge, assessment, restrictive agreement, restriction, encumbrance,
adverse interest, claim, restraint on transfer, or claim against title with
respect to any of the Assets.
1.38 Service Area. "Service Areas" shall mean the areas in
which Companies operate the CATV Business, specifically in and around Fairbanks,
Juneau, Ketchikan, and Sitka, Alaska, pursuant to applicable APUC Certificate
No. 252, Fairbanks; No. 156, Juneau, and No. 144 Ketchikan and Sitka, Alaska,
pursuant to the CATV Franchise.
1.39 Share Holdback. "Share Holdback" shall be the GCI Shares
held in escrow, as defined in Section 2.3.
1.40 Subscribers. "Subscribers" shall mean all Basic
Subscribers and EBS's.
REGISTRATION STATEMENT
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<PAGE>
1.41 System. A complete cable television reception and
distribution system operated in the conduct of the Business, consisting of one
or more headends, subscriber drops and associated electronic and other
equipment, and which is, or is capable of being without modification, operated
as an independent system without interconnections to other systems. Any systems
which are interconnected or which are served in total or in part by a common
headend will be considered a single System.
Section 2 Sale of Assets.
2.1 Sale of Assets. At the Closing, upon the terms and
conditions set forth in this Agreement, Companies agree to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from
Companies, all of the Companies' right, title and interest in, to and under the
Assets. Except as otherwise provided, all the Assets are intended to be
transferred to Buyer, whether or not described in the Schedules.
2.2 Purchase Price. Buyer will deliver collectively to
Companies at the Final Closing the sum total of Fifty-One Million and no/100
Dollars ($51,000,000.00) in cash and Two Million Nine Hundred Twenty-Three
Thousand Seventy-Seven (2,923,077) shares of GCI's voting Class A common stock
(the "GCI Shares"), in payment for the Assets. Such payment in cash and in GCI
Shares constitutes the Seventy Million and no/100 Dollars ($70,000,000.00)
"Purchase Price."
2.3 Share Holdback. At the Final Closing, Companies and Buyer
shall each deposit in escrow Five Hundred Thirty-Eight Thousand (538,000) GCI
Shares, or provide a letter of credit in an amount equal to five percent (5%) of
the Purchase Price (the "Share Holdback") to secure each party's indemnification
for breaches of representations, warranties and covenants. If no breach of this
Agreement has occurred, such escrowed GCI Shares or letters of credit shall be
released following each respective indemnitee's written instruction, effective
as of one hundred eighty (180) days after the Closing Date.
Section 3 Companies' Representations, Warranties, and Covenants
Companies and each of them represent, warrant, and covenant to
Buyer, as of the date of this Agreement and as of the Closing, as follows:
3.1 Organization and Qualification. Each Company is a
corporation, duly organized corporation, validly existing and in good standing
under the laws of Alaska. Each Company is duly qualified or licensed to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction in which such Company is required to be so qualified or licensed.
Each Company has all requisite power and authority to carry on the CATV Business
as currently conducted and to own, lease, use, and operate its Assets as they
are currently owned, leased and used and
REGISTRATION STATEMENT
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<PAGE>
to conduct its business as it is now conducted. The copies of Companies'
Articles of Incorporation, as amended, which have been delivered to Buyer are
complete and correct, and each of such documents is in full force and effect and
have not been further amended.
3.2 Authority. Each Company has all requisite capacity, power,
right, capitalization, and authority to enter into this Agreement and to perform
its obligations under this Agreement. The execution, delivery, and performance
of this Agreement and all other documents and instruments to be executed and
delivered in connection herewith ("Transaction Documents") by each Company has
been duly authorized by all applicable corporate action of Company. No consent
of or authorization from any person or other entity, including any Governmental
Authority, is required to be obtained in connection with the execution,
delivery, and performance of this Agreement and of the Transaction Documents by
Companies, except for the Required Consents described in Schedule 4.
3.3 Enforceability. This Agreement, the Transaction Documents,
and all documents, instruments, and certificates to be delivered under this
Agreement constitute legal, valid, and binding obligations of Companies,
enforceable against Companies in accordance with their respective terms, except
as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting generally the enforcement of
creditors' rights and by general principles of equity.
3.4 Cash Flow. Companies' actual aggregate Operating Cash Flow
was not less than Six Million Eight Hundred Thousand and no/100 Dollars
($6,800,000.00) for the year ended December 31, 1995. Each Company shall provide
Buyer with the audited financial statements as and for the year ended December
31, 1995, no later than April 30, 1996. Such statements shall present Company's
financial condition substantially as presented to Buyer in Company's unaudited
documents.
3.5 Assets. Companies each have exclusive, good and marketable
title to (or, in the case of Assets that are leased, valid leasehold interests
in) their respective Assets (other than Real Property, as to which the
representations and warranties in Section 3.16 apply). The Assets are free and
clear of all Encumbrances of any kind or nature, except (a) Permitted
Encumbrances, (b) restrictions stated in the Governmental Permits and (c)
Encumbrances disclosed on Schedule 7. Except as set forth on Schedules 2 or 3,
none of the Equipment is leased by any Company from any other Person. The Assets
are all the assets necessary to permit Buyer to conduct the Business
substantially as it is being conducted on the date of this Agreement and in
compliance with all Legal Requirements and Company Contracts and to perform all
the Assumed Liabilities (defined in Section 4.1). All the Equipment is in good
operating condition and repair, ordinary wear and tear excepted and is suitable
and adequate for continued use in the manner in which it is presently used. No
Person other than
REGISTRATION STATEMENT
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<PAGE>
Companies have been granted or has applied for a cable television franchise in
any area currently served by the Business.
3.6 Governmental Permits. Complete and correct copies of the
Governmental Permits, all of which are listed on Schedule 2 or Schedule 10, have
been delivered by Companies to Buyer. The Governmental Permits are currently in
full force and effect, are not in default, and are valid under all applicable
Legal Requirements according to their terms. There is no legal action,
governmental proceeding or investigation, pending or threatened, to terminate,
suspend or modify any Governmental Permit and each Company is in compliance with
the terms and conditions of all the Governmental Permits and with other
applicable requirements of all Governmental Authorities (including the FCC and
the Register of Copyrights) relating to the Governmental Permits, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
3.7 Company Contracts. All Company Contracts are described on
Schedule 3. Complete and correct copies of all Company Contracts have been
provided to Buyer. Each Company Contract is in full force and effect and
constitutes the valid, legal, binding and enforceable obligation of Company and
each Company is not and to such Companies' knowledge, each other party thereto
is not in breach or default of any terms or conditions thereunder.
3.8 Records. Such Companies' corporate books, as made
available to Buyer, contain current, complete, and accurate records of all
meetings and actions of such Companies' directors, and, if any, committees of
the directors. All material actions and transactions taken or entered into by
such Company or otherwise requiring action by its directors have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Companies' books and ledgers, as made available to Buyer, contain complete and
accurate records of all issuances and transfers of its stock interests. The
signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
3.9 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Companies (a) does not and will not (with the
giving of notice or passage of time or both) (i) conflict with or result in a
breach or violation by Company of, or (ii) constitute a default by Companies
under, or (iii) create any right of termination, cancellation, or acceleration
by any party pursuant to, any of the CATV Instruments or Company Contracts, any
statute, ordinance, rule, or regulation, or any agreement, instrument, judgment,
or order to which such Company is a party or by which such Company, the CATV
Business, or any of the Assets is bound or may be affected, and (b) does not and
will not (with the giving of notice or passage of time or both) create or impose
any Security Interest on any of the Assets.
REGISTRATION STATEMENT
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<PAGE>
3.10 No Finders or Brokers. Companies have not entered into
any contract, arrangement, or understanding with any person or firm which may
result in any obligation of Buyer or Companies to pay any finder's, broker's, or
agent's fees or commissions or other like payments as a result of the
transactions contemplated by this Agreement, except that Companies shall pay all
fees and expenses due to Lazard Freres & Co. L.L.C.
3.11 Schedules. The Schedules to this Agreement list all
Assets owned, held, used, or useful for the performance of any CATV Instruments,
Company Contracts and for the lawful conduct of the CATV Business. All Schedules
to this Agreement are true, accurate, and complete.
3.12 Compliance with Laws. Companies are in material
compliance with all applicable laws, rules, regulations, orders, ordinances, and
codes of the Governmental Authorities having jurisdiction over the business and
affairs of Companies.
3.13 Financial Statements. Companies have, delivered or will
by April 30,1996, deliver, to Buyer correct and complete copies of Companies'
audited financial statements for each of the two most recent fiscal years ended
prior to the date of this Agreement and unaudited interim monthly financial
statements for periods subsequent to the end of the most recent fiscal year end
(the "Financial Statements"). The Financial Statements are complete and correct,
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby (except, in
the case of interim financial statements, subject to normal recurring year-end
adjustments and the absence of footnotes), and fairly present in accordance with
generally accepted accounting principles the financial condition and results of
operation of Companies as of the dates indicated and for the periods covered
thereby. Except as disclosed by, or reserved against in, its most recent balance
sheet included in the Financial Statements, Companies did not have as of the
date of such balance sheet any liability or obligation, whether accrued,
absolute, fixed, or contingent (including, without limitation, liabilities for
taxes or unusual forward or long-term commitments), which was material to the
business, results of operations, or financial condition of Companies and which
is required to be disclosed on, or reserved against in, a balance sheet.
Companies have received no notice of any fact which may form a basis for any
claim by a third party which, if asserted, could result in a liability affecting
Companies not disclosed by or reserved against in the most recent balance sheet
of Companies. From the date of the most recent balance sheet included in the
Financial Statements to and including the date hereof, (i) the CATV Business has
been operated only in the ordinary course, (ii) Companies has not sold or
disposed of any assets other than in the ordinary course of business, (iii)
there has not occurred any material adverse change or event in the business,
operations, assets, liabilities, financial condition, or results of operations
of Companies compared to the business, operations, assets, liabilities,
financial condition, or results of operations reflected in the Financial
REGISTRATION STATEMENT
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Statements, and (iv) there has not occurred any theft, damage, destruction, or
loss which has had a material adverse effect on Companies.
3.14 Tax Returns and Other Reports. Companies have duly and
timely filed in proper form all federal, state, local, and foreign, income,
franchise, sales, use, property, excise, payroll, and other tax returns and
other reports (whether or not relating to taxes) required to be filed by law
with the appropriate governmental authority, and, to the extent applicable, has
paid or made provision for payment of all taxes, fees, and assessments of
whatever nature including penalties and interest, if any, which are due with
respect to any aspect of its business or any of its properties. Except as set
forth on Schedule 8, there are no tax audits pending and no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any relevant tax return.
3.15 Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
3.16 Real Property. With respect to all Real Property:
3.16.1 The Real Property and the improvements located
thereon and the continuation of business presently being conducted thereon do
not violate any applicable laws, statutes, regulations, codes, rules, or orders.
3.16.2 The Real Property has unobstructed access for
purposes of ingress and egress to public roads or streets or private roads over
which Companies have a valid right-of-way. The Real Property is served by
utilities and services necessary for the present use of the Real Property in
connection with the CATV Business.
3.16.3 Companies possess all rights needed to
operate, maintain, repair, replace, and locate all cable, lines, towers,
equipment, or other facilities owned or used by Companies in the CATV Business.
3.16.4 None of the improvements on the Real Property
encroaches upon the property of others.
3.16.5 Companies hold good and marketable fee simple
title to the Real Property shown as being owned by Companies on Schedule 6 and
the valid and enforceable right to use and possess such Real Property, subject
only to the Permitted Encumbrances. Companies have the valid and enforceable
right to use all other Real Property, subject to the leases, easements,
licenses, or rights-of-way described on Schedule 2.
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<PAGE>
3.16.6 The Real Property is in full compliance with
all applicable health, safety, and environmental laws, rules, and regulations
("environmental laws"). During Companies' ownership or operation of the Real
Property, all activities undertaken on or affecting the Real Property by Company
or any other person have been in full compliance with all environmental laws.
During Companies' occupation of the Real Property there have been no abatement,
removal, remedial or other response actions for hazardous substances (as defined
below) at the Real Property.
3.16.6.1 Companies are not aware of any
instance, prior to Companies' ownership or operation, of noncompliance of the
Real Property or any activities thereon with any environmental law. Companies
are aware of any aspects of the Real Property or any operations thereon which
reasonably might give rise to any civil, criminal, administrative, or other
proceeding or notice thereof under any environmental law (an "environmental
claim").
3.16.6.2 To Companies' knowledge, no
environmental claim has been asserted in the past, currently exists, or is
threatened or contemplated against Company, or against any other person or
entity, which relates to the Real Property or any operations thereon.
3.16.6.3 To Companies' knowledge, the
Real Property has not in the past, is not now, and will not in the future be
subject to any investigation, assessment, or study by any person or government
agency related to potential or actual enforcement of any environmental law.
3.16.6.4 To Companies' knowledge, no
hazardous substances have been or are being released to, from, or under the Real
Property or outside the Real Property which have entered or threaten to enter
onto, into, or under the Real Property. No hazardous substances have been or are
stored, treated, handled, disposed of, created, or otherwise located on, in, or
under the Real Property.
3.16.6.5 To Companies' knowledge, no
underground storage tanks, surface impoundments, solid waste management units,
tank systems, waste piles, land treatment areas, landfills, or incinerators are
located or, to Companies' knowledge, have been located on the Real Property. For
purposes of this paragraph, the foregoing terms shall have the meanings defined
in RCRA 42 U.S.C. section 6901 et.seq. or analogous state or local laws. Without
limiting the preceding representation in this paragraph, none of the Real
Property has been used at any time as a gasoline service station or any other
station or facility for storing, pumping, dispensing, or producing gasoline or
any other petroleum product, byproduct, or waste.
3.16.6.6 To Companies' knowledge, there
are no "PCB Items," as that term is defined in 40 C.F.R. section 761.3, located
on the Real Property.
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<PAGE>
3.16.6.7 To Companies' knowledge, any and
all permits, licenses, and other authorizations or approvals required under
environmental laws to own or operate the Real Property have been secured by
Companies and are in full force and effect. A list of all such permits,
licenses, approvals, and authorizations is included on Schedule 2. All bonds and
other security devices associated with any permit, license, authorization, or
approval are in place.
3.16.6.8 To Companies' knowledge, no
building or other structure on the Real Property contains asbestos.
3.16.6.9 Companies have provided to Buyer
true, complete and correct copies of all Environmental Reports in Companies'
possession or control as of the date of this Agreement relating to the Real
Property or any of it. Companies shall provide all additional Environmental
Reports, including supplements to existing reports, relating to the Real
Property within a three (3) working days of receipt of such reports or
supplements by Companies. For purposes of this Section 3.16.6.9, "Environmental
Reports" shall mean and include any writing containing statements or opinions
about the presence or suspected presence of any Hazardous Substances on, under
or effecting the Real Property or any of it.
3.16.6.10 "Companies' knowledge" as used
in this Section 3 shall refer to matters within the knowledge of Companies'
current officers and general managers, after due investigation of reasonably
available Company records concerning the subjects herein discussed.
3.16.6.11 The term "hazardous substances"
means: (i) any "hazardous substance" or "pollutant or contaminant" as defined in
Sections 101(14) and (33) of CERCLA, 42 U.S.C. sections 9601(14) and (33); (ii)
any "hazardous material" as defined in Section 1802(2) of the Hazardous
Materials Transportation Act; (iii) any "oil" or "hazardous substance" as
defined in Sections 311(a)(1) and (14) of the federal Clean Water Act, 33 U.S.C.
sections 1321(a)(1) and (14); (iv) any "pesticide" as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act, at 7 U.S.C. section 136(u); and (v)
any "byproduct," "source" or "special nuclear" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. sections 2014(e), (z) and (aa). This term also
includes any chemical, compound, material, mixture, or substance defined,
listed, or classified under any environmental law as dangerous, hazardous,
extremely hazardous, infectious, or toxic. It also includes any substance
regulated under any environmental law due to its polluting or dangerous
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, or reproductive effects. Finally, this term specifically includes, but
is not limited to, petroleum and petroleum products, asbestos and
asbestos-containing materials, and polychlorinated biphenyls ("PCBs").
3.17 Employees. Schedule 9 contains a true and complete list
of names, positions, current hourly wages or monthly salary and other
compensation amounts of
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<PAGE>
all of Companies' employees (the "Employees"). Companies have complied in all
respects with all applicable laws and regulations relating to the employment of
labor, including, without limitation, the Worker Adjustment and Retraining
Notification Act, as amended, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), continuation coverage requirements of group health
plans ("COBRA"), and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control, and the payment and
withholding of taxes.
3.18 Employee Benefits.
3.18.1 Except for those plans described on Schedule 9
hereto (the "Employee Plans"), with respect to the Employees, no Company, nor
any of their Affiliates maintain, are a party to, contribute to or are obligated
to contribute to, and the Employees do not receive benefits under, any of the
following (whether or not set forth in a written document):
(i) any employee pension benefit plan, as
defined in Section 3(2) of ERISA,
including (without limitation) any
multiemployer plan, as defined in section
3(37) of ERISA;
(ii) any employee welfare benefit plan, as
defined in section 3(1) of ERISA;
(iii) any bonus, deferred compensation,
incentive, restricted stock, stock
purchase, stock option, stock
appreciation right, phantom stock,
debenture, supplemental pension, profit
sharing, royalty pool, commission or
similar plan or arrangement;
(iv) any plan, program, agreement, policy,
commitment or other arrangement relating
to severance or termination pay, whether
or not published or generally known;
(v) any plan, program, agreement, policy,
commitment or any other arrangement
relating to the provision of any benefit
described in section 3(1) of ERISA to
former employees or their survivors,
other than procedures intended to comply
with COBRA;
(vi) any plan, program, agreement, policy,
commitment or other arrangement relating
to loans or other extensions of credit,
loan guarantees, relocation assistance,
educational assistance, tuition payments
or similar benefits; or
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<PAGE>
(vii) any plan, program, agreement, policy,
commitment or any other arrangement
relating to employee benefits, executive
compensation or fringe benefits
(including without limitation any foreign
plan described in section 4(b)(4) of
ERISA).
3.18.2 Prior to the date of this Agreement, Companies
have provided to Buyer complete, accurate and current copies of each of the
following:
(i) the text (including amendments) of each
of the Employee Plans, to the extent
reduced to writing;
(ii) a description of all material elements of
each of the Employee Plans, to the extent
not previously reduced to writing;
(iii) with respect to each Employee Plan that
is an employee benefit plan (as defined
in section 3(3) of ERISA), the following:
(A) the most recent summary plan
description, as described in
section 102 of ERISA;
(B) any summary of material
modifications that has been
distributed to participants or
filed with the U.S. Department
of Labor but that has not been
incorporated in an updated
summary plan description
furnished under Subparagraph
(A) above;
(C) the annual reports, as
described in section 103 of
ERISA, for the most recent
three (3) plan years for which
an annual report has been
prepared (including any
actuarial and financial
statements, opinions and
schedules required by Form 5500
or section 103 of ERISA);
(D) where applicable, the actuarial
reports for the most recent
three (3) reporting periods for
which such a report has been
prepared; and
(E) any trust agreement, investment
management, contract with an
insurance or service provider,
administration agreement or
other contract, agreement or
insurance policy;
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<PAGE>
(iv) with respect to each Employee Plan that
is an employee pension benefit plan (as
defined in section 3(2) of ERISA) and
that is neither an excess benefit plan
(as defined in section 3(36) of ERISA)
nor a plan exempted under section 201(2)
of ERISA, the following:
(A) the most recent determination
letter concerning the plan's
qualification under section
401(a) of the Code, as issued
by the Internal Revenue
Service; and
(B) any request for a determination
concerning the plan's
qualification under section
401(a) of the Code, as filed
with the Internal Revenue
Service since the date of the
most recent determination
letter; and
(v) any handbook, manual, policy, statement
or similar written guidelines furnished
to employees, excluding any such item
that has been superseded by any
subsequent handbook, manual, policy
statement or similar written guidelines.
3.18.3 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to ERISA and the regulations thereunder, each of such requirements has in all
material respects been fully met on a timely basis.
3.18.4 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to Part 4 of Subtitle B of Title I of ERISA, none of the following now exists or
has existed within the six-year period ending on the date hereof:
(i) any act or omission constituting a
material violation of section 402 of
ERISA;
(ii) any act or omission constituting a
violation of section 403 of ERISA;
(iii) any act or omission constituting a
violation of sections 404 or 405 of
ERISA;
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<PAGE>
(iv) to Companies' knowledge, any act or
omission by any other person constituting
a violation of sections 404 or 405 of
ERISA;
(v) any act or omission that constitutes a
violation of sections 406 and 407 of
ERISA and is not exempted by section 408
of ERISA or that constitutes a violation
of section 4975(d) of the Code; or
(vi) any act or omission constituting a
violation of sections 503, 510 or 511 of
ERISA.
3.18.5 Each Employee Plan that is an employee pension
benefit plan (as defined in section 3(2) of ERISA) and that is neither an excess
benefit plan (as defined in section 3(36) of ERISA) nor a plan exempted under
section 201(2) of ERISA meets all requirements for qualification under section
401(a) of the Code and the regulations thereunder, except to the extent that
such requirements may be satisfied by adopting retroactive amendments under
section 401(b) of the Code and the regulations thereunder. Each such Employee
Plan has been administered in accordance with its terms and the applicable
provisions of ERISA and the Code and the regulations thereunder.
3.18.6 No Employee Plan to which section 412 of the
Code applies has an accumulated funding deficiency (as defined in section 412(a)
of the Code). No amendment to any such Employee Plan is precluded by any waiver,
extension or prior amendment described in section 412(f) of the Code, and no
such waiver has been requested.
3.18.7 Companies have no liability to the Pension
Benefit Guaranty Corporation, to any multiemployer plan (as defined in section
4001(a)(3) of ERISA) or to any trustee under Subtitles D or E of Title IV of
ERISA. No event has occurred which, with the giving of notice under sections
4063 and 4219 of ERISA, would result in such liability.
3.18.8 All contributions, premiums or other payments
due to (or under) any Employee Plan have been fully paid or adequately provided
for on the books and financial statements of Companies. All accruals (including,
where appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
3.18.9 Each Employee Plan complies with, and has been
administered in compliance with, all applicable requirements of (A) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder,
REGISTRATION STATEMENT
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<PAGE>
(B) Title VII of the Civil Rights Act of 1964, as amended, and the regulations
thereunder and (C) the health care continuation provision of COBRA.
3.18.10 No Employee Plan provides retiree welfare
benefits to former employees of Company that cannot be cancelled at will by
Companies as of the Closing Date without residual liability.
3.18.11 All employee welfare benefit plans provide
coverage for all claims relating to periods prior to the Closing Date whether
such claims are filed prior to or after the Closing Date.
3.19 Litigation and Violations. Except as set forth on
Schedule 8, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Companies' best knowledge, threatened
against or affecting Companies which (i) seek to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) might
have a material adverse effect on the financial position or results of
operations of Companies. Companies are not in violation of any term of any
judgment, decree, injunction, or order to which it is subject, which violation
could have a material adverse effect on the financial position or results of
operations of Companies.
3.20 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Companies contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
3.21 Investment Company. Companies are not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended (the "Act"), and Companies
have not relied on rule 3a-2 under the Act as a means of excluding it from the
definition of an "investment company" under the Act at any time within the three
(3) year period preceding the Closing Date.
3.22 CATV Instruments and Company Contracts.struments and
Company Contracts.
3.22.1 The CATV Instruments and Company Contracts are
currently in full force and effect, are valid under all applicable laws, and are
enforceable according to their terms. Companies are in full compliance with and
are not in violation or default under any of the CATV Instruments or Company
Contracts. There is no legal action, governmental proceeding, or investigation,
pending or threatened, to modify, revoke, terminate, suspend, cancel, or reform
any of the CATV Instruments or Company Contracts. Companies are in full
compliance with other applicable requirements of all governing or regulatory
authorities (including the APUC, the U.S. Government Contract Officer for the
CATV Franchise Agreement, the FCC and the Register of Copyrights)
REGISTRATION STATEMENT
Page II-173
<PAGE>
relating to the CATV Instruments, including, without limitation, all
requirements for notification, filing, reporting, posting, and maintenance of
logs and records. Companies hold valid and continuing CATV Instruments, Company
Contracts, rights-of-way, rights-of-entry, permits, and other rights and
authorizations necessary to enable it to operate its CATV Business. Except for
the City and Borough of Juneau no franchise restricts Companies' ability to
change any rates charged for CATV services, and Companies have not received any
notice of any franchising authority's intention to assert that the CATV System
is not subject to effective competition. There is no pending assertion or claim
that operations pursuant to any franchise have been improperly conducted or
maintained. A request for renewal has been filed with the appropriate franchise
authorities under Section 626 of the Cable Communications Policy Act of 1984
with respect to all franchises expiring within 44 months of the date of this
Agreement.
3.22.2 True, complete, and correct copies of the CATV
Instruments and Company Contracts and any amendments thereto effective as of the
date of this Agreement have been delivered by Company to Buyer.
3.23 FCC Compliance. Each Company is duly authorized under
applicable CATV Instruments and FCC rules, regulations, and orders to distribute
the FM signals and off-air television broadcast signals presently being carried
to the Subscribers of its CATV Business, to utilize all carrier frequencies
generated by its CATV Business, and is licensed to operate all the facilities,
including, without limitation, any business radio and any cable television relay
service ("CARS") system, being operated by its CATV Business. Each Company has
provided all notices to Subscribers required by The Communications Act of 1934,
as amended (the "Communications Act") and FCC rules and regulations. The
operation of Companies CATV Business and of any FCC-licensed facility used in
conjunction with the operation of its CATV Business has been, and is, in
compliance with the Communications Act and FCC rules and regulations, and each
Company has received no notice, and otherwise has no reason to know, of any
claimed default or violation with respect to the foregoing. Companies have
obtained all required FCC clearances for the operation of the CATV System in all
necessary aeronautical frequency bands. To the extent the CATV System uses
frequencies in the aeronautical bands (108-137 and 225-400 MHZ) at power levels
at or greater than 28 dBmV, such frequencies have been offset from standard
aeronautical frequencies as provided in FCC rules and regulations, on the
channels in the Service Area. During each calendar quarter in which Companies
have owned and operated the CATV System, at least 75% of the CATV System's plant
has been monitored for leakage, such that 100% of the plant has been so
monitored each calendar year. Each system keeps a log that records the location
of any leak of 20 uV/m or greater, the date the leak was detected, the date the
leak was repaired, and the probable cause of the leak. Company will continue
such monitoring, repair, and record keeping activities with respect to the CATV
System through the Closing Date. Prior to the Closing, Companies will have taken
the necessary measurements for calculation of the CATV System's cumulative
leakage index (CLI) and filed a CLI report in accordance with applicable FCC
rules and regulations. Company
REGISTRATION STATEMENT
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<PAGE>
has been certified as in compliance with the FCC's equal employment opportunity
rules for each year since 1987. Companies are in compliance with Subpart K of
FCC rules and regulations, including the network non-duplication, syndicated
exclusivity, and sports blackout requirements. The CATV System has established
appropriate record keeping procedures and is in compliance with the FCC's
Children's Television Rules. Companies have duly and timely filed all required
reports with the FCC. Companies have delivered to Buyer copies of all current
reports and filings, and all reports and filings for the past five years, made
or filed by Companies pursuant to FCC rules and regulations as listed on
Schedule 2. Companies shall make available to Buyer all other past reports and
filings made or filed by Companies pursuant to FCC rules and regulations. The
representations in this paragraph 3.23 are to the best of the Companies'
knowledge.
3.24 APUC Compliance. Companies are duly authorized to operate
their CATV Business under APUC certificates and to the best of its knowledge
each Company is in material compliance with all APUC rules, regulations and
orders. Each Company has received no notice, and otherwise has no reason to know
of any claimed default or violation with respect to the foregoing.
3.25 Patents, Trademarks, and Copyrights. Companies have
timely and accurately made all material requisite filings and payments with the
Register of Copyrights and is otherwise in compliance with all applicable rules
and regulations of the Copyright Office. Companies have delivered to Buyer
copies of all current reports and filings, and all reports and filings for the
past five (5) years, made or filed by Companies pursuant to Copyright rules and
regulations. Companies shall make available to Buyer all other past reports and
filings made or filed by Companies pursuant to Copyright rules and regulations.
Companies do not possess any patent, patent right, trademark, or copyright and
is not a party to any license or royalty agreement with respect to any patent,
trademark, or copyright except for licenses respecting program material and
obligations under the Copyright Act of 1976 applicable to CATV systems
generally. The Assets are free of the rightful claim of any third party by way
of copyright infringement or the like.
3.26 No Other Assets or Liabilities. Companies have no assets
of any kind other than the Assets, CATV Instruments, and Company Contracts
described on the Schedules and Companies have no liabilities, obligations, or
commitments of any kind other than obligations under the CATV Instruments and
Company Contracts described on the Schedules and liabilities disclosed on the
Financial Statements.
3.27 Required Consents. As further set forth in Section 6.9,
Companies and Buyer will have as of the Closing Date obtained the Required
Consents, unless Buyer agrees in writing that any Required Consent need not be
obtained until after the Closing Date. A true and complete list of all Required
Consents is set forth on Schedule 4.
REGISTRATION STATEMENT
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<PAGE>
3.28 Overbuilds. No area presently served by Companies' CATV
business is presently subject to or, to Companies' best knowledge, threatened to
be subject to an overbuild situation. Companies are currently the only cable
television operator providing or, to Companies' best knowledge, intending to
provide cable television service in the Service Areas. No person or entity other
than Companies have been granted or has applied for APUC Certificates or a CATV
franchise agreement in any of the communities (or any of the unincorporated
areas) presently served by Companies' CATV business.
3.29 Subscriber Numbers. As of December 31, 1995, the CATV
Business had as needed no fewer than Twenty-Five Thousand Nine Hundred Forty-Two
(25,942) current EBS's and no fewer than Fifteen Thousand Seven Hundred Eighty
(15,780) current Pay TV Units, none of which were more than sixty-two (62) days
delinquent in payment for service.
3.30 No Insolvency. As of even date and as of the Closing
Date, Companies are not and shall not be insolvent.
3.31 Compliance with Law
3.31.1 The ownership, leasing and use of the Assets
as they are currently owned, leased and used and the conduct of the Business as
it is currently conducted do not violate any Legal Requirement, which violation,
individually or in the aggregate, would have a material adverse effect on a
System, the Business or Companies. Companies have received no notice claiming a
violation by Companies or the Business of any Legal Requirement applicable to
Companies or the Business as it is currently conducted and to Companies' best
knowledge, there is no basis for any claim that such a violation exists.
3.31.2 A request for renewal has been duly and timely
filed under Section 626 of the Cable Communications Policy Act of 1984 with the
proper Governmental Authority with respect to all cable television franchises of
the Business that have expired or will expire within 36 months after the date of
this Agreement.
3.31.3 Companies have complied, and the Business is
in compliance, in all material respects, with the specifications set forth in
Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the
Copyright Act of 1976 and the rules and regulations of the U.S. Copyright
Office, the Register of Copyrights and the Copyright Royalty Tribunal, the
Communications Act of 1934, the rules and regulations of the FCC, including
provisions of any thereof pertaining to signal leakage, to utility pole make
ready and to grounding and bonding of cable television systems (in each case as
the same is currently in effect), and all other applicable Legal Requirements
relating to the construction, maintenance, ownership and operation of the
Assets, the Systems and the Business.
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<PAGE>
3.31.4 Notwithstanding the foregoing, Companies have
used their best efforts to comply in all material respects with the provisions
of the Cable Television Consumer Protection and Competition Act of 1992 and the
FCC rules and regulations promulgated thereunder ("1992 Cable Act") as such laws
relate to the operation of the Business. Except as provided in Schedule 8,
Companies have complied in all material respects with the must carry and
retransmission consent provisions of the 1992 Cable Act. Companies have used
their best efforts to establish rates charged to subscribers, effective since
September 1, 1993, that are or were allowable under rules and regulations
promulgated under the 1992 Cable Act, and any authoritative interpretation
thereof now or then in effect, whether or not such rates are or were subject to
regulation at that date by any Governmental Authority, including any local
franchising authority and/or the FCC, unless such rates were not subject to
regulation pursuant to a specific exemption from rate regulation contained in
the 1992 Cable Act other than the failure of any franchising authority to have
been certified to regulate rates. Companies have delivered to Buyer complete and
correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215, 1220, 1225, 1235
and 1240 filed with respect to the System and copies of all other FCC Forms
filed by Companies and correspondence with any Governmental Authority relating
to rate regulation generally or specific rates charged to subscribers with
respect to the Systems, including copies of any complaints filed with the FCC
with respect to any rates charged to Subscribers of the Systems, and any other
documentation supporting an exemption from the rate regulation provisions of the
1992 Cable Act claimed by Companies with respect to any of the Systems
(collectively, "Rate Regulation Documents"). Companies have received no notice
from any Governmental Authority with respect to an intention to enforce customer
service standards pursuant to the 1992 Cable Act and Companies have not agreed
with any Governmental Authority to establish customer service standards that
exceed the standards in the 1992 Cable Act. In addition, Company has also
delivered to Buyer documentation for each of the Systems in which the
franchising authority has not certified to regulate rates as of the date of this
Agreement showing a determination of allowable rates using a benchmark
methodology. Companies have not made any election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding (a "Cost of Service
Election") with respect to any of the Systems.
3.32 Holding Period. Companies will not violate and will not
be subject to any requirement to obtain a waiver under the anti-trafficking
provisions of the 1992 Cable Act as a result of the transfer of the Systems
contemplated under this Agreement.
3.33 Disclosure. No representation or warranty by Companies in
this Agreement or in any Schedule or Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Companies
pursuant to this Agreement, contains or will contain any untrue statement of
material fact, or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which made. Without
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limiting the generality of the foregoing, the information set forth in the
Schedules concerning the Business is accurate and complete in all material
respects.
Section 4 Assumed Liabilities and Excluded Assets.
4.1 Assignment and Assumption. Companies will assign, and
Buyer will assume and perform, the Assumed Liabilities, which are defined as:
(a) Companies' obligations to subscribers of the Business for (i) subscriber
deposits held by Companies as of the Closing Date and which are refundable, (ii)
subscriber advance payments held by Companies as of the Closing Date for
services to be rendered by a System after the Closing Date and (iii) the
delivery of cable television service to subscribers of the Business after the
Closing Date; and (b) obligations accruing and relating to periods after the
Closing Date under Governmental Permits listed on Schedule 2 (to the extent that
such Governmental Permits are transferrable) and Company Contracts listed on
Schedule 3. Buyer will not assume or have any responsibility for any liabilities
or obligations of Companies other than the Assumed Liabilities. In no event will
Buyer assume or have any responsibility for any liabilities or obligations
associated with the Excluded Assets.
4.2 Excluded Assets. The Excluded Assets, which will be
retained by Companies, will consist of the following: (a) retransmission consent
agreements (except for those set forth on Schedule 3); (b) insurance policies
and rights and claims thereunder (except as otherwise provided in Section 6.21);
(c) bonds, letters of credit, surety instruments and other similar items; (d)
cash and cash equivalents; (e) Companies' trademarks, trade names, service
marks, service names, logos and similar proprietary rights (subject to Buyer's
rights under Section 6.26); (f) Companies' rights under any agreement governing
or evidencing an obligation of Companies for borrowed money; (g) Companies'
rights under any contract, license, authorization, agreement or commitment other
than those creating or evidencing Assumed Liabilities; and (h) the assets
described on Schedule 10.
Section 5 Buyer's Representations, Warranties, and Covenants
Buyer represents, warrants, and covenants to Companies as
follows:
5.1 Organization and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Alaska; has
all requisite power, right, and authority to execute, deliver, and perform this
Agreement; and has taken all action required by law, its Articles of
Incorporation and Bylaws, and otherwise to authorize the execution, delivery,
and performance of this Agreement.
5.2 Capitalization. The authorized capital stock of Buyer
consists of 50,000,000 shares of Class A common stock, of which 19,660,199
shares are issued and outstanding; 10,000,000 shares of Class B common stock, of
which 4,175,434 are
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issued and outstanding, and 1,000,000 shares of preferred stock, of which no
shares are issued and outstanding, all as of October 31, 1995. As of the
Closing, the GCI Shares will be duly authorized, validly issued, fully paid and
nonassessable and free of any Security Interests. There are no outstanding or
authorized (i) securities of Buyer convertible into or exchangeable or
exercisable for any shares of its capital stock, except that each share of Class
B common stock is convertible into one share of Class A common stock, or (ii)
subscriptions, options, warrants, calls, rights, commitments, or other
agreements or obligations of any kind obligating Buyer to issue any additional
shares of its capital stock or any other securities convertible into or
evidencing the right to acquire or subscribe for any shares of its capital
stock, except pursuant to (a) Buyer's December, 1986 Stock Option Plan, (b)
Buyer's December, 1986 Employee Stock Purchase Plan; (c) that June, 1989, option
agreement granted to John Lowber to acquire 100,000 shares of Buyer's Class A
common stock at $0.75 per share; (d) that June, 1989, incentive agreement with
William Behnke to acquire 85,190 shares of Buyer's Class A common stock for
$.001 per share; and (e) those shares of Buyer's Class A common stock which may
be issued pursuant to $10,000,000 Convertible Subordinated Notes for the
purchase of Alaskan Cablevision, Inc.
5.3 Enforceability. This Agreement constitutes the legal,
valid, and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity. There is
no litigation at law, in equity, or in any other proceeding or investigation
pending or threatened against Buyer which might materially impair the ability of
Buyer to perform under this Agreement.
5.4 Records. Buyer's minute books, as made available to
Company, contain current, complete, and accurate records of all meetings and
actions of Buyer's directors, and, if any, committees of the board of directors.
All material actions and transactions taken or entered into by Buyer or
otherwise requiring action by its directors and/or shareholders have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Buyer's books and ledgers, as made available to Company, contain complete and
accurate records of all issuances and transfers of its stock interests. The
signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
5.5 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Buyer (a) does not and will not (with the
giving of notice or passage of time or both ) (i) conflict with or result in a
breach or violation by Buyer of, or (ii) constitute a default by Buyer under, or
(iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of its contracts, any statute, ordinance, rule, or
regulation, or any agreement, instrument, judgment, or order to which Buyer is a
party or by which Buyer is bound or may be affected, and (b) does not and will
not
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(with the giving of notice or passage of time or, both) create or impose any
Security Interest on the GCI Shares.
5.6 Compliance with Laws. Buyer is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over Buyer's business and affairs.
5.7 Financial Statements. Buyer has delivered to Companies
correct and complete copies of Buyer's audited financial statements for each of
the two most recent fiscal years ended prior to the date of this Agreement and
unaudited interim monthly financial statements for periods subsequent to the end
of the most recent fiscal year end ("Financial Statements"). The Financial
Statements are complete and correct, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except, in the case of interim financial statements,
subject to normal recurring year-end adjustments and the absence of footnotes),
and fairly present in accordance with generally accepted accounting principles
the financial condition and results of Buyer's operations as of the dates
indicated and for the periods covered thereby. Except as disclosed by, or
reserved against in, its most recent balance sheet included in the Financial
Statements, Buyer did not have as of the date of such balance sheet any
liability or obligation, whether accrued, absolute, fixed or contingent
(including, without limitation, liabilities for taxes or unusual forward or
long-term commitments), which was material to Buyer's business, results of
operations or financial condition and which is required to be disclosed on, or
reserved against in, a balance sheet. Buyer has received no notice of any fact
which may form a basis for any claim by a third party which, if asserted, could
result in a material liability affecting Buyer not disclosed by or reserved
against in Buyer's most recent balance sheet. From the date of the most recent
balance sheet included in the Financial Statements to and including the date
hereof, (i) Buyer's business has been operated only in the ordinary course, (ii)
Buyer has not sold or disposed of any assets other than in the ordinary course
of business, (iii) there has not occurred any material adverse change or event
in Buyer's business, operations, assets, liabilities, financial condition, or
results of operations compared to the business, operations, assets, liabilities,
financial condition, or results of operations reflected in the Financial
Statements, and (iv) there has not occurred any theft, damage, destruction, or
loss which has had a material adverse effect on Buyer.
5.8 Tax Returns and Other Reports. Buyer has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule
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8, there are no tax audits pending and no outstanding agreements or waivers
extending the statutory period of limitations applicable to any relevant tax
return.
5.9 Transfer Taxes. There are no sales, use, transfer, excise,
or license taxes, fees, or charges applicable with respect to the transactions
contemplated by this Agreement.
5.10 Litigation and Violations. Except as set forth on
Schedule 8, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Buyer's best knowledge, threatened
against or affecting Buyer which (i) seek to restrain or enjoin the consummation
of the transactions contemplated by this Agreement or (ii) might have a material
adverse effect on Buyer's financial position or results of operations. Buyer is
not in violation of any term of any judgment, decree, injunction, or order to
which it is subject, which violation could have a material adverse effect on the
financial position or results of operations of Buyer.
5.11 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Buyer contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
5.12 Investment Company. Buyer is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended ("Act"), and Buyer has not relied on
rule 3a-2 under the Act as a means of excluding it from the definition of an
"investment company" under the Act at any time within the three (3) year period
preceding the Closing Date.
5.13 No Finders or Brokers. Neither Buyer nor any of its
Affiliates have entered into any contract, arrangement, or understanding with
any person or firm which may result in any obligation of Company to pay any
finder's, broker's, or agent's fees or commissions or other like payments as a
result of the transactions contemplated by this Agreement.
5.14 No Insolvency. As of even date and as of the Closing
Date, Buyer is not and shall not be insolvent.
Section 6 Conduct Prior to Closing
6.1 Operation in Ordinary Course. Companies shall continue to
operate the CATV Business prior to the Closing Date in the ordinary course as
presently operated and in accordance with its 1996 budget, including their
ordinary level of maintenance capital expenditures, unless otherwise agreed by
Buyer, including, without limitation, payment of all expenses in a timely manner
consistent with prior business
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practices without accelerating or delaying any payments, maintaining business
books, records, and files all in accordance with past practices, consistently
applied, and maintaining the Assets (including maintenance of the inventories of
spare equipment and parts listed on Schedule 5), and continuing to implement
procedures for disconnection and discontinuance of service to Subscribers whose
accounts are delinquent or past due, in accordance with current practice and
policy as of the date of this Agreement. Without limiting the generality of the
foregoing, Companies agree that Companies, or anyone acting on Companies'
behalf, shall not, without Buyer's prior written consent, (i) enter into or
modify any material agreement, contract, or commitment which, if entered into
prior to the date of this Agreement, would be required to be disclosed on any
Schedule to this Agreement, (ii) place or permit to exist any lien, encumbrance,
security interest, claim or charge of any kind against the Assets or the Assets,
(iii) enter into or continue any discussions, negotiations or contracts relating
to the sale, assignment, or transfer any Assets of the Companies or the CATV
Business, (iv) commit any act or omit to do any act which would cause a breach
of any CATV Instrument or Company Contract or permit any amendment to or
cancellation of any CATV Instrument or Company Contract, (v) commit any
violation of any law, statute, rule, governmental regulation or order, (vi)
change the rate charged for Basic CATV Service or Pay TV or add or delete any
program service. Company shall maintain insurance on the CATV Business and the
Assets until the Closing Date consistent with past practice and policy, and
Companies shall bear all risk of loss on or prior to Closing with respect to the
CATV Business and the Assets as a result of any loss, claim, casualty, or
calamity.
6.2 Agents. Companies agree that Buyer's designated agent
shall be included in all material business discussions regarding Companies'
conduct of their affairs.
6.3 Franchise Extensions. At Buyer's option, Companies shall
cooperate with Buyer in seeking the extension of any franchises expiring prior
to December 31, 2000.
6.4 Company Contracts. All Company Contracts are described on
Schedule 3 or Schedule 10. Complete and correct copies of all Company n of this
Agreement. Any party shall have 10 days after receipt to review such completed
Schedules and due diligence materials and to notify the applicable party of any
problems or concerns arising as a result of such review. If Companies and Buyer
are unable to resolve any such problems or concerns by negotiating a mutually
satisfactory modification to this Agreement, the objecting party shall have the
right to terminate this Agreement within 10 days after notifying the other
parties of such problems or w Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan) to purchase securities prior to the Closing, except (i)
for the proposed issuance of Two Million (2,000,000) shares of Buyer's Class A
Common Stock to MCI Telecommunication Corporation ("MCI") for Thirteen Million
and
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no/100 Dollars ($13,000,000.00), (ii) the possible acquisition of the ongoing
cable television business and cable television systems of Rock Associates, Inc.,
for One Million Five Hundred Thirty Eight Hundred Thousand (1,538,000) shares of
Buyer's Class A Common Stock and (iii) the possible acquisition of the ongoing
cable television business and cable television systems of Prime Cable of Alaska,
L.P. ("Prime"), for not more than Eleven Million Eight Hundred Thousand
(11,800,000) shares of GCI's Class A Common Stock and (iv) the issuance of
shares in connection with any other purchase of up to $1,500,000.00. Neither
Buyer nor anyone acting on Buyer's behalf shall enter into or continue any
discussions, negotiations or contracts relating to the sale of all or any
portion of its assets or equity, except in the ordinary course of business.
6.5 No New Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan) to purchase securities prior to the Closing, except (i)
for the proposed issuance of Two Million (2,000,000) shares of Buyer's Class A
Common Stock to MCI Telecommunication Corporation ("MCI") for Thirteen Million
and no/100 Dollars ($13,000,000.00), (ii) the possible acquisition of the
ongoing cable television business and cable television systems of Rock
Associates, Inc., for One Million Five Hundred Thirty Eight Hundred Thousand
(1,538,000) shares of Buyer's Class A Common Stock and (iii) the possible
acquisition of the ongoing cable television business and cable television
systems of Prime Cable of Alaska, L.P. ("Prime"), for not more than Eleven
Million Eight Hundred Thousand (11,800,000) shares of GCI's Class A Common Stock
and (iv) the issuance of shares in connection with any other purchase of up to
$1,500,000.00. Neither Buyer nor anyone acting on Buyer's behalf shall enter
into or continue any discussions, negotiations or contracts relating to the sale
of all or any portion of its assets or equity, except in the ordinary course of
business.
6.6 Employees. Companies shall use their best efforts to
preserve its relationship with its employees and to pay to those employees all
salaries, commissions, and other compensation to which they are entitled for
services rendered prior to the Closing Date.
6.7 Access to Premises and Records. The parties shall cause
Companies and Buyer to give to the parties and their representatives full access
at reasonable times to (i) all the premises and books and records of the CATV
Business and to all of the Assets and (ii) Buyer's premises, books and records,
and each shall furnish to the parties and their representatives all information
regarding the business and properties of Companies and Buyer as shall from time
to time reasonably requested. Furthermore, Buyer shall be given the opportunity
to perform a field audit of Companies' accounts with Companies' cooperation
prior to Closing. Buyer agrees that it will exercise this right of access solely
for the purposes of completing its investigation in connection with this
Agreement and that the confidentiality of any data or information acquired by
Buyer in connection with this transaction shall be maintained by Buyer and its
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<PAGE>
representatives in accordance with Section 18.17. Without limiting Buyer's
rights of access stated above, Companies shall permit Buyer and/or such agents
or experts as Buyer shall designate, full access to the Real Property or any of
it and all records concerning the Real Property during reasonable business hours
for purposes of such independent investigation Buyer shall desire to conduct. At
Buyer's sole option, such investigation may include testing of the soil,
groundwater, building components, tanks, containers and equipment on the Real
Property as Buyers or Buyer's agents or experts shall deem necessary to
determine or confirm the environmental condition of the Real Property.
Performance of such an inspection or review shall not in any way modify or
otherwise affect Buyer's rights or Companies' obligations under this Agreement,
including but not limited to Companies' representations and warranties in
Section 3.16 above.
6.8 Existing Relationships. Companies shall use their best
efforts to preserve the CATV Business as a going concern and to preserve
existing relationships with the APUC, and its suppliers, customers, and others
having business dealings with Companies, unless Buyer requests otherwise. Buyer
shall use its best efforts to preserve its business as a going concern and to
preserve its existing relationships with suppliers, customers and others having
business dealings with it.
6.9 Required Consents. Companies and Buyer agree to cooperate
and use their reasonable commercial efforts to obtain all Required Consents in a
form and upon terms and conditions satisfactory to Buyer. Companies will afford
Buyer the opportunity to review, approve, and revise the form of Required
Consents prior to delivery to any consenting party. Nothing contained herein
shall be deemed to require Buyer to undertake any extraordinary or unreasonable
measures to obtain such Required Consents, including, without limitation, the
initiation or prosecution of legal proceedings, or agreeing to change any terms
of any CATV Instruments or Company Contracts.
6.10 Compliance with CLI Standards. No later than thirty (30)
days after execution of this Agreement, representatives of Buyer and Company
shall jointly inspect the CATV Systems to determine if the CATV Systems are in
compliance with the CLI standards under applicable FCC rules and regulations
("CLI Standards"). If the CATV Systems or any portion thereof are not in
material compliance with CLI Standards, Buyer shall not be required to
consummate the transactions contemplated by this Agreement.
6.11 MDU Agreements. Companies represent and warrant that no
written permanent easement agreements have been granted to Companies from any
MDU property owners.
6.12 Public Announcements. Companies acknowledge and agree
that Buyer shall make all press releases it deems necessary under the securities
law, rules and regulations, however, except as may be required by applicable law
or regulation, neither Buyer nor Companies shall issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby
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<PAGE>
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld and shall be promptly given. Buyer and Company shall
provide all parties with copies of press releases in advance of publication.
6.13 Due Diligence. Within 10 days after the date of execution
of this Agreement, the parties agree to deliver fully completed Schedules and
all due diligence materials requested by any party prior to the execution of
this Agreement. Any party shall have 10 days after receipt to review such
completed Schedules and due diligence materials and to notify the applicable
party of any problems or concerns arising as a result of such review. If
Companies and Buyer are unable to resolve any such problems or concerns by
negotiating a mutually satisfactory modification to this Agreement, the
objecting party shall have the right to terminate this Agreement within 10 days
after notifying the other parties of such problems or concerns and no party
shall have any further obligations hereunder.
6.14 Correction of any Noncompliance Prior to Closing.
Notwithstanding any other provision of this Agreement, the parties acknowledge
and agree that further investigation is required to determine whether the
representations and warranties contained in Sections 3.15, 3.16, 3.17, 3.18 and
3.25 are true and correct as of the date of execution of this Agreement. To the
extent that the parties determine that any such representation and warranty is
not true and correct as of the date of execution of this Agreement, the parties
intend that Companies shall take whatever action is necessary to assure that
such representations and warranties are true and correct as of the Closing Date
and the fact that such representations and warranties were not true and correct
as of the date of execution of this Agreement shall not be deemed to be a breach
of this Agreement. With respect to any filings and associated payments required
to be made by Company in order to make the representations and warranties
contained in Sections 3.24, 3.25 and 3.27 true and correct, copies of such
filings indicating the filing date with the FCC, the APUC, or Copyright Office,
as appropriate, shall be delivered to Buyer at least ten (10) days prior to the
Closing Date.
6.15 Leased Equipment. Companies shall deliver title to the
Equipment free and clear of all Encumbrances (other than Permitted Encumbrances)
to Buyer at the Closing, except for those encumbrances set forth on Schedule 7.
6.16 Estoppel Certificates, Nondisturbance Agreements and
Franchise Renewals.
6.16.1 Each Company will use its best efforts to
obtain, at its expense, such estoppel certificates or similar documents from
lessors and other Persons who are parties to Company Contracts as Buyer may
request.
6.16.2 Each Company shall use its best efforts to
obtain with respect to each lease of Real Property set forth on Schedule 6, (i)
if such lease is
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identified by Buyer as being subordinate to the rights of any holder of an
Encumbrance on the affected leased premises securing an obligation of the owner
of the fee interest in such leased premises, a nondisturbance and attornment
agreement substantially to the effect of Exhibit B (mortgagor), executed by each
holder of such an Encumbrance; and if such lease is a sublease, a nondisturbance
and attornment agreement substantially to the effect of Exhibit B (landlord),
executed by the landlord under the prime or master lease; (ii) for each lease
that has not been recorded in the public records, execution of a document
suitable for recording in the public records and sufficient after recording to
constitute a memorandum of lease.
6.16.3 Each Company will use its best efforts to
obtain, and will cooperate with Buyer to obtain, renewals or extensions, at the
option of Buyer, of any franchises which expire prior to December 31, 2000
("Extended Franchises"), for terms running at least ten (10) years after the
Closing Date and upon other terms and conditions satisfactory to Buyer.
6.16.4 Each Company will execute and deliver to the
appropriate Governmental Authority, the FCC Forms 394 prepared by Buyer with
respect to each franchise as to which such Form 394 is required within two
Business Days after it receives each such Form 394 from Buyer.
6.17 Title Commitments and Surveys.
6.17.1 After the execution of this Agreement, Buyer
will order at Buyer's expense (a) commitments for owner's title insurance
policies on all Real Property owned by Company and on easements which provide
access to each such parcel of real property, (b) commitments for lessee's title
insurance policies for all Real Property leased by such Company which is used
for headend or tower sites and on easements which provide access to each such
site and (c) an ALTA survey (including such items on Table A of the Minimum
Standard Detail Requirements and Classifications thereto that Buyer in its
reasonable judgment determines are desirable or necessary) on each parcel of
Real Property for which a title insurance policy is to be obtained. The title
commitments will evidence a commitment to issue an ALTA title insurance policy
insuring good, marketable and indefeasible fee simple (or leasehold, if
applicable) title to each parcel of the Real Property, subject only to Permitted
Encumbrances, for such amount as Buyer directs and will contain no exceptions
except for items which in Buyer's reasonable opinion do not adversely affect
(other than in an immaterial way as to any individual parcel) the good,
marketable and indefeasible title to or Buyer's access or quiet use or enjoyment
of such Real Property in the manner the Real Property is presently used or in
the normal conduct of the Business. At the Closing, Companies will cause Buyer
to receive, at Buyer's expense, title commitments re-dated to the date and time
of Closing. In the event Companies have not eliminated or caused to be
eliminated all unacceptable exceptions from such policies or commitments prior
to Closing, and Buyer elects to
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proceed with the Closing, Buyer will be entitled to indemnification with respect
to such exceptions as provided in Section 16.2.
6.17.2 Title insurance policies on all Real Property
in such amounts as Buyer directs will be delivered to Buyer at Buyer's expense
within 30 days after the Closing Date evidencing title to the Real Property
vested in Buyer consistent with the commitments delivered at the Closing
pursuant to Section 8.18.
6.18 HSR Notification. As soon as practicable after the
execution of this Agreement, but in any event no later than 45 days after such
execution, Companies and Buyer will each complete and file, or cause to be
completed and filed, any notification and report required to be filed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); and each such filing shall request early termination of the waiting
period imposed by the HSR Act. The parties shall use their reasonable best
efforts to respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from any other Governmental
Authority in connection with antitrust matters. Company and Buyer shall use
their respective reasonable best efforts to overcome any objections which may be
raised by the FTC, the Antitrust Division or any other Governmental Authority
having jurisdiction over antitrust matters. Notwithstanding the foregoing, Buyer
shall not be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of Buyer or
any of its Affiliates, if Buyer determines in good faith that such change would
be materially adverse to the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates having
significant assets, net worth, or revenue. Notwithstanding anything to the
contrary in this Agreement, if Buyer, in its sole opinion, considers a request
from a governmental agency for additional data and information in connection
with the HSR Act to be unduly burdensome, Buyer may terminate this Agreement.
Within 10 days after receipt of a statement therefor, Company will reimburse
Buyer for one-half of the filing fees payable by Buyer in connection with
Buyer's filing under the HSR Act.
6.19 No Shopping. None of Companies, their shareholders or any
agent or representative of any of them will, during the period commencing on the
date of this Agreement and ending with the earlier to occur of the Closing or
the termination of this Agreement, directly or indirectly (a) solicit or
initiate the submission of proposals or offers from any Person for, (b)
participate in any discussions pertaining to or (c) furnish any information to
any Person other than Buyer relating to, any direct or indirect acquisition or
purchase of all or any portion of the Assets.
6.20 Notification of Certain Matters. Companies will promptly
notify Buyer of any fact, event, circumstance or action (a) which, if known on
the date of this
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Agreement, would have been required to be disclosed to Buyer pursuant to this
Agreement or (b) the existence or occurrence of which would cause any of
Companies' representations or warranties under this Agreement not to be correct
and complete.
6.21 Risk of Loss; Condemnation.
6.21.1 Companies will bear the risk of any loss or
damage to the Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If any such loss or
damage is so substantial as to prevent normal operation of any material portion
of a System or the replacement or restoration of the lost or damaged property
within 20 days after the occurrence of the event resulting in such loss or
damage, Companies will immediately notify Buyer of that fact and Buyer, at any
time within 10 days after receipt of such notice, may elect by written notice to
Company either (i) to waive such defect and proceed toward consummation of the
acquisition of the Assets in accordance with terms of this Agreement or (ii)
terminate this Agreement. If Buyer elects so to terminate this Agreement, Buyer
and Companies will be discharged of any and all obligations hereunder. If Buyer
elects to consummate the transactions contemplated by this Agreement
notwithstanding such loss or damage and does so, there will be no adjustment in
the consideration payable to Companies on account of such loss or damage but all
insurance proceeds payable as a result of the occurrence of the event resulting
in such loss or damage will be delivered by Companies to Buyer, or the rights to
such proceeds will be assigned by Companies to Buyer if not yet paid over to
Company, and Company will pay to Buyer an amount equal to the difference between
the amount of such insurance proceeds and the full replacement cost of the
damaged or lost Assets.
6.21.2 If, prior to the Closing, any material part of
or interest in the Assets is taken or condemned as a result of the exercise of
the power of eminent domain, or if a Governmental Authority having such power
informs Companies or Buyer that it intends to condemn all or any material part
of the Assets (either such event, a "Taking"), then Buyer may terminate this
Agreement. If Buyer does not elect to terminate this Agreement, then (a) Buyer
will have the sole right, in the name of Companies, if Buyer so elects, to
negotiate for, claim, contest and receive all damages with respect to the
Taking, (b) Companies will be relieved of their obligations to convey to Buyer
the Assets or interests that are the subject of the Taking, (c) at the Closing,
Companies will assign to Buyer all of Companies' rights to all damages payable
with respect to such Taking and will pay to Buyer all damages previously paid to
Companies with respect to the Taking and (d) following the Closing, Company will
give Buyer such further assurances of such rights and assignment with respect to
the taking as Buyer may from time to time reasonably request.
6.22 Lien and Judgment Searches. Buyer will obtain at Buyer's
expense, (a) the results of a lien search conducted by a professional search
company of records in the offices of the secretaries of state in each state and
county clerks in each county
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where there exist tangible Assets, and in the state and county where Companies'
principal offices are located, including copies of all financing statements or
similar notices or filings (and any continuation statements) discovered by such
search company and (b) the results of a search of the dockets of the clerk of
each federal and state court sitting in the city, county or other applicable
political subdivision where the principal office or any material assets of
Companies may be located, with respect to judgments, orders, writs or decrees
against or affecting Companies or any of the Assets.
6.23 Transfer Taxes. Buyer and Companies will be responsible
for one half of the payment of any state or local sales, use, transfer, excise,
documentary or license taxes or fees or any other charge (including filing fees)
imposed by any Governmental Authority with respect to the transfer of any of the
Assets pursuant to this Agreement.
6.24 Letter to Programmers. Not later than 30 business days
before the Closing Date, Companies will transmit a letter in the form of Exhibit
H to all programmers from which Companies purchase programming.
6.25 Updated Schedules. Not less than five business days prior
to Closing, Companies will deliver to Buyer revised copies of Schedules 1
through 10 which shall have been updated and marked to show any changes
occurring between the date of this Agreement and the date of delivery; provided,
however, that for purposes of Companies' representations and warranties and
covenants in this Agreement, all references to the Schedules will mean the
version of the Schedules attached to this Agreement on the date of signing, and
provided further that if the effect of any such updates to Schedules is to
disclose any one or more additional properties, privileges, rights, interests or
claims as Assets, Buyer, at or before Closing, will have the right (to be
exercised by written notice to Companies) to cause any one or more of such items
to be designated as and deemed to constitute Excluded Assets for all purposes
under this Agreement.
6.26 Use of Companies' Names. Buyer may continue to operate
the Systems using all the names currently being utilized by the CATV business
and all derivations and abbreviations of such names and related marks. Within
eighteen (18) months after the Closing Date, Buyer will discontinue using and
will dispose of all items of stationery, business cards and literature bearing
such names or marks. Notwithstanding the foregoing, Buyer will not be required
to remove or discontinue using any such name or mark that is affixed to
converters or other items in or to be used in subscriber homes or properties, or
as are used in a similar fashion making such removal or discontinuation
impracticable for Buyer.
6.27 Subscriber Billing Services. Companies will provide to
Buyer at no cost, upon request, access to and the right to use its billing
system computers, software and related fixed assets ("Transitional Billing
Services") in connection with the System
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acquired by Buyer for a period of up to 30 days following the Closing to allow
for conversion of existing billing arrangements. Buyer will promptly notify
Companies as to whether it desires Transitional Billing Services from Companies.
6.28 Satisfaction of Conditions. Each party will use its best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 17, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect, any of the
Assumed Liabilities.
Section 7 Closing
The Closing shall occur at Sherman and Howard's offices at 633
Seventh Street, Suite 3000, Denver, Colorado 80202, at 10:00 a.m. local time, on
such date acceptable to Companies and Buyer within ten (10) business days after
all conditions to Closing contained in this Agreement have been met, or at such
different place, time, or date as may be agreed by Companies and Buyer. Until
the Closing or earlier termination of this Agreement, the parties shall
cooperate fully by exchanging information upon reasonable request and in all
other reasonable ways to enable all parties to prepare for the Closing and to
determine whether the conditions to the Closing have been satisfied. Any of
Buyer or Companies may terminate this Agreement upon written notice to the
others if the Closing hereunder has not occurred by October 31, 1996, or, if the
Alaska Public Utilities Commission's consent shall not have been obtained by
such date, then at Buyer's or Companies' option, no later than December 31,
1996, and the parties shall thereupon be relieved of any further obligation
hereunder; provided, however, if a party's breach of this Agreement has
prevented the consummation of the transactions contemplated hereby, such party
shall not be entitled to terminate this Agreement under this Section 7. The
Closing Date may be further extended by mutual consent of the parties.
Section 8 Deliveries by Companies at Closing
At Closing, Companies shall deliver to Buyer:
8.1 the Bills of Sale for the Assets in the form attached as
Exhibit A.
8.2 a general warranty deed in a form reasonably acceptable to
Buyer (and complying with applicable state laws) with respect to each parcel of
owned Real Property, duly executed and acknowledged and in recordable form,
warranting good and clear record and marketable and indefeasible fee simple
title to such Real Property against all persons claiming by, through or under
Company, subject only to Permitted Encumbrances, and in form sufficient to
permit the title company to issue the title policy described in Section 6.17.1
to Buyer with respect to such Real Property;
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8.3 an Assignment of Company Contracts in the form attached as
Exhibit C;
8.4 one or more Assignments of Leases in the form attached as
Exhibit D and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
8.5 a memorandum of lease for each lease described in clause
(ii) of Section 6.16.2;
8.6 with respect to each lease described in clause (i) of
Section 6.16.2 a nondisturbance agreement in the appropriate form attached as
Exhibit C;
8.7 a Non-Compete Agreement signed by Companies, Alaskan Cable
Network, Inc., Alaskan Cable Network/Juneau Holding, Inc. and Jack Kent Cooke
Incorporated, the shareholder of all Companies' stock ("Owner") in the form
attached as Exhibit G;
8.8 affidavits of Companies, under penalty of perjury, that
each such Company is not a "foreign person" (as defined in the Foreign
Investment in Real Property Tax Act and applicable regulations) and that Buyer
is not required to withhold any portion of the consideration payable under this
Agreement under the provisions of such Act in the form attached as Exhibit I;
and
8.9 motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets.
8.10 incumbency and specimen signature certificates, dated the
Closing Date, from each Company with respect to the officers or managers of such
Company executing this Agreement and any other document delivered hereunder by
or on behalf of Company;
8.11 a certificate of each Company, dated the Closing Date,
signed by a proper officer of such Company certifying that (A) except (1) as a
result of the taking by any person of any action contemplated under this
Agreement or (2) insofar as any representation or warranty relates to any
specified earlier date, all of the representations and warranties of such
Company in this Agreement are true and correct in all material respects on the
Closing Date with the same force and effect as if made on and as of the Closing
Date, and (B) such Company has performed and complied in all material respects
with all of its covenants and agreements set forth in, and satisfied in all
material respects all conditions required to be satisfied by it pursuant to,
this Agreement except as such covenants, agreements, or conditions shall have
been waived by Buyer at or before the Closing Date;
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8.12 a certified copy of resolutions of the boards of
directors, and if necessary, the shareholders, as applicable, of each Company
authorizing the execution and delivery by each Company of this Agreement and any
other agreements executed by each Company pursuant hereto, and the performance
of the obligations of each Company hereunder and thereunder;
8.13 an opinion of each Companies' counsel, dated the Closing
Date, covering matters customary with respect to the transactions contemplated
by this Agreement, in form and substance satisfactory to Buyer;
8.14 an opinion of special communications, FCC counsel to
Company, dated the Closing Date, covering matters customary with respect to the
APUC and FCC aspects of the transactions contemplated by this Agreement, in the
form and substance satisfactory to Buyer;
8.15 releases or terminations, in form and substance
reasonably satisfactory to Buyer, of all Security Interests with respect to the
Assets and all financing statements or other instruments with respect thereto
except for the Permitted Encumbrances described in Schedule 7;
8.16 to the extent in the possession of Companies or their
agents, all contracts not terminated pursuant to this Agreement, all unexpired
warranties, any leases of personal property, any business and other licenses and
permits related to Company or the CATV Business;
8.17 to the extent in the possession of Companies or their
agents, all blueprints, schematics, drawings, maps, system design bill of
materials, engineering and technical data related to the Assets or the CATV
Business;
8.18 the title policies referred to in Section 6.17;
8.19 tax, judgment, and lien searches of the relevant public
records dated no more than fifteen (15) days prior to Closing, or dated as of
such other date acceptable to Buyer and Companies, indicating all Security
Interests against the Assets, the Assets, the CATV Systems, or the CATV
Business;
8.20 Schedules 1-10 which have been updated to reflect any
material changes from the date of execution of this Agreement to the Closing
Date; provided, however, that if any such change has a material adverse effect
on the condition, financial or otherwise, of Companies or the CATV Business,
Buyer shall have the right to terminate this Agreement with no further
obligations to Company hereunder.
8.21 Guaranty. Contemporaneously with the signing of this
Agreement, Companies are causing Owner to deliver the Guaranty in the form of
Exhibit F.
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Drafts of each of the items listed in this Section 8 shall be
delivered by Companies to Buyer within a reasonable time prior to Closing for
Buyer's review and approval.
Section 9 Deliveries by Buyer at Closing
At Closing, Buyer shall deliver to Companies:
9.1 the certificates evidencing the GCI Shares free and
clear of all Security Interests;
9.2 a certificate of good standing of Buyer issued by the
Commissioner of Commerce and Economic Development of
Alaska dated not more than sixty (60) days prior to
closing, but delivered to Companies not more than
thirty (30) days prior to Closing;
9.3 an incumbency and specimen signature certificate,
dated the Closing Date, with respect to the officers
of Buyer executing this Agreement and any other
document delivered hereunder by or on behalf of
Buyer;
9.4 a certificate of Buyer, dated the Closing Date,
signed by a proper officer of Buyer certifying that
(A) except (1) as a result of the taking by any
person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified earlier date, all
of the representations and warranties of Buyer in
this Agreement are true and correct in all material
respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and
(B) Buyer has performed and complied in all material
respects with all of its covenants and agreements set
forth in, and satisfied in all material respects all
conditions required to be satisfied by it pursuant
to, this Agreement except as such covenants,
agreements or conditions shall have been waived by
Company at or before the Closing Date; and
9.5 a certified copy of resolutions of the board of
directors of Buyer authorizing the execution and
delivery of this Agreement and any other agreements
executed pursuant hereto, and the performance of the
obligations of Buyer hereunder and thereunder.
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Section 10 Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject, at Buyer's option, to
fulfillment of each of the following conditions as of the Closing Date:
10.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Companies contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Companies, and Companies shall have performed and
complied in all material respects with all of its covenants and agreements set
forth herein and satisfied in all material respects all conditions required to
be satisfied by it pursuant to this Agreement at or before the Closing Date.
10.2 Deliveries Complete. All documents required to have been
delivered by Company to Buyer and all actions required to have been taken by
Companies, at or prior to the Closing Date, shall have been delivered or taken.
10.2.1 Companies have executed (or caused to be
executed) and delivered to Buyer the items set forth in Section 8.
10.2.2 Companies have delivered to Buyer: (a)
evidence, in form and substance satisfactory to Buyer, that all of the Required
Consents have been obtained or given and are in full force and effect; and (b)
to the extent obtained, the estoppel certificates or similar documents described
in Section 6.16.
10.2.3 The Extended Franchises have been obtained on
terms and conditions satisfactory to Buyer.
10.2.4 Companies have delivered releases, in form
satisfactory to Buyer, of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances).
10.2.5 Buyer has received the title insurance
commitments described in Section 6.17.
10.3 No Adverse Change. No material adverse change in the CATV
Business or the Assets shall have occurred (other than changes which affect the
United States CATV industry considered as a whole). The CATV Business shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially
REGISTRATION STATEMENT
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and adversely affects the CATV Business or the Assets, whether or not covered by
insurance; provided, however, that if Company has repaired at its expense all
damage caused by any loss, casualty, or calamity prior to the Closing to Buyer's
reasonable satisfaction, the condition set forth in this Section 10.3 shall be
deemed satisfied.
10.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Buyer to realize the benefits of the
transactions contemplated herein.
10.5 Inspection. Within sixty (60) days of this Agreement, the
results and findings of a due diligence inspection of the Assets and CATV
Business by Buyer shall be satisfactory to Buyer in its reasonable discretion,
and the condition of the Assets and CATV Business shall be as represented by
Companies herein and as otherwise disclosed to Buyer prior to the date hereof.
10.6 Cash Flow. As of the Closing Date, Companies' twelve (12)
month trailing Operating Cash Flow shall be no less than Seven Million Five
Hundred Thousand and no/100 Dollars ($7,500,000.00).
Section 11 Conditions to Obligations of Companies
The obligation of Company to consummate the transactions
contemplated by this Agreement shall be subject, at Companies' option, to
fulfillment of each of the following conditions as of the Closing Date:
11.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Buyer contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Buyer, and Buyer shall have performed and complied
in all material respects with all of its covenants and agreements set forth
herein, and satisfied in all material respects all conditions required to be
satisfied by it pursuant to this Agreement at or before the Closing Date.
11.2 Deliveries Complete. All documents required to have been
delivered by Buyer to Company and all actions required to have been taken by
Buyer, at or prior to the Closing Date, shall have been delivered or taken.
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11.3 No Adverse Change. No material adverse change in Buyer's
business shall have occurred (other than changes which affect the United States
telephone industry considered as a whole). Buyer's business operations shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects Buyer, whether or not covered by
insurance; provided, however, that if Buyer has repaired at its expense all
damage caused by any loss, casualty, or calamity prior to the Closing to
Companies' reasonable satisfaction, the condition set forth in this Section 11.3
shall be deemed satisfied.
11.3.1 Buyer has executed and delivered to Companies
an Assignment in the form attached as Exhibit D.
11.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Companies to realize the benefits of the
transactions contemplated herein.
Section 12 Conditions to Both Parties' Obligations
12.1 Consents. All Required Consents or waivers thereof shall
have been obtained and shall be in full force and effect as of the Closing Date.
12.2 No Governmental Action. No investigation, action, or
proceeding shall have been commenced by the Department of Justice or the Federal
Trade Commission or any other governmental entity challenging or seeking to
enjoin the consummation of the transactions contemplated by this Agreement and
neither Buyer nor Company shall have been notified of a present intention by the
Assistant Attorney General in charge of the Antitrust Division of the Department
of Justice, the Director of the Bureau of Competition of the Federal Trade
Commission or any governmental entity (or their respective designees) to
commence, or recommend the commencement of, such an investigation, action, or
proceeding.
12.3 Waiver of Conditions. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
Section 13 Transactions Subsequent to Closing
13.1 Further Actions. At any time and from time to time after
the Closing, each party hereto agrees, at its own expense (except as otherwise
provided herein), to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
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13.2 COBRA Benefits. Companies shall comply with all
requirements of COBRA and shall provide continuation coverage for all Employees
of Companies terminated prior to the Closing Date who elect such continuation
coverage under group health plan which will continue in effect after the Closing
Date.
Section 14 Registration Rights Agreement
The distribution to and, to the extent required, subsequent
resales or distributions by Owner of the GCI Shares will be registered under the
Securities Act of 1933, as amended, upon the terms and conditions set forth in
the Registration Rights Agreement, the form of which is attached hereto as
Exhibit A, which is hereby incorporated by reference. All expenses in connection
with any registration (other than underwriting discounts, selling commissions,
costs of sale, and expenses of counsel to Owner) and keeping any prospectus
current will be paid by Buyer.
Section 15 Agreement Not to Compete.
15.1 Agreement. Companies, ACNF, ACNJ and Owner shall provide
to Buyer at Closing an executed Non-Compete Agreement in the form attached to
this Agreement as Exhibit G, the terms and conditions of which are hereby
incorporated by reference.
15.2 Breach of Agreement. If this Section 15 is breached or
threatened to be breached, the parties expressly consent that, in addition to
any other remedy Buyer may have, Buyer may apply to any court of competent
jurisdiction for injunctive relief in order to prevent the continuation of any
existing breach or the occurrence of any threatened breach.
15.3 Enforceability. If any provision of this Section 15 is
determined to be unreasonable or unenforceable, such provision and the remainder
of this Section 15 shall not be declared invalid but rather shall be modified
and enforced to the maximum extent permitted by law.
Section 16 Survival of Representations and Warranties; Indemnification
16.1 Survival. Except as otherwise provided, the
representations, warranties, and covenants and related indemnity agreements
contained in or made pursuant to this Agreement (including the Exhibits and
Schedules) by Buyer and by Companies shall survive the Closing and shall
terminate on the third anniversary of the Closing Date. Notwithstanding the
preceding provisions of this Section 16.1, the representations, warranties, and
covenants (and related indemnities) in Sections 3.15, 3.16, 3.17, 3.18 and 3.25
shall survive the Closing for the period of sixty (60) days after the expiration
of the relevant statute of limitations for claims related thereto. The
REGISTRATION STATEMENT
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representations and warranties relating to the ownership of the Assets shall
continue in full force and effect without limitation.
16.2 Indemnity by Companies. Companies agree to indemnify,
defend, and hold harmless Buyer and its officers, directors, Affiliates,
employees, attorneys, agents and shareholders (the "Buyer's Indemnitees")
against and in respect of any and all claims, suits, actions, proceedings
(formal and informal), investigations, judgments, deficiencies, losses, damages,
settlements, liabilities and expenses (including, without limitation, reasonable
legal fees and expenses of attorneys chosen by the Buyer's Indemnitees), whether
or not disclosed in, or on any Schedule to, this Agreement (collectively,
"Losses"), as and when incurred arising out of or based upon (1) any breach of
any representation, warranty, covenant, or agreement of Companies contained in
this Agreement or in any other agreement executed and delivered by Companies
hereunder or in connection herewith, or (2) the ownership of the Assets or the
conduct of the CATV Business or any other matters relating to the business of
Companies for the period prior to the Closing Date, including, without
limitation, any actions taken by Companies prior to the Closing Date but which
do not become effective until after the Closing Date. The liability of each
seller under any indemnity for breach by such seller of a representation,
warranty or covenant shall be limited to an amount (or number of GCI Shares, if
still held by such seller) not to exceed the value of the consideration received
by such Seller under this Agreement and shall pro rata among the sellers based
upon the amount of consideration received by them in the transaction.
16.3 Indemnity by Buyer. Buyer agrees to indemnify, defend,
and hold harmless Companies and its managers, officers, directors, Affiliates,
employees, attorneys, agents and shareholders ("Sellers' Indemnitees") against
and in respect of any Losses as and when incurred arising out of or based upon
(1) any breach of any representation, warranty, covenant or agreement of Buyer
contained in this Agreement or in any other agreement executed and delivered by
Buyer hereunder or in connection herewith; or (2) the conduct of the CATV
Business or any other matters relating to the business of Company for the period
on and after the Closing Date.
16.4 Defense of Claims. No right to indemnification under this
Section 16 shall be available to any of Buyer's Indemnitee or Sellers'
Indemnitee (the "Indemnified Party") unless such Indemnified Party shall have
given to the party obliged to provide indemnification of such Indemnified Party
("Indemnitor") a notice ("Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder promptly after
receipt of knowledge by officers or management personnel of the Indemnified
Party of the facts upon which such claim is based; provided, however, that the
failure of any Indemnified Party to so notify the Indemnitor shall not relieve
the Indemnitor from any indemnification liability it may have except to the
extent that failure to so notify the Indemnitor materially prejudices the
Indemnitor's ability to defend against such claim. Upon receipt by the
Indemnitor of the Claim Notice from an Indemnified Party with respect to any
claim of a third party, such Indemnitor may
REGISTRATION STATEMENT
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assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party, and the Indemnified Party shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and testimony
and attend all such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested in connection therewith. The Indemnified
Party shall have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless (i) the Indemnitor shall not have promptly employed counsel
reasonably satisfactory to such Indemnified Party to take charge of the defense
of such action or (ii) such Indemnified Party shall have reasonably concluded
that there may be one or more legal defenses available to it, or to any other
Indemnified Party who has submitted a Claim Notice to the Indemnitor, which are
different from or additional to those available to the Indemnitor, in either of
which events such fees and expenses shall be borne by the Indemnitor (but in no
event shall the Indemnitor be required to pay the fees and expenses of more than
one counsel employed by more than one Indemnified Party with respect to any
claim) and the Indemnitor shall not have the right to direct the defense of any
such action on behalf of the Indemnified Party. The Indemnified Party shall give
written notice to the Indemnitor of any proposed settlement of any claim, which
settlement the Indemnitor may reject in its reasonable judgment within ten (10)
days of receipt of such notice. The Indemnitor shall have the right, in its sole
discretion, to settle any claim for monetary damages for which indemnification
has been sought and is available hereunder.
16.5 Right to Offset. Sellers and Buyer shall have the option
to recoup all or part of its Losses (in lieu of seeking any indemnification
therefor to which it is entitled under this Section 16) by notifying the other
that it is offsetting the amount of the Share Holdback by the amount of its
Losses if the amount of such Losses is determined before such party releases the
applicable Share Holdback. The Indemnitee shall notify the Indemnitor of its
claim for Losses to be offset against the applicable Share Holdback (including
the details forming the basis of such claim) as soon as practically possible
after obtaining knowledge of the basis for its claim for Losses to be so offset.
If a party disagrees with the asserted claim for Losses to be so offset, the
Indemnitee shall be entitled to offset such Losses against the applicable Share
Holdback, but the Indemnitee shall release to the Indemnitor the remaining
balance of the applicable Share Holdback. An arbitrator shall resolve any
dispute between the parties with respect to the Losses offset against the Share
Holdback within thirty (30) days, which determination shall be binding and
conclusive; provided, however, that if the nature of the disputed claim is not
of the type which would normally be determined by a certified public accountant,
the parties shall agree within ten (10) days on another person to serve as the
arbitrator, or if the parties cannot so agree, the Indemnitee shall select an
arbitrator and Indemnitor shall select an arbitrator and the two (2) arbitrators
so selected shall select a third arbitrator and such panel of three (3)
arbitrators shall resolve the disputed claim for Losses offset against the Share
Holdback within thirty (30) days. Nothing contained in this Section 16.5 shall
be deemed to limit a party's
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obligation to indemnify to the extent that the amount to which an Indemnitee is
entitled under Section 16 exceeds the amount of the applicable Share Holdback.
16.6 Determination of Indemnified Amounts. The indemnification
obligations of the parties under this Section 16 shall be subject to the
following:
16.6.1 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 16 as
a result of any Loss suffered by the Indemnified Party shall be reduced to the
extent the amount of such Loss is actually offset by the receipt by the
Indemnified Party of insurance proceeds pursuant to the terms of the insurance
policies, if any, covering such Loss or by the receipt of any recovery by the
Indemnified Party from a third party with respect to such Loss.
16.6.2 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 16 as
a result of any Loss suffered by the Indemnified Party shall be reduced by the
amount of any tax benefit actually realized by the Indemnified Party with
respect to such Loss, to the extent such benefit actually offsets such Loss,
provided that such reduced amount shall be increased by the amount of any taxes
payable by such Indemnified Party as a result of the Indemnitor's payment of
such Loss.
16.6.3 Amounts payable by the Indemnitor in respect
of any Losses shall be payable by the Indemnitor and shall bear interest at the
rate of ten and one-half percent (10.5%) per annum from the date the Loss for
which indemnification is sought were incurred by the Indemnified Party until the
date of payment of indemnification by the Indemnitor.
Section 17 Termination
17.1 Mutual Consent. This Agreement may be terminated by the
written consent of Buyer and Companies. Upon such termination, no party hereto
shall have any further liability to the other, except as provided in Section
17.2.
17.2 Default by Companies. Buyer shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that
Companies default in the performance of any material obligation hereunder or if
any representation or warranty of Companies materially false, and Companies fail
to correct or satisfy such default or falsity within ten (10) days after written
notice is given to Companies or such longer period as shall be required to
correct or satisfy such default or falsity, provided that Companies promptly and
diligently prosecute the cure or satisfaction. If such notice is given within
ten (10) days of the Closing Date, the Closing shall be delayed for the number
of days to permit the cure of the default but in no event more than thirty (30)
days. In the event that Companies' have failed to cure the default within the
required period, Buyer shall be entitled to exercise all of its rights in law or
in equity by reason
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of the breach by Companies of this Agreement. If Companies shall breach or
threaten to breach any of the provisions of this Agreement, Buyer, in addition
to any other remedies it may have at law or in equity, will be entitled to a
restraining order, injunction or other similar remedy in order to specifically
enforce the provisions of this Agreement. Companies and Buyer specifically
acknowledge that money damages alone would be an inadequate remedy for the
injuries and damage which would be suffered and incurred by Buyer as a result of
a breach by Company of any provisions of this Agreement. In the event that Buyer
seeks an injunction hereunder, Companies hereby waive any requirement for the
posting of a bond or other security. Notwithstanding anything to the contrary
contained in this Section 17.2, Buyer shall have the right to waive any default
by Companies and require the transactions contemplated by this Agreement to be
consummated on the Closing Date.
17.3 Default by Buyer. Companies shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that Buyer
defaults in the performance of any material obligation hereunder or if any
representation or warranty of Buyer is materially false, and Buyer fails to
correct or satisfy such default or falsity within ten (10) days after written
notice is given to Buyer or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Buyer promptly and diligently
prosecutes the cure or satisfaction. If such notice is given within ten (10)
days of the Closing Date, the Closing shall be delayed for the number of days to
permit the cure of the default but in no event more than thirty (30) days. In
the event Buyer has failed to cure the default within the required period,
Companies shall be entitled to exercise all of their rights in law by reason of
Buyer's breach of this Agreement. If Buyer shall breach or threaten to breach
the provisions of Section 18.17 of this Agreement, Companies, in addition to any
other remedies available at law, will be entitled to a restraining order,
injunction or other similar equitable remedy in order to specifically enforce
such provision of this Agreement. Companies and Buyer specifically acknowledge
that money damages alone would be an inadequate remedy for the injuries and
damage which would be suffered and incurred by Companies as a result of a breach
by Buyer of the provisions of Section 18.17 of this Agreement. If Companies seek
an injunction hereunder, Buyer hereby waives any requirement for the posting of
a bond or other security. Notwithstanding anything to the contrary contained in
this Section 17.3, Companies shall have the right to waive any default by Buyer
and require the transactions contemplated by this Agreement to be consummated on
the Closing Date.
Section 18 Miscellaneous
18.1 Expenses. Except as otherwise expressly provided in this
Agreement, Companies will bear their own expenses, and Buyer will bear its own
expenses incident to the negotiation, preparation and consummation of this
Agreement and all other agreements executed and delivered by it hereunder or in
connection herewith, including all fees and expenses of its or their respective
counsel and accountants, whether or not the transactions contemplated hereby or
thereby are
REGISTRATION STATEMENT
Page II-201
<PAGE>
consummated. Companies shall pay all sales taxes and transfer fees, including
FCC filing fees, incurred in connection with this Agreement. Filing fees with
respect to any filing mandated by the Hart-Scott-Rodino Antitrust Improvement
Act of 1976 and any transfer taxes shall be borne equally by Companies and
Buyer.
18.2 Modification. This Agreement (including the Exhibits and
Schedules hereto) sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements among
them concerning such subject matter, if any, and may be modified only by a
written instrument duly executed by each party hereto.
18.3 Attorneys' Fees. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other party.
18.4 Right to Specific Performance. Companies acknowledge that
the unique nature of the Assets to be purchased by Buyer pursuant to this
Agreement renders money damages an inadequate remedy for the breach by Companies
of their obligations under this Agreement, and Companies agree that in the event
of such breach, Buyer will upon proper action instituted by it, be entitled to a
decree of specific performance of this Agreement.
18.5 Notice. Any notice given pursuant to this Agreement to
any party hereto shall be deemed to have been duly given five (5) business days
after being mailed by registered or certified mail, return receipt requested, or
when received if hand delivered, delivered via overnight messenger service or by
facsimile as follows:
If to Companies: Jack Kent Cooke, Inc.
Kent Farms
Middleburg, Virginia 22117
Attention: Stuart A. Haney, House Counsel
Facsimile No.: (540) 687-5615
If to Buyer: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
Attention: John M. Lowber, CFO and
Senior Vice President
Facsimile No.: (907) 265-5676
REGISTRATION STATEMENT
Page II-202
<PAGE>
or at such other address as either party shall from time to time designate by
written notice, in the manner provided herein, to the other party hereto. All
references to days in this Agreement shall be deemed to refer to calendar days
unless otherwise specified.
18.6 Waiver. Any waiver must be in writing, and any waiver by
any party of a breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
18.7 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of Companies and Buyer
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assignable by
any party without the prior written consent of the others, which consent shall
not be unreasonably withheld. Notwithstanding anything to the contrary contained
herein, Buyer may, without Companies' consent, assign its rights under this
Agreement to any Affiliate of Buyer.
18.8 No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
18.9 Rights Cumulative. All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or more
rights or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
18.10 Further Actions. Companies and Buyer will execute and
deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
18.11 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
effect at the option of the party for whose benefit such provision was made.
18.12 Captions. The Article and Section titles used in this
Agreement are inserted as a matter of convenience and for reference only and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any of the provisions hereof.
REGISTRATION STATEMENT
Page II-203
<PAGE>
18.13 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
18.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Alaska without giving effect to
conflict of laws.
18.15 Incorporation by Reference. The Exhibits and Schedules
attached hereto are an integral part of this Agreement and are incorporated
herein by reference.
18.16 Construction. This Agreement has been negotiated by
Buyer and Companies and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
18.17 Confidentiality. The parties will hold and cause their
officers, directors, employees, attorneys, investors, accountants,
representatives, agents, consultants, and advisors to hold in strict confidence
the provisions of this Agreement as well as all information (other than such
information as may be publicly available) furnished in connection with the
transactions contemplated by this Agreement, except as otherwise required by
law, and except as to disclosure to the parties' agents, advisors and financial
institutions. Neither party shall issue any press release or otherwise make any
public statement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Companies
acknowledge that Buyer shall issue press releases regarding the general terms
and conditions of the transactions contemplated hereby, as required by the
securities disclosure laws, rules and regulations. Buyer shall obtain Companies'
consent for such press releases, which consent shall not be unreasonably
withheld and shall be promptly given.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ALASKAN CABLE NETWORK/FAIRBANKS, INC.
By:
Jack Kent Cooke
ALASKAN CABLE NETWORK/JUNEAU, INC.
REGISTRATION STATEMENT
Page II-204
<PAGE>
By: /s/
ALASKAN CABLE NETWORK/
KETCHIKAN-SITKA, INC.
By: /s/
GENERAL COMMUNICATION, INC.
By /s/
John M. Lowber, Senior Vice President
REGISTRATION STATEMENT
Page II-205
<PAGE>
EXHIBIT A
Registration Rights Agreement
This Registration Rights Agreement ("Agreement"), dated as of
this day of , 1996, is between General Communication, Inc., an
Alaska corporation ("GCI"), and the shareholder ("Owner") of all of the capital
stock of Alaskan Cable Network, Inc. ("ACNI").
RECITALS
A. Owner has acquired in aggregate Two Million Nine
Hundred Twenty-three Thousand Seventy-Seven (2,923,077) shares of GCI's voting
Class A common stock, no par value. All such shares of GCI's Class A common
stock which Owner now owns and any securities issued in exchange for or in
respect to such stock whether pursuant to a stock dividend, stock split, stock
reclassification or otherwise are collectively referred to in this Agreement as
the "Registrable Shares."
B. GCI desires to grant registration rights to Owner
and any successor or assign of Owner as the holder of all or any portion of the
Registrable Shares. Owner and such successors and assigns are referred to in
this Agreement as the "Holders," or, individually as a "Holder."
AGREEMENT
In consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Demand Registration.
(a) GCI hereby covenants and agrees that
the distribution to Holders of the Registrable Shares, all pursuant to the terms
set forth in that Asset Purchase Agreement dated April 15, 1996 ("APA") shall be
registered under the Securities Act of 1933, as amended, ("Securities Act")
effective upon expiration of the First Lockout Period. To the extent that
subsequent resales by Holder are required to be registered, GCI will keep the
prospectus that is a part of the registration statement for the Registrable
Shares current for a period of at least (2) years. Holder shall covenant (i) not
to sell any Registrable Shares during the first ninety (90) day period ("First
Lock-Out Period") following the Final Closing Date, and (ii) not to sell more
than twenty percent (20%) of the Registrable Shares during the fifty-nine (59)
day period ("Second Lock-Out Period") following the First Lock-Out Period. Any
and all remaining Registrable Shares may be sold following the Second Lock-Out
Period. If Holder may be deemed an affiliate, Holder will have two (2) demand
registrations if required to permit resales by Holder.
REGISTRATION STATEMENT
Page II-206
<PAGE>
(b) Upon receipt by GCI of a Holder's
written request for registration, GCI shall (i) promptly notify each other
Holder in writing of its receipt of such initial written request for
registration, and (ii) as soon as is practicable, but in no event more than
sixty (60) days after receipt of such written request, file with the Securities
and Exchange Commission ("Commission"), and use its best efforts to cause to
become effective, a registration statement under the Securities Act
("Registration Statement") which shall cover the Registrable Shares specified in
the initial written request and any other written request from any other Holder
received by GCI within twenty (20) days of GCI giving the notice specified in
clause (i) hereof.
(c) If so requested by any Holder
requesting participation in a public offering or distribution of Registrable
Shares pursuant to this Section 1 or Section 2 of this Agreement ("Selling
Holder"), the Registration Statement shall provide for delayed or continuous
offering of the Registrable Shares pursuant to Rule 415 promulgated under the
Securities Act or any similar rule then in effect ("Shelf Offering"). If so
requested by the Selling Holders, the public offering or distribution of
Registrable Shares under this Agreement shall be pursuant to a firm commitment
underwriting, the managing underwriter of which shall be an investment banking
firm selected and engaged by the Selling Holders and approved by GCI, which
approval shall not be unreasonably withheld. GCI shall enter into the same
underwriting agreement as shall the Selling Holders, containing representations,
warranties and agreements not substantially different from those customarily
made by an issuer in underwriting agreements with respect to secondary
distributions. GCI, as a condition to fulfilling its obligations under this
Agreement, may require the underwriters to enter into an agreement in customary
form indemnifying GCI against any Losses (as defined in Section 6) that arise
out of or are based upon an untrue statement or an alleged untrue statement or
omission or alleged omission in the Disclosure Documents (as defined in Section
6) made in reliance upon and in conformity with written information furnished to
GCI by the underwriters specifically for use in the preparation thereof.
(d) Each Selling Holder may, before such
a Registration Statement becomes effective, withdraw its Registrable Shares from
sale, should the terms of sale not be reasonably satisfactory to such Selling
Holder; if all Selling Holders who are participating in such registration so
withdraw, however, such registration shall be deemed to have occurred for the
purposes of Section 4 of this Agreement, unless such Selling Holders pay (pro
rata, in proportion to the number of Registrable Shares requested to be
included) within twenty (20) days after any such withdrawal, all of GCI's
out-of-pocket expenses incurred in connection with such registration.
(e) Notwithstanding the foregoing, GCI
shall not be obligated to effect a registration pursuant to this Section 1
during the period starting with the date sixty (60) days prior to GCI's
estimated date of filing of, and ending on a date six (6) months following the
effective date of, a registration statement pertaining to an underwritten public
offering of equity securities for GCI's account, provided that (i) GCI
REGISTRATION STATEMENT
Page II-207
<PAGE>
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that GCI's estimate of the date
of filing on such registration statement is made in good faith, and (ii) GCI
shall furnish to the Holders a certificate signed by GCI's President stating
that in the Board of Directors' good-faith judgment, it would be seriously
detrimental to GCI or its shareholders for a Registration Statement to be filed
in the near future; and in such event, GCI's obligations to file a Registration
Statement shall be deferred for a period not to exceed six (6) months.
2. Incidental Registration. Each time that GCI
proposes to register any of its equity securities under the Securities Act
(other than a registration effected solely to implement an employee benefit or
stock option plan or to sell shares obtained under an employee benefit or stock
option plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable), GCI will give written notice
to the Holders of its intention to do so. Each of the Selling Holders may give
GCI a written request to register all or some of its Registrable Shares in the
registration described in GCI's written notice as set forth in the foregoing
sentence, provided that such written request is given within twenty (20) days
after receipt of any such GCI notice. Such request will state (i) the amount of
Registrable Shares to be disposed of and the intended method of disposition of
such Registrable Shares, and (ii) any other information GCI reasonably requests
to properly effect the registration of such Registrable Shares. Upon receipt of
such request, GCI will use its best efforts promptly to cause all such
Registrable Shares intended to be disposed of to be registered under the
Securities Act so as to permit their sale or other disposition (in accordance
with the intended methods set forth in the request for registration), unless the
sale is a firmly underwritten public offering and GCI determines reasonably and
in good faith in writing that the inclusion of such securities would adversely
affect the offering or materially increase the offering's costs. In which case
such securities and all other securities to be registered, other than those to
be offered for GCI's account, shall be excluded to the extent GCI determines.
The number of secondary shares included in such registration shall be shared pro
rata by all security holders based upon the amount of GCI's securities requested
by such security holders to be sold thereunder. GCI's obligations under this
Section 2 shall apply to a registration to be effected for securities to be sold
for GCI's account as well as a registration statement which includes securities
to be offered for the account of other holders of GCI equity securities;
however, the registration rights granted pursuant to the provisions of this
Section 2 are subject to the registration rights granted by GCI pursuant to (a)
the Registration Rights Agreement dated as of January 18, 1991, between GCI and
WestMarc Communications, Inc.; (b) the Registration Rights Agreements dated as
of March 31, 1993, and , 1996, both between GCI and MCI
Telecommunications Corporation; (c) the Registration Rights Agreement dated as
of , 1996, between GCI and the owner of Prime Cable of
Alaska, L.P.; and (d) the Registration Rights Agreement dated as of
, 1996, between GCI and the owners of Alaska Cablevision, Inc.
REGISTRATION STATEMENT
Page II-208
<PAGE>
In connection with a registration to be effected pursuant to
this Section 2, the Selling Holders shall enter into the same underwriting
agreement as shall GCI and the other selling security holders, if any, provided
that such underwriting agreement contains representations, warranties and
agreements on the part of the Selling Holders that are not substantially
different from those customarily made by selling security holders in
underwriting agreements with respect to secondary distributions.
If, at any time after giving notice of GCI's intention to
register any of its securities under this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
GCI shall determine for any reason not to register such securities, GCI may, at
its election, give notice of such determination to Holders and thereupon will be
relieved of its obligation to register the Registrable Shares in connection with
such registration.
3. Expenses of Registration and Sale. GCI shall pay
all costs and expenses incurred in connection with the registration of the
Registrable Shares. Selling Holder shall pay all other costs and expenses
including, but not limited to fees and disbursements of such Selling Holder's
own attorneys and accountants, and all transfer taxes and brokerage printing,
advertising and underwriters' discounts and commissions attributable to the
Registrable Shares being offered and sold by such Selling Holder.
4. Limitations on Registration Rights.
Notwithstanding the provisions of Section 1 of this Agreement, GCI shall not be
required to effect any registration under that Section if (i) the request(s) for
registration cover an aggregate number of Registrable Shares having an aggregate
Market Value of less than Two Million Five Hundred Thousand Dollars ($2,500,000)
as of the date of the last of such requests, (ii) GCI has previously filed two
(2) registration statements under the Securities Act pursuant to Section 1,
(iii) GCI, in order to comply with such request, would be required to (A)
undergo a special interim audit or (B) prepare and file with the Commission,
sooner than would otherwise be required, pro forma or other financial statements
relating to any proposed transaction, or (iv) if a registration is not required
in order to permit resale by Holders. The first demand registration under this
Agreement may be requested only by the Holders of a minimum of twenty-five
percent (25%) of the Registrable Shares. "Market Value" as used in this
Agreement shall mean, as to each class of Registrable Shares at any date, the
average of the daily closing prices for such class of Registrable Shares, for
the ten (10) consecutive trading days before the day in question. The closing
price for shares of such class for each day shall be the last reported sale
price regular way, or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices regular way, in either
case on the composite tape, or if the shares of such class are not quoted on the
composite tape, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), on which
shares of such class are listed or admitted to trading, or if they are not
listed or admitted to trading on any such
REGISTRATION STATEMENT
Page II-209
<PAGE>
exchange, the closing sale price (or the average of the quoted closing bid and
asked price if no sale is reported) as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or any comparable
system, or if the shares of such class are not quoted on NASDAQ or any
comparable system, the average of the closing bid and asked prices as furnished
by any market maker in the securities of such class who is a member of the
National Association of Securities Dealers, Inc., or in the absence of such
closing bid and asked price, as determined by such other method as GCI's Board
of Directors shall from time to time deem to be fair.
5. Obligations with Respect to Registration.
(a) If and whenever GCI is obligated by
the provisions of this Agreement to effect the registration of any Registrable
Shares under the Securities Act, GCI shall promptly:
(i) Prepare and file with the
Commission any amendments and supplements to the Registration Statement and to
the prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated thereunder with respect
to the disposition of all Registrable Shares covered by the Registration
Statement for the period required to effect the distribution of such Registrable
Shares. However, in no event shall GCI be required to do so (i) in the case of
the first Registration Statement filed pursuant to Section 1, for a period of
more than two (2) years following the effective date of that Registration
Statement; (ii) in the case of any subsequent Registration Statement filed
pursuant to Section 1, for a period of more than one hundred eighty (180) days
following the effective date of the Registration Statement; and (iii) in the
case of a Registration Statement filed pursuant to Section 2, for a period
exceeding the greater of (A) the period required to effect the distribution of
securities for GCI's account and (B) the period during which GCI is required to
keep such Registration Statement in effect for the benefit of selling security
holders other than the Selling Holders;
(ii)Notify the Selling Holders
and their underwriter, and confirm such advice in writing, (A) when a
Registration Statement becomes effective, (B) when any post-effective amendment
to a Registration Statement becomes effective, and (C) of any request by the
Commission for additional information or for any amendment of or supplement to a
Registration Statement or any prospectus relating thereto;
(iii) Furnish at Selling
Holders expense to the Selling Holders such number of copies of a preliminary,
final, supplemental or amended prospectus, in conformity with the requirements
of the Securities Act and the rules and regulations promulgated thereunder, as
may reasonably be required in order to facilitate the disposition of the
Registrable Shares covered by a Registration Statement, but only
REGISTRATION STATEMENT
Page II-210
<PAGE>
while GCI is required under the provisions hereof to cause a Registration
Statement to remain effective; and
(iv)Register or qualify at
GCI's expense the Registrable Shares covered by a Registration Statement under
such other securities or blue sky laws of such jurisdictions in the United
States as the Selling Holders shall reasonably request, and do any and all other
acts and things which may be necessary to enable each Selling Holder whose
Registrable Shares are covered by such Registration Statement to consummate the
disposition in such jurisdictions of such Registrable Shares. Provided, however,
that GCI shall in no event be required to qualify to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not so qualified, to
amend its articles of incorporation or to change the composition of its assets
at the time to conform with the securities or blue sky laws of such
jurisdiction, to take any action that would subject it to service of process in
suits other than those arising out of the offer and sale of the Registrable
Shares covered by the Registration Statement or to subject itself to taxation in
any jurisdiction where it has not therefore done so.
(b) GCI's obligations under this
Agreement with respect to the Selling Holder shall be conditioned upon the
Selling Holder's compliance with the following:
(i) Such Selling Holder shall
cooperate with GCI in connection with the preparation of the Registration
Statement, and for so long as GCI is obligated to file and keep effective the
Registration Statement, shall provide to GCI, in writing, for use in the
Registration Statement, all such information regarding the Selling Holder and
its plan of distribution of the Registrable Shares as may be necessary to enable
GCI to prepare the Registration Statement and prospectus covering the
Registrable Shares, to maintain the currency and effectiveness thereof and
otherwise to comply with all applicable requirements of law in connection
therewith;
(ii)During such time as the
Selling Holder may be engaged in a distribution of the Registrable Shares, such
Selling Holder shall comply with Rules 10b-2, 10b-6 and 10b-7 promulgated under
the Exchange Act and pursuant thereto it shall, among other things: (A) not
engage in any stabilization activity in connection with GCI's securities in
contravention of such rules; (B) distribute the Registrable Shares solely in the
manner described in the Registration Statement; (C) cause to be furnished to
each broker through whom the Registrable Shares may be offered, or to the
offeree if an offer is not made through a broker, such copies of the prospectus
covering the Registrable Shares and any amendment or supplement thereto and
documents incorporated by reference therein as may be required by law; and (D)
not bid for or purchase any GCI securities or attempt to induce any person to
purchase any GCI securities other than as permitted under the Exchange Act; and
REGISTRATION STATEMENT
Page II-211
<PAGE>
(iii) If the Registration
Statement provides for a Shelf Offering, then at least ten (10) business days
prior to any distribution of the Registrable Shares, any Selling Holder who is
an "affiliated purchaser" (as defined in Rule 10b-6 promulgated under the
Exchange Act) of GCI shall advise GCI in writing of the date on which the
distribution by such Selling Holder will commence, the number of the Registrable
Shares to be sold and the manner of sale. Such Selling Holder also shall inform
GCI when each distribution of such Registrable Shares is over.
6. Indemnification.
(a) By GCI. In the event of any
registration under the Securities Act of any Registrable Shares pursuant to this
Agreement, GCI shall indemnify and hold harmless any Selling Holder, any
underwriter of such Selling Holder, each officer, director, employee or agent of
such Selling Holder, and each other person, if any, who controls such Selling
Holder or underwriter within the meaning of Section 15 of the Securities Act,
against any losses, costs, claims, damages or liabilities, joint or several (or
actions in respect thereof) ("Losses"), incurred by or to which each such
indemnified party may become subject, under the Securities Act or otherwise, but
only to the extent such Losses arise out of or based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, in any preliminary
prospectus (if used prior to the effective date of such Registration Statement)
or in any final prospectus or in any post effective amendment or supplement
thereto (if used during the period GCI is required to keep the Registration
Statement effective) ("Disclosure Documents"), (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading or (iii) any
violation of any federal or state securities laws or rules or regulations
thereunder committed by GCI in connection with the performance of its
obligations under this Agreement. GCI will reimburse each such indemnified party
for all legal or other expenses reasonably incurred by such party in connection
with investigating or defending any such claims, including, subject to such
indemnified party's compliance with the provisions of the last sentence of
subsection (c) of this Section 6, any amounts paid in settlement of any
litigation, commenced or threatened, so long as GCI's counsel agrees with the
reasonableness of such settlement Provided, however, that GCI shall not be
liable to an indemnified party in any such case to the extent that any such
Losses arise out of or are based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission (x) made in any such Disclosure
Documents in reliance upon and in conformity with written information furnished
to GCI by or on behalf of such indemnified party specifically for use in the
preparation thereof, (y) made in any preliminary or summary prospectus if a copy
of the final prospectus was not delivered to the person alleging any loss,
claim, damage or liability for which Losses arise at or prior to the written
confirmation of the sale of such Registrable Shares to such person and the
untrue statement or omission concerned had been corrected in such final
prospectus or (z) made in any prospectus used by such
REGISTRATION STATEMENT
Page II-212
<PAGE>
indemnified party if a court of competent jurisdiction finally determines that
at the time of such use such indemnified party had actual knowledge of such
untrue statement or omission or (ii) the delivery by an indemnified party of any
prospectus after such time as GCI has advised such indemnified party in writing
that the filing of a post-effective amendment or supplement thereto is required,
except the prospectus as so amended or supplemented, or the delivery of any
prospectus after such time as GCI's obligation to keep the same current and
effective has expired.
(b) By the Selling Holders. In the event
of any registration under the Securities Act of any Registrable Shares pursuant
to this Agreement, each Selling Holder shall, and shall cause any underwriter
retained by it who participates in the offering to agree to, indemnify and hold
harmless GCI, each of its directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls GCI within
the meaning of Section 15 of the Securities Act, against any Losses, joint or
several, incurred by or to which such indemnified party may become subject under
the Securities Act or otherwise, but only to the extent such Losses arise out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any of the Disclosure Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein not misleading, if the
statement or omission was in reliance upon and in conformity with written
information furnished to GCI by such indemnifying party specifically for use in
the preparation thereof, (ii) the delivery by such indemnifying party of any
prospectus after such time as GCI has advised such indemnifying party in writing
that the filing of a post-effective amendment or supplement thereto is required,
except the prospectus as so amended or supplemented, or after such time as the
obligation of GCI to keep the Registration Statement effective and current has
expired or (iii) any violation by such indemnifying party of its obligations
under Section 5(b) of this Agreement or any information given or representation
made by such indemnifying party in connection with the sale of the Selling
Holder's Registrable Shares which is not contained in and not in conformity with
the prospectus (as amended or supplemented at the time of the giving of such
information or making of such representation). Each Selling Holder shall, and
shall cause any underwriter retained by it who participates in the offering to
agree to, reimburse each such indemnified party for all legal or other expenses
reasonably incurred by such party in connection with investigating or defending
any such claim, including, subject to such indemnified party's compliance with
the provisions of the last sentence of subsection (c) of this Section 6, any
amounts paid in settlement of any litigation, commenced or threatened.
(c) Third Party Claims. Promptly after
the receipt by any party hereto of notice of any claim, action, suit or
proceeding by any person who is not a party to this Agreement (collectively, an
"Action") which is subject to indemnification hereunder, such party
("Indemnified Party") shall give reasonable written notice to the party from
whom indemnification is claimed ("Indemnifying Party"). The Indemnifying Party
shall be entitled, at the Indemnifying Party's sole expense and
REGISTRATION STATEMENT
Page II-213
<PAGE>
liability, to exercise full control of the defense, compromise or settlement of
any such Action unless the Indemnifying Party, within a reasonable time after
the giving of such notice by the Indemnified Party, shall (i) admit in writing
to the Indemnified Party, the Indemnifying Party's liability to the Indemnified
Party for such Action under the terms of this Section 6, (ii) notify the
Indemnified Party in writing of the Indemnifying Party's intention to assume the
defense thereof and (iii) retain legal counsel reasonably satisfactory to the
Indemnified Party to conduct the defense of such Action. The Indemnified Party
and the Indemnifying Party shall cooperate with the party assuming the defense,
compromise or settlement of any such Action in accordance herewith in any manner
that such party reasonably may request. If the Indemnifying Party so assumes the
defense of any such Action, the Indemnified Party shall have the right to employ
separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof. The fees and expenses of such separate
counsel shall be the Indemnified Party's sole expense, unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) any relief
other than the payment of money damages is sought against the Indemnified Party
or (iii) the Indemnified Party shall have been advised by its counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, and in any such case
the fees and expenses of such separate counsel shall be borne by the
Indemnifying Party. No Indemnifying Party shall settle or compromise any such
Action in which any relief other than the payment of money damages is sought
against any Indemnified Party unless the Indemnified Party consents in writing
to such compromise or settlement, which consent shall not be unreasonably
withheld. No Indemnified Party shall settle or compromise any such Action for
which it is entitled to indemnification hereunder without the Indemnifying
Party's prior written consent, unless the Indemnifying Party shall have failed,
after reasonable notice thereof, to undertake control of such Action in the
manner provided above in this Section 6.
(d) Contribution. If the indemnification
provided for in subsections (a) or (b) of this Section 6 is unavailable to or
insufficient to hold the indemnified party harmless under subsections (a) or (b)
above in respect of any Losses referred to therein for any reason other than as
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such Losses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and such indemnified party on the other in connection with
the statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault 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 (or omitted to be supplied by) GCI or the
Selling Holder (or underwriter) and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
Losses referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably
REGISTRATION STATEMENT
Page II-214
<PAGE>
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7. Miscellaneous.
(a) Notices. All notices, requests,
demands, waivers and other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or mailed, certified or registered mail with
postage prepaid, or sent by facsimile, as follows:
(i) if to GCI at:
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
ATTN: Chief Financial Officer
Facsimile: (907) 265-5676
(ii) if to Owner, at:
Mr. Jack Kent Cooke
Jack Kent Cooke, Inc.
Kent Farms
Middleburg, Virginia 22117
Facsimile: (540) 687-5615
(iii) if to any Holders other than Owner, at
the address provided to GCI (and if none
provided, to Owner at the above address)
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
(b) Entire Agreement. This Agreement
constitutes the entire agreement between the parties hereto and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
REGISTRATION STATEMENT
Page II-215
<PAGE>
(c) Binding Effect; Benefit. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. Nothing in this Agreement,
expressed or implied is intended to confer on any person other than the parties
hereto or their respective successors and assigns (including, in the case of
Owner, any successor or assign of Owner as the holder of Registrable Shares),
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, other than rights conferred upon indemnified persons under Section 6.
(d) Amendment and Modification. This
Agreement may be amended or modified only by an instrument in writing signed by
or on behalf of each party and any other person then a Holder. Any term or
provision of this Agreement may be waived in writing at any time by the party
which is entitled to the benefits thereof.
(e) Section Headings. The section
headings contained in this Agreement are inserted for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
(g) Applicable Law. This Agreement and
the legal relations between the parties hereto shall be governed by and
construed in accordance with the laws of the State of Alaska, without regard to
the conflict of laws and rules thereof.
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GENERAL COMMUNICATION, INC.
By
John M. Lowber, Senior Vice President
Owner:
-----------------------------
By
Jack Kent Cooke
REGISTRATION STATEMENT
Page II-216
<PAGE>
EXHIBIT B
BILL OF SALE
Pursuant to the terms of that certain Asset Purchase Agreement, by and
between GENERAL COMMUNICATION, INC., and , dated , 1996, hereby
sells, transfers and conveys title to the fixtures and equipment and other
personal property listed on the attached Schedules numbered through , free and
clear of all liens and encumbrances except those listed thereon, to GENERAL
COMMUNICATION, INC.
Dated , 1996.
By:
Its:
REGISTRATION STATEMENT
Page II-217
<PAGE>
EXHIBIT C
NONDISTURBANCE AND ATTORNMENT AGREEMENT
THIS NONDISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is effective
as of , 1996, among , a corporation,
("Landlord"), GENERAL COMMUNICATION, INC., an Alaska corporation, 2550 Denali
Street, Suite 1000, Anchorage, Alaska 99503 ("GCI") and ,
having an address of ("Tenant").
R E C I T A L S
A. Tenant is current lessee under that certain lease dated ,
19 , ("Lease") by and between Tenant , and
as Landlord. A true and correct copy of the Lease is attached hereto as
Exhibit A, and is herein incorporated. The Lease demises possession of
certain real property as described in the Lease ("Property") to Tenant
under the terms contained in the Lease.
B. GCI is purchasing assets of Landlord including the Property and the
Lease.
C. Landlord has agreed to assign and GCI has agreed to assume all of
Landlord's right, title and interest in and obligations under the Lease.
D. As a condition precedent to entering into purchase of the Lease, GCI
has required that Tenant certify and confirm certain matters about the Lease and
attorn to GCI upon closing.
REGISTRATION STATEMENT
Page II-218
<PAGE>
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Tenant's Representations and Warranties. Tenant represents and
warrants to GCI, as of the date hereof, as follows:
1.1 The Lease, including all amendments or modifications
thereto, are described on Exhibit A, and true and correct copies thereof have
been delivered to GCI.
1.2 The Lease has not been amended in any respect except as
described in Exhibit A and is the only lease or agreement(s) between Tenant and
any person or entity affecting title or possession of the Property.
1.3 Tenant has made no agreements with Landlord or its agents
or employees concerning free rent, partial rent, rebate of rental payments or
any other type of rental concession other than as stated in Exhibit A. Tenant
has not paid any advance rent except as stated in Exhibit A.
1.4 The Lease is not in default and is in full force and
effect. As of the date hereof, Tenant is entitled to no credit and no offset or
reduction in rent and, to the best of its knowledge, does not have any claims or
defenses to enforcement of the Lease.
1.5 The Lease does not contain and Tenant does not have an
outstanding option to purchase the Property or an outstanding option to extend
or renew the term of the Lease, except the options to extend or renew the Lease
as set forth in Exhibit A.
REGISTRATION STATEMENT
Page II-219
<PAGE>
2. Acknowledgment and Consent. Tenant acknowledges the assignment of
the lease to GCI and, to the extent required, consents thereto.
3. Tenant Not To Be Disturbed. So long as Tenant attorns to GCI and is
not in default (beyond any period given to cure such default) in the payment of
rent or additional rent or in the performance of any of the terms, covenants, or
conditions of the Lease on Tenant's part to be performed, Tenant's rights under
the Lease including but not limited to quiet enjoyment and possession of the
Property, shall not be diminished or interfered with by GCI.
4. Tenant to Attorn to GCI. Upon the effective date of the Assignment,
Tenant shall be bound to GCI under all the terms, covenants and conditions of
the Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with any option therefor in
the Lease; and Tenant shall attorn to GCI, as its Landlord, said attornment to
be effective and self-operative immediately upon GCI succeeding to the interest
of Landlord without the execution of any further instruments on the part of any
of the parties hereto. The respective rights and obligations of Tenant and GCI
upon such attornment, to the extent of the remaining balance of the term of the
Lease and any such extensions and renewals, shall be and are the same as now set
forth in the Lease. So long as the Lease and any and all extensions thereof
shall remain in force and effect, and so long as GCI shall be the owner of the
Property, Tenant attorns to GCI as owner of the Property.
REGISTRATION STATEMENT
Page II-220
<PAGE>
5. No Modification. The terms of the Lease shall continue in full force
and effect. No modification, amendment or release of any provision of this
Agreement shall be valid or binding for any purpose whatsoever unless in writing
and executed by the parties hereto which post dates the date hereof.
6. Notices. Any notice required or permitted hereunder shall be in
writing. Any notice hereunder shall be effective upon receipt thereof. Any party
hereto may change its address by giving notice thereof to the other party.
Notices shall be sent:
If to GCI:
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Attn: Chief Financial Officer
If to Tenant:
--------------------------------
--------------------------------
--------------------------------
7. Landlord's Consent. Landlord is joining herein for the purpose of
consenting to the terms and conditions of this Agreement and agrees that Tenant
may rely upon any and all notices from GCI relating to the rights of GCI
hereunder.
8. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns.
9. Choice of Law. This Agreement is to be governed under the laws of
the State of Alaska. Venue for any action hereunder shall be in Anchorage,
Alaska.
REGISTRATION STATEMENT
Page II-221
<PAGE>
10. Captions and Headings. The captions and headings hereof are for
convenience only and are not to be construed as confining or limiting in any way
the scope or intent of the provisions hereof.
11. Execution in Counterparts. This Agreement may be executed by the
parties hereto individually or in separate counterparts, each of which shall be
an original and all of which shall be taken together shall constitute one and
the same Agreement.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed as of the date first above.
TENANT:
----------------------------------
By:
Name:
Its:
GCI: GENERAL COMMUNICATION, INC.
By:
Name:
Its:
REGISTRATION STATEMENT
Page II-222
<PAGE>
The foregoing Agreement is hereby consented and agreed to by the
undersigned as set forth in Paragraph 7 hereof.
LANDLORD
By:
Name:
Its:
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of GENERAL COMMUNICATION,
INC., an Alaska corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
ss.
)
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-223
<PAGE>
Exhibit A
LEASE
REGISTRATION STATEMENT
Page II-224
<PAGE>
EXHIBIT D
ASSIGNMENT
THIS ASSIGNMENT ("Assignment") is made effective as
of , 1996, by and between ,
a corporation, ("Assignor") and GENERAL
COMMUNICATION, INC., an Alaska corporation, 2550 Denali Street, Suite 1000,
Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is a party to that certain contract by and between
Assignor, and ("Contracting Party"), effective as of ,
19 ("Contract"), a true and complete copy of which is attached hereto as
Exhibit A and incorporated herein.
B. Pursuant to Section of the Contract, Assignor has the right at
any time to assign the contract upon the written approval of Contracting Party.
C. Assignor and Assignee have entered into an Asset Purchase Agreement
dated April , 1996 (the "Asset Purchase Agreement"), whereby Assignee is
purchasing all of the assets of Assignor except those expressly excluded in the
Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has agreed to
assign and Assignee has agreed to assume all of Assignor's right, title and
interest in and obligations under the Contract.
REGISTRATION STATEMENT
Page II-225
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval
of Contracting Party as provided in Section 2 below, Assignor hereby assigns and
transfers to Assignee all of Assignor's right, title and interest in the
Contract, and Assignee hereby accepts the assignment and assumes and agrees to
perform, and fully comply with, from the effective date of this Assignment, as a
direct obligation to the Contracting Party, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Contract.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising under the Contract, from and after the
date of approval of this Assignment.
2. Approval by Contracting Party. Assignor agrees to act
promptly and in good faith to obtain the written approval of this Assignment by
the Contracting Party as required by Section of the Contract.
3. Assignor's Warranty. Except as otherwise provided in the
Asset Purchase Agreement, Assignor hereby warrants that as of the effective date
of this Assignment the Contract is in good standing, with no claims, lawsuits,
liens, or defaults; and with all required monies, fees, and other payments
having been timely made, and that Assignor and Contracting Party are in
substantial compliance with all Contract terms.
REGISTRATION STATEMENT
Page II-226
<PAGE>
5. Successors. This Assignment shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
6. Governing Law. This Assignment shall be governed by the
laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment on the date first written below.
ASSIGNOR:
By:
Its:
ASSIGNEE: GENERAL COMMUNICATION, INC.
By:
Its:
REGISTRATION STATEMENT
Page II-227
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
The Contracting Party hereby acknowledges and consents to the
above Assignment and agrees to render to Assignee the performance formerly due
the Assignor under the terms of the Contract. The Contracting Party hereby
releases Assignor from all obligations of the Contract from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of the obligations under the Contract.
----------------------------------
By:
Its:
REGISTRATION STATEMENT
Page II-228
<PAGE>
EXHIBIT E
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE ("Assignment") is made by and between
, a corporation,
("Assignor"), and GENERAL COMMUNICATION, INC., an Alaska corporation,
2550 Denali Street, Suite 1000, Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is the lessee under that certain Lease by and between
Assignor and ("Lessor"), dated effective as of
, 19 , ("Lease"), a true and complete copy of which is attached
hereto as Exhibit A and incorporated herein; and which Lease is made of record
by a Memorandum of Lease dated , 19 , and recorded in the
Recording District on , 19 , in Book , at Page , a
true and complete copy of which memorandum is attached hereto as Exhibit B and
incorporated herein.
B. Pursuant to Section of the Lease, Assignor has the right at
any time to assign the Lease upon the written approval of Lessor.
C. Assignor and Assignee have entered into an Asset Purchase Agreement
dated April , 1996 (the "Asset Purchase Agreement"),
whereby Assignee is purchasing all of the assets of Assignor except
those expressly excluded in the Asset Purchase Agreement.
REGISTRATION STATEMENT
Page II-229
<PAGE>
D. Pursuant to the Asset Purchase Agreement, Assignor has agreed to
assign and Assignee has agreed to assume all of Assignor's right, title and
interest in and obligations under the Lease.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval
of Lessor as provided in Section 2 below, Assignor hereby assigns, conveys and
transfers to Assignee all of Assignor's right, title and interest in the Lease,
and Assignee hereby accepts the assignment and assumes and agrees to perform,
and fully comply with, from the effective date of this Assignment, as a direct
obligation to the Lessor under the Lease, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Lease.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising from and after the date of the approval
of the Assignment.
2. Approval by Lessor. Assignor agrees to act promptly and in
good faith to obtain the written approval of this Assignment by the Lessee as
required by Section of the Lease.
3. Assignor's Warranty. Except as otherwise provided in the
Asset Purchase Agreement, Assignor hereby warrants that as of the effective date
of this Assignment the Lease is in good
REGISTRATION STATEMENT
Page II-230
<PAGE>
standing, with no claims, lawsuits, liens, or defaults; and with all required
rents, fees, and other payments having been timely made, and that Assignor and
Lessor are in substantial compliance with all Lease terms.
4. Successors. This Assignment shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
5. Recording. The parties, in conjunction with the Lessor,
agree to execute a Notice of Assignment of the Lease suitable for recording
purposes, the form of which is attached hereto as Attachment 1.
6. Governing Law. This Assignment shall be governed by the
laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment on the date first written below.
REGISTRATION STATEMENT
Page II-231
<PAGE>
ASSIGNOR:
By:
Its:
ASSIGNEE: GENERAL COMMUNICATION, INC.
By:
Its:
ACKNOWLEDGMENTS
---------------
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of GENERAL COMMUNICATION,
INC., an Alaska corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-232
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
Lessor in the above-referenced Lease, hereby
acknowledges and consents to the above assignment and agrees to render to
Assignee the performance due under the terms of said Lease. Lessor hereby
releases Assignor from all obligations of the Lease from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of Lessee's obligations under the Lease.
----------------------------------
By:
Its:
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-233
<PAGE>
ATTACHMENT 1
to
EXHIBIT E
NOTICE OF ASSIGNMENT OF LEASE
NOTICE is hereby given that , a
corporation, ("Assignor"), as lessee under that
certain lease ("Lease") dated , 19 , by and between and
as Lessor, having an address of which Lease was made of
record by that certain Memorandum of Lease dated and recorded in
the Recording District on , 19 , in
Book , at Page , a true and complete copy of which is attached hereto as
Exhibit A, has assigned all of Assignor's right, title and interest under the
Lease to GENERAL COMMUNICATION, INC., an Alaska corporation, 2550 Denali Street,
Suite 1000, Anchorage, Alaska 99503 effective as of , 199 . The
real property subject to the Lease and the Lease term are described on the
attached copy of the Memorandum of Lease.
DATED this day of , 1996.
ASSIGNOR:
By:
Its:
ASSIGNEE: GENERAL COMMUNICATION, INC.
By:
Its:
Record this document in the Recording District.
After recording, return to:
HARTIG, RHODES, NORMAN, MAHONEY & EDWARDS, P.C.
717 K Street
Anchorage, Alaska 99501-3397
Attn: Bonnie J. Stratton, Esq.
REGISTRATION STATEMENT
Page II-234
<PAGE>
ACKNOWLEDGMENTS
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
ss.
COUNTY )
The foregoing instrument was acknowledged before me
this by of GENERAL COMMUNICATION,
INC., an Alaska corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
ss.
)
The foregoing instrument was acknowledged before me
this by of ,
a corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-235
<PAGE>
EXHIBIT F
Guaranty
FOR VALUE RECEIVED, and in order to induce GENERAL COMMUNICATION, INC.,
a Alaska corporation ("Buyer"), to enter into that certain Asset Purchase
Agreement ("Agreement"), dated as of April , 1996, between Buyer and ALASKAN
CABLE NETWORK/FAIRBANKS, INC. ALASKA CABLE NETWORK/JUNEAU, INC. ("ACNJ"),
ALASKAN CABLE NETWORK/KETCHIKAN-SITKA, INC. ("ACNKS") ("collectively Sellers"),
and to induce Buyer to perform its obligations under and to consummate the
transactions described in the Agreement, Jack Kent Cooke Incorporated a Nevada
corporation ("Guarantor"), agrees as follows:
1. Definitions. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
2. Representations and Warranties of Guarantor. Guarantor
represents and warrants to Buyer as follows:
(a) Guarantor is a corporation duly formed,
validly existing and in good standing under
the laws of the State of Nevada, and has all
requisite power and authority to own and
operate its properties and to carry on its
business as currently conducted.
(b) Guarantor's execution and delivery of this
Guaranty and Guarantor's performance of its
obligations under this Guaranty:
(i) Are within Guarantor's corporate
power and authority;
(ii) Have been duly authorized by all
necessary corporate action of
Guarantor;
(iii) Have received all necessary
governmental approval, if required;
and
(iv) Do not and will not contravene or
conflict with any provision of any
law, regulation or rule, the
Articles of Incorporation or Bylaws
of Guarantor, any license,
agreement, or instrument to which
Guarantor is a party or by which
Guarantor or any of Guarantor's
property may be bound or affected,
or any judgment, order or decree of
any court or any federal, state, or
local
REGISTRATION STATEMENT
Page II-236
<PAGE>
commission, board, or other
administrative agency by which
Guarantor or any of Guarantor's
property may be bound or affected.
(c) This Guaranty is Guarantor's legal, valid,
and binding obligation, enforceable against
Guarantor in accordance with its terms.
3. Guaranty. Guarantor hereby absolutely, irrevocably and
unconditionally guaranties (i) Seller's performance when due of all covenants,
agreements, and obligations of every nature under the Agreement and (ii) subject
only to the limitations thereon specifically set forth in the Agreement, the
accuracy and completeness of all of Seller's representations and warranties
under the Agreement. Without limiting the generality of the foregoing, Guarantor
hereby absolutely, irrevocably and unconditionally guaranties any and all of
Seller's indemnification obligations under Section 16 of the Agreement,
including without limitation the full and prompt payment when due of any and all
monies which may become due or payable at any time under or pursuant to such
indemnification provisions. (Seller's performance and indemnification
obligations are individually and collectively, herein the "Obligations.")
Guarantor further agrees that the following terms and conditions shall apply to
this Guaranty:
(a) This Guaranty is in all respects continuing,
absolute and unconditional.
(b) This Guaranty is a guaranty of both
performance and payment when due, and not of
collection.
(c) Buyer may, from time to time, at Buyer's
sole discretion and without notice to
Guarantor, take any or all of the following
actions:
(i) Obtain or accept a security interest
in any property to secure payment of
any or all of the Obligations;
(ii) Obtain the primary or secondary
obligation of any third party in
addition to Guarantor with respect
to any or all of the Obligations;
(iii) Release, compromise, extend, alter,
or modify any of the Obligations or
any obligation of any nature of any
other obligor with respect to any of
the Obligations;
(iv) Release, compromise, or extend any
obligation of Guarantor hereunder;
REGISTRATION STATEMENT
Page II-237
<PAGE>
(v) Release any security interest in, or
surrender, release, or permit any
substitution or exchange for, all or
any part of any property securing
any of the Obligations or any
obligation hereunder, or release,
compromise, extend, alter, or modify
any obligation of any nature of any
obligor with respect to any such
property; and
(vi) Resort to or proceed against
Guarantor for performance or payment
of any of the Obligations whether or
not Buyer shall have proceeded
against Seller or any other obligor
primarily or secondarily obligated
with respect to any of the
Obligations, shall have resorted to
any property securing any of the
Obligations or any obligation
hereunder, or shall have pursued any
other remedy.
(d) As between Buyer and Guarantor, Buyer may
apply any amounts it receives from any
source for any Obligation (arising by
whatever means) toward the payment of any
Obligation then due and payable, in such
order of application as Buyer may from time
to time elect. Notwithstanding any
performance or payments made by or for the
account of Guarantor pursuant to this
Guaranty, Guarantor will not be subrogated
to any rights of Buyer until Buyer shall
have received full performance and payment
of all of the Obligations and Guarantor's
performance of all obligations hereunder.
Without limiting the generality of the
foregoing, Guarantor agrees and acknowledges
that if Buyer is required at any time to
return all or any part of any payment
applied by Buyer to the payment of the
Obligations or any costs or expenses covered
by this Guaranty, whether by virtue of
Seller's insolvency, bankruptcy, or
reorganization or otherwise, the Obligations
to which the returned payment was applied
shall be deemed to have continued in
existence and this Guaranty shall continue
to be effective or to be reinstated, as the
case may be, as to such Obligations, as
though such payment had not been received
and Buyer had not made such application.
(e) Guarantor hereby expressly waives:
(i) Notice of Buyer's acceptance of this
Guaranty;
REGISTRATION STATEMENT
Page II-238
<PAGE>
(ii) Notice of the existence, creation,
release, compromise, extension,
alteration, modification,
non-performance, or nonpayment of
any or all of the Obligations;
(iii) Presentment, demand, notice of
dishonor, protest, and all other
notices whatsoever; and
(iv) All diligence in collection of or
realization upon any payments on, or
assurance of performance of, any of
the Obligations or any obligation
hereunder, or in collection on,
realization upon, or protection of
any security for, or guaranty of,
any of the Obligations or any
obligation hereunder.
(f) As between Guarantor and Buyer, Buyer may
assign or otherwise transfer the right to
receive performance of or payment upon any
of Seller's Obligations and/or from
Guarantor to any third party.
4. Notices. All notices and communications under this Guaranty
shall be in writing and shall be deemed to have been duly given when delivered
by messenger, by overnight delivery service, or by facsimile (receipt
confirmed), or mailed by first class certified mail, return receipt requested;
if to Guarantor addressed to Kent Farms, Middleburg, Virginia 22117, Attention:
Stuart A. Haney, House Counsel, and if to Buyer, addressed to Buyer's address
set forth in the Agreement; or in each case to such other address respectively
as the party shall have specified by notice to the other.
5. Integration, Assignment, Modification, Payment of Expenses
and Construction. This Guaranty constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any prior
written or oral agreements between Guarantor and Buyer. Guarantor may not assign
this Guaranty without Buyer's prior written consent. Subject to the foregoing,
this Guaranty will inure to Buyer's benefit, and be binding upon Guarantor, and
their respective successors and assigns. This Guaranty may be amended or
modified only by a writing signed by Guarantor and Buyer. Buyer and Guarantor
shall each pay its own costs and expenses in connection with the negotiation and
execution of this Guaranty. Guarantor agrees to pay all of Buyer's expenses
(including, without limitation, costs and expenses of litigation and reasonable
attorneys' fees) in enforcing or endeavoring to realize upon this Guaranty or in
endeavoring to collect any amount payable under this Guaranty which is not paid
when due. The unenforceability or invalidity of any provision of this Guaranty
or the Agreement shall not affect the validity of the remainder of this
Guaranty.
REGISTRATION STATEMENT
Page II-239
<PAGE>
6. Waiver. The failure of Buyer to insist upon strict
performance of any of the terms, conditions, agreements, or covenants in this
Guaranty in any one or more instances shall not be deemed to be a waiver by
Buyer of its rights to enforce thereafter any of such terms, conditions,
agreements, or covenants. Any waiver by Buyer of any of the terms, conditions,
agreements, or covenants in this Guaranty must be in writing signed by Buyer.
7. Applicable Law. This Guaranty will be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Alaska, without regard to the conflicts of laws rules of such state.
8. Section Headings. The section headings used in this
Guaranty are for the convenience of Buyer and Guarantor only and shall not
affect the construction or interpretation of the provisions of this Guaranty.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed by a duly authorized officer as of April , 1996.
JACK KENT COOKE INCORPORATED
By:
JACK KENT COOKE
REGISTRATION STATEMENT
Page II-240
<PAGE>
EXHIBIT G
Non-Compete Agreement
April , 1996
Gentlemen:
Reference is made to that certain Asset Purchase Agreement dated as of
April , 1996, (the "Agreement") between Alaskan Cable Network/Fairbanks,
Inc. ("ACNI") Alaska Cable Network/Juneau, Inc. ("ACNJ"), Alaskan Cable
Network/Ketchikan-Sitka, Inc. ("ACNKS") ("collectively Sellers"), Alaskan Cable
Network, Inc. ("ACNI") and Alaskan Cable Network/Juneau Holding, Inc. ("ACNJH")
and General Communication, Inc. ("Buyers"). This letter is being delivered to
you pursuant to Section 15 of the Agreement. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
Sellers, ACNI, ACNJH and Jack Kent Cooke Incorporated ("Owner") agree
that as of the date hereof, through the Final Closing Date, and for a period of
five (5) years thereafter, they will not, and they will cause their respective
key employees for so long as such employees are employed by such entity, not to,
directly or indirectly, own, manage, operate, join, control, participate or
become interested in, or be connected with (as an employee, consultant, partner,
officer, director, shareholder or investor, other than through ownership of up
to a % equity interest in a publicly traded entity), any business competing
with Company in the provision of CATV services related to distribution, by means
of cable, microwave, fiber optic, satellite receivers, or broadcasts, both
terrestrial and spatial, of data, audio, and video signals, to businesses,
residences, multi-family dwellings, hotels, motels, trailers, and other users,
within the Service Areas.
If the terms or provisions of this Non-Compete Agreement are breached
or threatened to be breached, Sellers, ACNI, ACNJH and Owner, each for and on
behalf of itself and its Affiliates, employees, officers, directors and
shareholders, expressly consent that, in addition to any other remedy Buyer may
have, Buyer may apply to any court of competent jurisdiction for injunctive
relief in order to prevent the continuation of any existing breach or the
occurrence of any threatened breach.
If any provision of this Non-Compete Agreement is determined to be
unreasonable or unenforceable, such provision and the remainder of this
Non-Compete Agreement shall not be declared invalid, but rather shall be
modified and enforced to the maximum extent permitted by law.
REGISTRATION STATEMENT
Page II-241
<PAGE>
Very truly yours,
ALASKAN CABLE NETWORK , INC.
By:
Jack Kent Cooke
ALASKAN CABLE NETWORK/JUNEAU HOLDING, INC.
By:
ALASKAN CABLE NETWORK/
KETCHIKAN-SITKA, INC.
By:
ALASKAN CABLE NETWORK/FAIRBANKS, INC.
By:
ALASKAN CABLE NETWORK/JUNEAU, INC.
By:
REGISTRATION STATEMENT
Page II-242
<PAGE>
EXHIBIT H
DATE
To: Programmer from
Dear :
The purpose of this letter is to inform you of the impending
sale of systems now owned by ("Seller") to General
Communication, Inc. ("GCI"). GCI will not assume the Seller's programming
contract currently in place to serve the systems described in the Asset Purchase
Agreement dated April , 1996, between GCI and Seller. This is not a notice
deleting your programming from these systems; GCI or its' agent will contact you
about continuation of coverage of your service.
Very truly yours,
REGISTRATION STATEMENT
Page II-243
<PAGE>
EXHIBIT I
AFFIDAVIT
STATE OF )
ss.
COUNTY OF )
This Affidavit is delivered pursuant to the Asset Purchase Agreement
dated as of April , 1996, between , a
corporation ("Seller") and General Communication, Inc., a Alaska corporation
("Buyer"). Section 1445 of the United States Internal Revenue Code of 1986, as
amended ("IRC"), provides that a transferee of a United States real property
interest must withhold tax if the transferor is a foreign person. The
undersigned, being the duly elected of Seller and being duly
sworn, certifies and agrees on behalf of Seller as follows:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
IRC and the regulations promulgated thereunder).
2. Seller's U.S. taxpayer identification number is .
3. Seller understands that this certification may be disclosed to the
Internal Revenue Service.
4. Seller hereby agrees to indemnify and hold harmless Buyer and
Buyer's partners and agents of, from and against any and all loss, liability,
interest, penalties, costs, damages, claims or causes of action which may arise
or be incurred by Buyer or Buyer's agents by reason of any failure of any
representation or warranty made in this Affidavit to be true and correct in all
respects, including but not limited to any liability for failure to withhold any
amount required under IRC section 1445.
REGISTRATION STATEMENT
Page II-244
<PAGE>
Dated this day of , 1996.
SELLER:
-------------------------
By:
Name:
Title:
STATE OF )
ss.
COUNTY OF )
Subscribed and sworn to before me this day of , 1996.
Notary Public for the State of
My Commission Expires:
REGISTRATION STATEMENT
Page II-245
<PAGE>
EXHIBIT J
OPINION OF SELLER'S COUNSEL
[Closing Date]
- ---------------------------------
- ---------------------------------
- ---------------------------------
Dear Sirs:
We have acted as counsel for ,
("Seller"), in connection with the transactions contemplated by that certain
Asset Purchase Agreement dated as of April , 1996 (the "Agreement"), between
Seller and General Communication, Inc., an Alaska corporation ("Buyer").
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Agreement.
We have participated in and are familiar with the corporate proceedings
of Seller relating to the negotiation, authorization, execution and delivery of
the Transaction Documents (as hereinafter defined). In connection with the
foregoing, we have examined the originals or copies, certified or otherwise
authenticated to our satisfaction, of (i) the Asset Purchase Agreement and
related documents ("Transaction Documents") and (ii) such corporate records,
certificates of public officials and officers of Seller, and such other
agreements, instruments and documents that we have deemed necessary as a basis
for the opinions hereinafter expressed. In such examination, we have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity with genuine and authentic originals of all documents submitted to us
as copies, and the genuineness of all signatures.
Based on the foregoing, and on the assumptions herein set forth, and
subject to the exceptions, limitations and qualifications herein above
expressed, it is my opinion that:
1. Seller is a duly organized, validly existing and
in good standing under the laws of the state of . Seller is
qualified to transact business in the state of . Seller has all
requisite power and authority to own and lease the Assets and to carry on the
CATV business as such business is currently conducted.
2. Seller has all requisite power and authority to execute and deliver
the Transaction Documents to which it is a party, to consummate the transactions
contemplated
REGISTRATION STATEMENT
Page II-246
<PAGE>
[Closing Date]
Page __
thereby and to perform all terms and conditions of the Transaction
Documents to be performed by it.
3. The execution and delivery of the Transaction Documents by Seller,
the performance by Seller of all the terms and conditions thereof to be
performed by it, and the consummation of the transactions contemplated thereby
have been duly authorized and approved by the partners, general partner or board
of directors as applicable of Seller and no other proceedings of Seller are
necessary with respect thereto.
4. Each of the Transaction Documents has been duly executed and
delivered by Seller and constitutes the legal, valid and binding obligation of
Seller enforceable against Seller in accordance with its terms, except insofar
as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
5. The execution, delivery and performance by Seller of the Transaction
Documents to which it is a party will not (a) violate any provision of the
charter partnership agreement or bylaws, as applicable, of Seller, (b) violate
any provision of any statute, rule, regulation, order judgment or decree or
other restriction of any government, government agency or court to which Seller
is subject or by which any of the assets of Seller is bound or affected (except,
in each case, for those violations which would not, individually or in the
aggregate, have a material adverse effect any CATV System, the CATV Business or
Seller), (c) require, other than those obtained or made, any consent, approval,
filing, application or notice under any law, rule, regulation, order judgement
or decree applicable to the Assets or the CATV Business, or (d)(i) violate, be
in conflict with or constitute a breach of or default under (with or without the
giving of notice or the lapse of time, or both), (ii) permit or result in the
acceleration of (or give any Person the right to accelerate) the performance of
Seller under, (iv) result in the loss of a benefit under, (v) result in the
creation or imposition of any Security Interest upon any asset or (vi) require,
other than those obtained or given, any consent, authorization or approval of,
or any notice to, any Person under any instrument evidencing any of the Assets
or any note, bond, indenture, mortgage, deed of trust, lease, permit, license,
authorization, contract, instrument or other agreement to which Seller is a
party or by which Seller or any of its assets is bound or affected, except for
purposes of this clause (d) such consents, authorizations, approvals and notices
the failure of which to be obtained or given would not, and such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications,
impairments, reformations, losses and accelerations which would not,
individually or in the aggregate, have a material adverse effect on any CATV
system, the CATV Business or Seller.
REGISTRATION STATEMENT
Page II-247
<PAGE>
[Closing Date]
Page
6. The Conveyance Documents are in legal form sufficient to convey
title to the Assets to Buyer.
7. To the best of our knowledge, there is not pending (excluding
actions not served) or, to our knowledge, overtly threatened, any judicial,
administrative or arbitral action, suit, proceeding or claim against or
investigation of Seller which questions the validity of the Agreement.
8. To our knowledge, except for those obtained or made, as applicable,
no consent, approval, waiver, order or other authorization of, or registration,
declaration or filing with, any governmental body is required in connection with
the execution and delivery by Seller of the Transaction Documents or the
consummation by Seller of the transactions contemplated thereby.
9. To our knowledge, except as set forth on Schedule 8 to the Agreement
and except for proceedings affecting the CATV industry generally, there is no
unsatisfied judgment or order outstanding, or any action, proceeding, or
investigation pending or threatened in any court or quasi-judicial or
administrative agency against Seller with respect to or involving all or any
part of the CATV Business or the Assets.
10. The sale and transfer of the Assets pursuant to the Agreement will
not result in the imposition or assessment of any sales, use, transfer, excise
or license tax, fee or charge on the transfer of any of the Assets.
Respectfully submitted,
REGISTRATION STATEMENT
Page II-248
<PAGE>
EXHIBIT K
OPINION OF SELLER'S FCC COUNSEL
[Closing Date]
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Gentlemen:
We are communications counsel for
("Seller"), representing Seller principally in matter before the Federal
Communications Commission ("FCC") and the United States Copyright Office
("Copyright Office") concerning the regulations by these governmental agencies
of various aspects of its operations. We have acted as special communications
counsel to Seller in connection with the sale to General Communication, Inc.
("Buyer"), of all of the assets of Seller used and useful in the operation of
its cable television ("CATV") business located in and around
pursuant to that certain Asset Purchase Agreement
dated as of April , 1996, by and between Seller and Buyer ("Agreement"). We
have agreed to render an opinion of counsel in connection therewith.
Terms used herein and not otherwise defined shall have the same meaning
and effect as used and defined in the Agreement. In connection with the
Agreement, we have examined such records of the FCC and Copyright Office, and
have conducted such investigation as we have deemed necessary for the purposes
of this opinion.
1. The Seller operates cable television systems ("Cable Systems") which
serve the communities listed on Attachment 1. Each such community has been
registered with the FCC. Pursuant to the FCC's rules and regulations, such
registrations authorized commencement of operation of the Cable System in the
specified community.
2. The Seller has filed for the Cable Systems most recent FCC Form 320,
Form 325 and Form 395A. The Cable Systems have been certified by the FCC as
being in compliance with the EEO requirements in each calendar year that the
Cable Systems have been owned by Seller(s) beginning with 1986.
REGISTRATION STATEMENT
Page II-249
<PAGE>
[Closing Date]
Page
3. All necessary Statements of Account have been filed by Seller with
the Copyright Office, along with the royalty payments reflected as due under
those statements. We have not undertaken any independent accounting or
evaluation of the sums remitted to the Copyright Office with Seller's Statements
of Account and render no opinion in that respect. We have not reviewed and do
not offer an opinion as to Seller's compliance with former section 111(d)(1) of
the Copyright Act with regard to the requirement to file initial notices of
identity and signal carriage complement in view of the elimination of this
requirement.
4. To the best of our knowledge, after due inquiry, there have been no
inquiries received from the U.S. Copyright Office or any other party which
questions the Statements of Account or any Copyright payment made by Seller with
respect to the Cable Systems, nor are we aware of any claim, action, or demand
for Copyright infringement or for non-payment of royalties pending or threatened
against Seller with respect to the Cable Systems.
5. Seller holds the FCC licenses set forth in Schedule 2 attached to
the Agreement. Such licenses were validly issued to Seller. The FCC has given
its consent to the assignment of those licenses to Buyer. Once assigned to
Buyer, they are the only FCC licenses or certificates necessary to permit Buyer
to operate the CATV Business as it is presently operated. The FCC licenses are
in full force and effect, without any materially adverse modification,
amendment, revocation, suspension, termination, cancellation, reformation, or
condition. To the best of our knowledge, after due inquiry, there is no FCC
proceeding pending, or any FCC investigation pending or FCC proceeding
threatened, for the purpose of modifying, revoking, terminating, suspending,
canceling, or reforming any of the licenses.
6. Seller has filed all the required notifications with and has
received all necessary authorizations from, the FCC with respect to Seller's
utilization of any frequency in the 108 to 137 MHz and 225 to 400 MHz banks.
These frequencies, the geographic coordinates of the approximate center of each
Cable System area, and the authorized radius of each Cable System, are listed on
Attachment 2. The information contained on Attachment 2 was prepared by Seller
and is consistent with the information filed with the FCC. To the best of our
knowledge, after due inquiry, Seller has not received any notice of violation
concerning its use or proposed use of any frequencies in the 108 to 137 MHz and
225 to 400 MHz bands.
7. Seller has complied with all requirements of the FCC concerning
notification to the Federal Aviation Administration with respect to the
construction and/or alteration of the
REGISTRATION STATEMENT
Page II-250
<PAGE>
[Closing Date]
Page
antenna structures, and has secured "no hazard" determinations for each antenna
where required.
8. The Cable Systems have established procedures to provide privacy and
A/B Notices annually to their subscribers and to each new subscriber upon
commencement of service, and to make available lockboxes upon request pursuant
to the provisions of the Communications Act. The Cable Systems have established
procedures for compliance with the FCC's restrictions with respect to
advertising during children's programming and the placement of commercials
during programming designed for children twelve years old and under does not
exceed the Commission's maximum.
9. The cable television systems are each located in areas subject to
effective competition as defined by the Communications Act and the rules and
regulations of the Federal Communications Act and the rules and regulations of
the Federal Communications Commission. To the best of our knowledge, after due
inquiry, Sellers have not received any notice of the intention of any
municipality to challenge the Seller's determination that its systems are each
subject to effective competition.
10. The CATV Business of Seller is presently being operated in
compliance with the Communications Act, the Copyright Act of 1976, FCC Rules and
Regulations, and Copyright Office rules. There is neither any outstanding order
or judgment regarding, nor any pending suit, action, administrative proceeding,
arbitration, or other proceeding or governmental investigation relating to,
Seller's compliance with the Communications Act, the Copyright Act of 1976, or
Copyright Office or FCC rules, regulations or orders.
The opinions expressed above are subject and qualified in all respects
by the following:
(a) We have assumed the genuineness and authenticity of all
documents examined by us and all signatures thereon, the legal capacity of all
parties executing such documents, and the conformity to original documents of
all copies submitted to us as certified or conformed copies or photocopies. In
rendering the opinions expressed herein, we have relied solely upon the
certificates of public officials and upon the representations, warranties,
certifications and statements of Seller as to the factual matters set forth
herein, and we have made no independent factual investigation with regard to
such matters. Except as herein provided, however, we have no actual knowledge or
notice of facts or circumstances contrary thereto.
REGISTRATION STATEMENT
Page II-251
<PAGE>
[Closing Date]
Page
( b) We have assumed, without expression of opinion, that
Buyer has all requisite legal capacity, power and authority and has taken all
necessary action to enter into, be bound by, and perform its obligations under
the Agreement and the transactions contemplated therein, and the execution,
receipt, and delivery of all documents, and that no party upon whom we have
relied for purposes of this opinion has perpetrated a fraud upon Seller.
This opinion has been prepared solely for your use in connection with
the closing of the transactions contemplated under the Agreement, and should not
be quoted in full or in part or otherwise referred to, or be filed with or
furnished to any governmental agency or other person or entity not involved in
such transactions without the prior consent of this firm.
Very truly yours,
REGISTRATION STATEMENT
Page II-252
<PAGE>
EXHIBIT 2.5
ASSET PURCHASE AGREEMENT
dated as of
May , 1996
among
GENERAL COMMUNICATION, INC.
or its wholly-owned subsidiary
an Alaska corporation
("Buyer")
and
ALASKA CABLEVISION, INC.
a Delaware corporation
("Company")
REGISTRATION STATEMENT
Page II-253
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions...................................................................................260
1.1 Affiliate............................................................................260
---------
1.2 APUC.................................................................................260
----
1.3 APUC Certificate.....................................................................260
----------------
1.4 Assets...............................................................................260
------
1.5 Basic CATV Services..................................................................260
-------------------
1.6 Basic Subscriber.....................................................................261
----------------
1.7 CATV.................................................................................261
----
1.8 CATV Business........................................................................261
-------------
1.9 CATV Instruments.....................................................................261
----------------
1.10 CATV System(s).......................................................................261
--------------
1.11 Closing and Closing Date.............................................................261
------------------------
1.12 COBRA................................................................................261
-----
1.13 Company Contracts....................................................................262
-----------------
1.14 Employees............................................................................262
---------
1.15 Employee Plans.......................................................................262
--------------
1.16 Encumbrance..........................................................................262
-----------
1.17 Equipment............................................................................262
---------
1.18 Equivalent Basic Subscribers or EBS's................................................262
-------------------------------------
1.19 ERISA................................................................................263
-----
1.20 Excluded Assets......................................................................263
---------------
1.21 FCC..................................................................................263
---
1.22 Financial Statements.................................................................263
--------------------
1.23 Governmental Authority...............................................................263
----------------------
1.24 Intangibles..........................................................................263
-----------
1.25 MDU Agreements.......................................................................263
--------------
1.26 MDU Complex..........................................................................263
-----------
1.27 Note Holdback........................................................................263
-------------
1.28 Pay TV...............................................................................264
------
1.29 Pay TV Units.........................................................................264
------------
1.30 Permitted Encumbrances...............................................................264
----------------------
1.31 Person...............................................................................264
------
1.32 Purchase Price.......................................................................264
--------------
1.33 Real Property........................................................................264
-------------
1.34 Required Consents....................................................................265
-----------------
1.35 Security Interest....................................................................265
-----------------
1.36 Service Area.........................................................................265
------------
1.37 Subscribers..........................................................................265
-----------
1.38 System...............................................................................265
------
REGISTRATION STATEMENT
Page II-254
<PAGE>
Section 2. Sale of Assets................................................................................265
2.1 Sale of Assets.......................................................................265
--------------
2.2 Purchase Price.......................................................................265
--------------
2.3 Purchase Price Adjustment............................................................266
-------------------------
2.4 Convertible, Subordinated Notes......................................................268
-------------------------------
2.5 Note Holdback........................................................................269
-------------
2.6 Allocation of Consideration..........................................................270
---------------------------
Section 3. Company's Representations, Warranties, and Covenants..........................................270
3.1 Organization and Qualification.......................................................270
------------------------------
3.2 Authority............................................................................270
---------
3.3 Enforceability.......................................................................270
--------------
3.4 Cash Flow............................................................................271
---------
3.5 Assets...............................................................................271
------
3.6 Governmental Permits.................................................................271
--------------------
3.7 Company Contracts....................................................................272
-----------------
3.8 Records..............................................................................272
-------
3.9 No Breach or Violation...............................................................272
----------------------
3.10 No Finders or Brokers................................................................272
---------------------
3.11 Schedules............................................................................272
---------
3.12 Compliance with Laws.................................................................272
--------------------
3.13 Financial Statements.................................................................273
--------------------
3.14 Tax Returns and Other Reports........................................................273
-----------------------------
3.15 Transfer Taxes.......................................................................273
--------------
3.16 Real Property........................................................................274
-------------
3.17 Employees............................................................................276
---------
3.18 Employee Benefits....................................................................276
-----------------
3.19 Litigation and Violations............................................................280
-------------------------
3.20 Disclosure...........................................................................281
----------
3.21 Investment Company...................................................................281
------------------
3.22 CATV Instruments and Company Contracts...............................................281
--------------------------------------
3.23 FCC Compliance.......................................................................282
--------------
3.24 APUC Compliance......................................................................282
---------------
3.25 Patents, Trademarks, and Copyrights..................................................283
-----------------------------------
3.26 No Other Assets or Liabilities.......................................................283
------------------------------
3.27 Required Consents....................................................................283
-----------------
3.28 Overbuilds...........................................................................283
----------
3.29 Effect of Certificates...............................................................283
----------------------
3.30 Subscriber Numbers...................................................................284
------------------
3.31 No Insolvency........................................................................284
-------------
3.32 Compliance with Law..................................................................284
-------------------
3.33 Disclosure...........................................................................285
----------
3.34 Parent Entity........................................................................285
-------------
REGISTRATION STATEMENT
Page II-255
<PAGE>
Section 4. Assumed Liabilities and Excluded Assets.......................................................285
4.1 Assignment and Assumption............................................................285
-------------------------
4.2 Excluded Assets......................................................................286
---------------
Section 5. Buyer's Representations, Warranties, and Covenants............................................286
5.1 Organization and Authority...........................................................286
--------------------------
5.2 Capitalization.......................................................................286
--------------
5.3 Enforceability.......................................................................287
--------------
5.4 Records..............................................................................287
-------
5.5 No Breach or Violation...............................................................287
----------------------
5.6 Compliance with Laws.................................................................287
--------------------
5.7 Financial Statements.................................................................287
--------------------
5.8 Tax Returns and Other Reports........................................................288
-----------------------------
5.9 Transfer Taxes.......................................................................288
--------------
5.10 Litigation and Violations............................................................288
-------------------------
5.11 Disclosure...........................................................................289
----------
5.12 Investment Company...................................................................289
------------------
5.13 No Finders or Brokers................................................................289
---------------------
5.14 No Insolvency........................................................................289
-------------
Section 6. Conduct Prior to Closing......................................................................289
6.1 Operation in Ordinary Course.........................................................289
----------------------------
6.2 Agents...............................................................................290
------
6.3 Company Contracts....................................................................290
-----------------
6.4 No New Buyer Securities..............................................................290
-----------------------
6.5 Employees............................................................................291
---------
6.6 Access to Premises and Records.......................................................291
------------------------------
6.7 Existing Relationships...............................................................291
----------------------
6.8 Required Consents....................................................................291
-----------------
6.9 Compliance with CLI Standards........................................................292
-----------------------------
6.10 MDU Agreements.......................................................................292
--------------
6.11 Public Announcements.................................................................292
--------------------
6.12 Due Diligence........................................................................292
-------------
6.13 Correction of any Noncompliance Prior to Closing.....................................293
------------------------------------------------
6.14 Leased Equipment.....................................................................293
----------------
6.15 Estoppel Certificates, Franchise Forms...............................................293
--------------------------------------
6.16 HSR Notification.....................................................................293
----------------
6.17 No Shopping..........................................................................294
-----------
6.18 Notification of Certain Matters......................................................294
-------------------------------
6.19 Risk of Loss; Condemnation...........................................................294
--------------------------
6.20 Lien and Judgment Searches...........................................................295
--------------------------
6.21 Transfer Taxes.......................................................................295
--------------
6.22 Letter to Programmers................................................................295
---------------------
6.23 Updated Schedules....................................................................295
-----------------
REGISTRATION STATEMENT
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<PAGE>
6.24 Use of Company's Name................................................................296
---------------------
6.25 Subscriber Billing Services..........................................................296
---------------------------
6.26 Satisfaction of Conditions...........................................................296
--------------------------
Section 7. Closing.......................................................................................296
Section 8. Deliveries by Company at Closing..............................................................297
Section 9. Deliveries by Buyer at Closing................................................................299
Section 10. Conditions to Obligations of Buyer............................................................300
10.1 Accuracy of Representations and Compliance with Conditions...........................300
----------------------------------------------------------
10.2 Deliveries Complete..................................................................300
-------------------
10.3 No Adverse Change....................................................................301
-----------------
10.4 Restraint of Proceedings.............................................................301
------------------------
10.5 Inspection...........................................................................301
----------
10.6 Cash Flow............................................................................301
---------
Section 11. Conditions to Obligations of Company..........................................................302
11.1 Accuracy of Representations and Compliance with Conditions...........................302
----------------------------------------------------------
11.2 Deliveries Complete..................................................................302
-------------------
11.3 No Adverse Change....................................................................302
-----------------
11.4 Restraint of Proceedings.............................................................302
------------------------
Section 12. Conditions to Both Parties Obligations........................................................303
12.1 Consents.............................................................................303
--------
12.2 No Governmental Action...............................................................303
----------------------
12.3 Waiver of Conditions.................................................................303
--------------------
Section 13. Transactions Subsequent to Closing............................................................303
13.1 Further Actions......................................................................303
---------------
13.2 COBRA Benefits.......................................................................303
--------------
Section 14. Registration Rights Agreement.................................................................303
Section 15. Agreement Not to Compete......................................................................304
15.1 Agreement............................................................................304
---------
15.2 Breach of Agreement..................................................................304
-------------------
15.3 Enforceability.......................................................................304
--------------
REGISTRATION STATEMENT
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<PAGE>
Section 16. Survival of Representations and
Warranties; Indemnification...................................................................304
16.1 Survival.............................................................................304
--------
16.2 Indemnity by Company.................................................................304
--------------------
16.3 Indemnity by Buyer...................................................................305
------------------
16.4 Defense of Claims....................................................................305
-----------------
16.5 Right to Offset......................................................................306
---------------
16.6 Determination of Indemnified Amounts.................................................307
------------------------------------
Section 17. Termination...................................................................................307
17.1 Mutual Consent.......................................................................307
--------------
17.2 Default by Company...................................................................307
------------------
17.3 Default by Buyer.....................................................................308
----------------
Section 18. Miscellaneous.................................................................................308
18.1 Expenses.............................................................................308
--------
18.2 Modification.........................................................................309
------------
18.3 Attorneys' Fees......................................................................309
---------------
18.4 Right to Specific Performance........................................................309
-----------------------------
18.5 Notice...............................................................................309
------
18.6 Waiver...............................................................................310
------
18.7 Binding Effect; Assignment...........................................................310
--------------------------
18.8 No Third Party Beneficiaries.........................................................310
----------------------------
18.9 Rights Cumulative....................................................................310
-----------------
18.10 Further Actions......................................................................310
---------------
18.11 Severability.........................................................................311
------------
18.12 Captions.............................................................................311
--------
18.13 Counterparts.........................................................................311
------------
18.14 Governing Law........................................................................311
-------------
18.15 Incorporation by Reference...........................................................311
--------------------------
18.16 Construction.........................................................................311
------------
18.17 Confidentiality......................................................................311
---------------
</TABLE>
EXHIBITS
A - Registration Rights Agreement
B - Bill of Sale
C - Assumption Agreement
D - Assignment of Lease
E - Guaranty
F - Non-Compete Agreement
G - Letter to Programmers
H - FIRPTA Affidavit
I - Escrow Agreement
J - Convertible Subordinated Note
REGISTRATION STATEMENT
Page II-258
<PAGE>
SCHEDULES
1 - The CATV Business (including Rate Schedule)
2 - CATV instruments
3 - Company Contracts
4 - Required Consents
5 - Equipment and Vehicles Owned
6 - Real Property Owned
7 - Security Interests To Be Discharged Prior to Closing
and Permitted Security Interests
8 - Proceedings and Judgments
9 - Employee Matters
10 - Excluded Assets
11 - MDU Agreements
12 - Buyer's Required Consents
13 - Buyer's Tax Matters
14 - Buyer's Proceedings and Judgments
REGISTRATION STATEMENT
Page II-259
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of May
10, 1996, among General Communication, Inc., an Alaska corporation, or its
wholly-owned subsidiary ("Buyer"), and Alaska Cablevision, Inc., a Delaware
corporation ("Company"). This Agreement states the terms upon which Company
agrees to sell to Buyer, and Buyer agrees to purchase from Company, all of
Company's Assets (as defined below).
WHEREAS, Company is engaged in the business of providing cable
television services to subscribers in and around the Service Area (defined
below); and
WHEREAS, Buyer desires to purchase and Company desires to sell
all of Company's Assets used or useful in connection with the CATV Business
(defined below);
In consideration of the terms, conditions, and agreements
contained in this Agreement, the parties agree as follows:
Section 1 Definitions
1.1 Affiliate. "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with a person or entity;
"control" means the ownership, directly or indirectly, of equity securities or
other ownership interests in a person or entity by another person or entity,
which represent more than 50% of the voting power or equity ownership in such
person or entity.
1.2 APUC. "APUC" shall mean the Alaska Public Utilities
Commission.
1.3 APUC Certificate. "APUC Certificate" shall mean the
applicable certificate of public convenience and necessity issued by APUC, being
Certificate Nos. 158 (Petersburg and Wrangell), 157, 191, 168, 164 and 245,
respectively for the Service Area legally described herein.
1.4 Assets. "Assets" shall include all properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description, that are owned, held, used, or useful in the CATV
Business located in and around the Service Area in which Company has any right,
title or interest, including but not limited to the CATV Instruments, the
Intangibles, Company Contracts, the Equipment, and the Real Property, but
excluding any Excluded Assets set forth on Schedule 10.
1.5 Basic CATV Services. "Basic CATV Services" shall mean CATV
programming sold to Subscribers as a package and delivered to such Subscribers
by
REGISTRATION STATEMENT
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<PAGE>
coaxial cable, including broadcast and satellite service programming for which a
Subscriber pays a fixed monthly fee to Company, but not including Pay TV.
1.6 Basic Subscriber. "Basic Subscriber" shall mean any person
who pays Company the full monthly price (but including a subscriber who receives
a senior citizen discount but not including a subscriber who receives any other
discount) for Basic CATV Services in accordance with standard rates charged by
Company as set forth on Schedule 1, who was not solicited since March 14, 1996,
to purchase such services by any promotions, offers of discounts, or
extraordinary marketing techniques which promotions, discounts, or marketing
techniques were inconsistent with Company's previous business practices, and who
has paid in full without discount (except for senior citizen discounts) at least
one monthly payment in the ordinary course of business for CATV services, and
who is not pending disconnection for any reason (other than for non-payment of a
delinquent bill in an amount less than $10.01), and who is not delinquent in
payment, for an amount in excess of $10.00, for such CATV services. For this
purpose, a Subscriber shall be delinquent if any part of his or her account is
more than 62 days past due from the invoice date.
1.7 CATV. "CATV" shall mean cable television.
1.8 CATV Business. "CATV Business" shall refer to all of the
Assets and business of the CATV Systems as presently conducted by Company in and
around the Service Area as described on Schedule 1 to this Agreement.
1.9 CATV Instruments. "CATV Instruments" shall refer to all
intangible CATV channel distribution rights owned, used, or held for use by
Company, all franchise agreements, pole attachment rights, leases, licenses,
easements, crossing permits and service agreements, as described on Schedule 2
to this Agreement.
1.10 CATV System(s). "CATV System" shall refer to a complete
CATV reception and distribution system of Company which is part of Company's
CATV Business and consisting of one or more headends, equipment, Subscriber
drops and associated electronic equipment, which is, or is capable of being,
without modification, operated as an independent system without interconnections
to other systems. Any systems which are interconnected or which are served in
total or in part by a common headend shall be considered a single CATV System.
1.11 Closing and Closing Date. "Closing" shall refer to the
consummation of the transactions contemplated by this Agreement, to take place
at a meeting held at the place and on the date ("Closing Date") specified in
Section 7 of this Agreement.
1.12 COBRA. "COBRA" shall be as defined in Section 3.17.
REGISTRATION STATEMENT
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<PAGE>
1.13 Company Contracts. "Company Contracts" shall refer to all
contracts and agreements pertaining to the lawful ownership, operation, and
maintenance of the CATV Business or used in the CATV Business, other than CATV
Instruments, as described on Schedule 3 to this Agreement.
1.14 Employees. "Employees" shall be as defined in Section
3.17.
1.15 Employee Plans. "Employee Plans" shall be as defined in
Section 3.18.
1.16 Encumbrance. Any mortgage, lien, security interest,
security agreement, conditional sale or other title retention agreement,
limitation, pledge, option, charge, assessment, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer or any
exception to or defect in title or other ownership interest (including
reservations, rights-of-way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.17 Equipment. "Equipment" shall refer to all tangible
personalty, electronic devices, trunk and distribution coaxial and optical fiber
cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and
pole hardware, Subscriber's devices (including, without limitation, converters,
encoders, transformers behind television sets and fittings), "headend"
(origination, earth stations, transmission and distribution system) hardware,
test equipment, vehicles, and other personal property and facilities owned,
leased, used, or held for use in the CATV Business, as described on Schedule 5
to this Agreement.
1.18 Equivalent Basic Subscribers or EBS's. "Equivalent Basic
Subscribers" or "EBS's" shall mean at a specified date a number representing the
sum of the equivalent of Basic Subscribers of each franchise area in the CATV
Systems derived by dividing (a) the total monthly billings for sales by Company
of Basic CATV Services for the most recent month ended prior to such specified
date to single family households which pay less than the full non-discounted
(other than senior citizen discounts) monthly price for Basic CATV Services and
to bulk accounts (provided that in no event shall such billings include more
than a single month's charges for any such single family household or single
bulk account), by (b) the full non-discounted monthly price charged by Company
to single family households for Basic CATV Services in accordance with standard
rates charged by Company at the Closing Date in such franchise area; provided,
however, that in no event shall such standard rates charged by Company at the
Closing Date be less than those set forth on Schedule 1. For purposes of the
foregoing, there shall be excluded (a) all billings to any discounted single
family household or bulk account for which a payment in excess of $10.00 is more
than 62 days past due from the invoice date (whether for Basic CATV Services or
Pay TV or otherwise); (b) all billings to any discounted single family household
or bulk account which has not paid at least one month's payment for Basic CATV
Services, including
REGISTRATION STATEMENT
Page II-262
<PAGE>
payment of all installation charges owed and due; (c) that
portion of the billings to each discounted (other than senior citizen discounts)
single family household or bulk account which represents an installation or
other non-recurring charge, a charge for any outlet or connection other than the
first outlet or first connection in any single family household or, with respect
to a bulk account, in any residential unit (e.g., individual apartment or rental
unit), a charge for any tiered service (whether or not included within Pay TV),
or a pass-through charge for copyright fees, sales taxes, etc.; (d) all billings
to any discounted single family household or bulk account which is pending
disconnection for any reason; and (e) all billings to any discounted single
family household or bulk account which was solicited since March 14, 1996, by
any promotions, offers of discounts, or extraordinary marketing techniques which
promotions, discounts, or marketing techniques were inconsistent with Company's
previous business practices.
1.19 ERISA. "ERISA" shall be as defined in Section 3.17.
1.20 Excluded Assets. "Excluded Assets" shall refer to those
Assets which will not be owned by Company on the Closing Date as listed on
Schedule 10.
1.21 FCC. "FCC" shall mean the Federal Communications
Commission.
1.22 Financial Statements. "Financial Statements" shall be as
defined in Section 3.13.
1.23 Governmental Authority. (a) The United States of America,
(b) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (c) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof, or (d) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.24 Intangibles. "Intangibles" shall mean all general
intangibles including, but not limited to, Subscriber lists, accounts
receivable, claims (excluding any claims relating to Excluded Assets), patents,
copyrights, and goodwill, if any.
1.25 MDU Agreements. "MDU Agreements" shall mean the fully
executed agreements required by Section 6.10 hereof.
1.26 MDU Complex. "MDU Complex" shall mean any apartment,
condominium, or townhome complex or mobile home park and any other multiple unit
dwelling project subject to common ownership which currently receives cable
television service from the CATV Business.
1.27 Note Holdback. "Note Holdback" shall be the GCI Notes
held in escrow, as defined in Section 2.5.
REGISTRATION STATEMENT
Page II-263
<PAGE>
1.28 Pay TV. "Pay TV" shall mean premium programming services
selected by and sold to Subscribers for monthly fees in addition to the fee for
Basic CATV Services.
1.29 Pay TV Units. "Pay TV Units" shall mean each Pay TV
service subscribed for by all Basic Subscribers.
1.30 Permitted Encumbrances. "Permitted Encumbrances" shall
mean: (i) liens for taxes, assessments and governmental charges not yet due and
payable, or the validity of which are being contested diligently and in good
faith, and installments of special assessments not yet due and payable; (ii)
statutory liens arising in connection with the ordinary course of business not
yet delinquent or the validity of which are being contested diligently and in
good faith; (iii) zoning laws and ordinances and similar governmental
regulations; (iv) rights reserved to any municipality or government, statutory
or public authority to regulate the affected property; and (v) as to Real
Property interests, any liens, encumbrances, easements, rights-of-way,
servitudes, permits, leases, other minor title defects, conditions, covenants
and restrictions, and minor imperfections or irregularities in title which are
reflected in the public records. The foregoing notwithstanding, "Permitted
Encumbrances" shall not include any item of which Company has warranted the
absence of elsewhere in this Agreement and furthermore shall not prevent or
inhibit, in any way, the conduct of Company's CATV Business. No implication is
made from the foregoing or any reference to Permitted Encumbrances in this
Agreement or in any documents or instruments delivered in connection herewith
that Buyer shall be or shall become liable or responsible for any liens, taxes,
assessments, charges, or statutory liens described in (i) or (ii) above accruing
or arising for the period prior to the Closing Date or which are imposed or
assessed against Company for the period prior to the Closing Date; and Company
shall remain fully liable and responsible therefor and shall indemnify and hold
Buyer harmless from and against any thereof pursuant to Section 16.
1.31 Person. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.32 Purchase Price. The "Purchase Price" for Company's Assets
shall be as defined in Section 2.2.
1.33 Real Property. "Real Property" shall mean all realty,
including appurtenances, improvements, and fixtures located thereon and any
other interests in real property owned by Company and used or held for use in
the CATV Business, including, without limitation, fee interests in Company's
offices and headend sites, leasehold interests, easements, wire crossing permits
and rights of entry described on Schedule 6 to this Agreement.
REGISTRATION STATEMENT
Page II-264
<PAGE>
1.34 Required Consents. "Required Consents" shall mean all
governmental franchises, approvals, licenses, consents, and any and all other
authorizations or approvals and consents, necessary and required for Company to
transfer and convey, and Buyer to purchase, the Assets, and for Buyer to conduct
Company's CATV Business at the places and in the manner in which such CATV
Business is presently conducted and will be conducted on the Closing Date. All
of Company's Required Consents are listed on Schedule 4 and all of Buyer's
Required Consents are listed on Schedule 12 to this Agreement.
1.35 Security Interest. "Security Interest" shall mean any
mortgage, lien, security interest, security agreement, limitation, pledge,
option, charge, assessment, restrictive agreement, restriction, encumbrance,
adverse interest, claim, restraint on transfer, or claim against title with
respect to any of the Assets.
1.36 Service Area. "Service Area" shall mean the area in which
Company operates the CATV Business, specifically in and around Petersburg,
Wrangell, Cordova, Valdez, Kodiak, Nome and Kotzebue, Alaska, pursuant to
applicable APUC Certificate Nos. 158 (Petersburg and Wrangell), 157, 191, 168,
164 and 245 respectively.
1.37 Subscribers. "Subscribers" shall mean all Basic
Subscribers and EBS's.
1.38 System. A complete cable television reception and
distribution system operated in the conduct of the Business, consisting of one
or more headends, subscriber drops and associated electronic and other
equipment, and which is, or is capable of being, without modification, operated
as an independent system without interconnections to other systems. Any systems
which are interconnected or which are served in total or in part by a common
headend will be considered a single System.
Section 2 Sale of Assets.
2.1 Sale of Assets. At the Closing, upon the terms and
conditions set forth in this Agreement, Company agrees to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from
Company, all of the Company's right, title and interest in, to and under the
Assets. Except as otherwise provided, all the Assets are intended to be
transferred to Buyer, whether or not described in the Schedules.
2.2 Purchase Price. Buyer will deliver to Company at the
Closing Sixteen Million Six Hundred Fifty Thousand and no/100 Dollars
($16,650,000.00) in cash and Ten Million and no/100 Dollars ($10,000,000) in
Buyer's subordinated notes ("Notes") which are convertible into shares of GCI's
voting Class A common stock (the "GCI Shares"), in payment for the Assets. The
Purchase Price shall be paid by wire transfer of immediately available funds and
delivery of Notes on the Closing Date. Such
REGISTRATION STATEMENT
Page II-265
<PAGE>
payment in cash and in Notes constitutes the Twenty-Six Million Six Hundred
Fifty Thousand and no/100 Dollars ($26,650,000.00) "Purchase Price."
2.3 Purchase Price Adjustment. The Purchase Price payable in
cash shall be:
decreased by:
(i) the Assumed Liabilities as
described in Section 4.1 (a)(i)
and (ii) which, as of the
Closing Date, are liabilities
as accrued and/or which in
accordance with GAAP should
have been accrued as
liabilities as of the Closing
Date;
and increased by:
(ii) current assets other than cash
and cash equivalents ("Current
Assets") of the Company at the
Closing Date, such as prepaid
expenses of the Company which
relate to goods and services
that are to be received by
Buyer after the Closing Date
and in respect of which Buyer
will receive a benefit, and
accounts receivable.
Receivables Adjustment. The Company's subscriber
accounts receivable which relate to the billing periods prior to the billing
period in which the Closing Date occurs, and in the event the Closing Date does
not occur on the last day of a billing period, the amount of the subscriber
accounts receivable which relate to the billing period in which the Closing Date
occurs (the "Billing Period Receivables") which are attributable to the period
prior to the Closing Date (together, subject to the immediately succeeding
sentence, herein called the "Customer Accounts Receivable"), shall be considered
Current Assets to the extent actually collected within the two month period
following the Closing Date by or for the benefit of the Buyer and shall be
included as such in the Final Adjustments Report. Billing Period Receivables
shall be prorated based on the days in the billing period before and after the
Closing Date, the portion attributable to the period before the Closing Date
shall be included in Customer Accounts Receivable and the portion attributable
to the period after the Closing Date shall not be so included.
In addition to the foregoing, to the extent the Buyer
receives payments for other accounts receivable or similar receivables (other
than Customer Accounts Receivable), which payments are attributable to the
period prior to the Closing Date in connection with the calculation of the
Preliminary Adjustments Report and/or the Final Adjustments Report, the amount
of such accounts receivable or similar receivables
REGISTRATION STATEMENT
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<PAGE>
actually collected (the "Other Receivables") shall be considered cash
equivalents and an adjustment shall be made to the Purchase Price, and any
additional payments shall be paid by check from Buyer to the Company.
To the extent that the Customer Accounts Receivable
and Other Receivables actually collected by Buyer within the three-month period
following the Closing Date exceed the amount of the Customer Accounts Receivable
and Other Receivables which were collected during the first two-month period
following the Closing and for which an adjustment was made pursuant to the Final
Adjustments Report, a further adjustment shall be made (the "Post-Period
Adjustment") and any additional payment shall be paid by check from Buyer to the
Company. A Post-Period Adjustment Report regarding the collections shall be
certified by an authorized officer of Buyer to be true, complete and correct as
of the date it is delivered. Any Customer Accounts Receivable and any Other
Receivables not previously assigned which Buyer does not collect within the
three-month period following the Closing Date shall, promptly after said
three-month period, be reassigned to the Company.
Buyer shall not forgive any of said receivables prior
to the end of said three-month period. All Customer Accounts Receivable and
Other Receivables collected by Buyer shall be deemed allocated to receivables in
the order in which they were incurred. At the Company's reasonable request,
Buyer's records with reference to collection of accounts receivable shall be
made available to the Company.
Preliminary Adjustments. A complete and detailed list
(the "Preliminary Adjustments Report") of all such known prorations and
adjustments in the Purchase Price shall be prepared in good faith and on a
reasonable basis by the Company. The parties hereto agree that the Preliminary
Adjustments Report shall consist of an adjustment to the Purchase Price pursuant
hereto as of the end of the last quarter prior to the Closing Date, and that the
amount of the Purchase Price delivered on the Closing Date shall be adjusted in
accordance with such Report. Buyer's representatives shall be permitted to
participate in the preparation of the report, with access to all books, records,
and other documents used in the preparation thereof. Said Preliminary
Adjustments Report shall be delivered by Company to Buyer at least five days
prior to the Closing, and subject to the provisions below, the party thereby
obligated to pay shall pay the items by increase or decrease of the Purchase
Price. In the event Buyer disagrees with any items on said list, Buyer and the
Company shall in good faith estimate such item, and the average of such two
estimates shall be utilized in making the adjustment of the Purchase Price at
the Closing Date, subject to final adjustment as provided for below. With
respect to the adjustments done pursuant to the Preliminary Adjustments Report
as of the end of the last quarter prior to the Closing Date, the amount of the
increase in the Purchase Price resulting from Customer Accounts Receivable shall
be calculated as of such date based upon (a) (95%) of the face value of Customer
Accounts Receivable which, as of such date, are one month (either 30 days or 31
days, depending upon the month in question) or less past due from the first day
REGISTRATION STATEMENT
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<PAGE>
of the billing period to which the amount relates; (b) 90% of the face amount of
any Customer Accounts Receivable which, as of such date, is more than one month
but not more than two months past due from the first day of the billing period
to which the amount relates; (c) 60% of the face amount of any amounts
receivable which, as of such date, are more than two months but not more than
three months past due from the first day of the billing period to which the
amount relates; and (d) 0% of the face amount of any Customer Accounts
Receivable which, as of such date, are more than three months past due from the
first day of the billing period to which the amount relates. Other Receivables
which are to be collected following the Closing Date shall also be included in
the Preliminary Adjustments Report.
Post-Closing Adjustment. Within 60 days after the
Closing Date, the Company and Buyer will prepare a report (the "Final
Adjustments Report"), prepared in good faith and on a reasonable basis, setting
forth in reasonable detail the adjustments described above including any
adjustments based on Company's and Buyer's actual collection of the Customer
Accounts Receivable and Other Receivables as of the date one day before such
Report. The Final Adjustments Report shall make such changes to the Preliminary
Adjustments Report as are necessary to recalculate as of the Closing Date all of
the adjustments and prorations to the Purchase Price set forth herein (which
were calculated in the Preliminary Adjustments Report generally as of the last
day of the quarter prior to the Closing Date).
The Company and Buyer shall provide each other with
reasonable access to all records which they have in their possession which
pertain to such collections for the period after the Closing Date, which are
necessary for a review of the Post-Period Adjustment Report.
The Purchase Price as determined pursuant to the
Preliminary Adjustments Report shall be compared to the Purchase Price as
determined pursuant to the Final Adjustments Report and, within 10 business days
following acceptance of the Final Adjustments Report by Buyer and the Company,
any adjustment amount to be paid pursuant to such report shall be paid to the
proper party from the Escrow described in Section 2.5.
To the extent the parties are unable to agree on the
Final Adjustments Report within 90 days after the Closing Date, all issues in
the Report which are not agreed upon shall be submitted to the national
accounting firm of Deloitte & Touche, LLP together with a written statement of
the issues by Buyer and by the Company, and the determination of such accounting
firm shall be final and binding on all parties.
2.4 Convertible, Subordinated Notes. As set forth in Section
2.2, Buyer shall issue Ten Million and no/100 Dollars ($10,000,000.00) in Notes
to Company as part of the Purchase Price. Such Notes shall be transferable only
to shareholders of the
REGISTRATION STATEMENT
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<PAGE>
Company and to their family members, heirs and assigns by operation of law and
to other limited transferees. The Notes shall be substantially in the form
attached hereto as Exhibit J. The Notes shall bear simple, non-compounding
interest at the lowest allowable IRS rate under imputed interest rules in effect
as of the Closing Date. Any indebtedness on Notes not previously converted into
GCI Shares shall be due and payable in full in a single, lump sum payment on the
tenth (10th) anniversary of their initial date of issuance ("Issuance Date").
The Notes shall be subordinated to all of Buyer's now existing and later
incurred senior indebtedness, including, without limitation, the Sixty-Two
Million Five Hundred Thousand and no/100 Dollars ($62,500,000.00) credit
facility from NationsBank of Texas, N.A., pursuant to that amended and restated
Credit Agreement dated as of April 26, 1996, as extended, increased, replaced or
re-financed, and any and all bank or similar financial institution indebtedness
assumed or later incurred as part of, or in furtherance of the purposes of, the
transactions referred to in Section 6.4 hereof. Any outstanding Notes shall be
convertible by the holders thereof on an annual basis into GCI Shares, during a
fifteen (15) day period each year for ten (10) years ("Conversion Period(s)").
The first Conversion Period shall commence on the Issuance Date, and the second
through the tenth (10th) Conversion Periods shall commence on each anniversary
of the Issuance Date, and shall conclude fifteen (15) days thereafter,
respectively. All or any portion of the then-outstanding Notes, including the
accrued interest thereon, shall be convertible into GCI Shares. The Conversion
Price on the Issuance Date and for the first Conversion Period shall be $6.50
per GCI Share and the Conversion Price for each subsequent Conversion Period
shall be an amount equal to $6.50 plus an amount per GCI Share equal to the
accrued interest on each $6.50 principal amount of the Note being converted, on
a non-compounded basis. For example, assuming a five percent (5%) annual
interest rate, the Notes would convert into GCI Shares in the following amounts:
Conversion Period Price
----------------- -----
Issuance Date $6.500
Year One (1) $6.825
Year Two (2) $7.150
Year Three (3) $7.475
Year Four (4) $7.800
Year Five (5) $8.125
Year Six (6) $8.450
Year Seven (7) $8.775
Year Eight (8) $9.100
Year Nine (9) $9.425
Year Ten (10) $9.750
2.5 Note Holdback. At the Final Closing, Company and Buyer
shall each deposit in escrow, pursuant to an escrow agreement in a form
substantially similar to Exhibit I, Notes with a principal amount of Eight
Hundred Thousand Dollars ($800,000),
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or provide a letter of credit or cash in an amount equal to Eight Hundred
Thousand Dollars ($800,000) (the "Note Holdback") to secure each party's
indemnification for breaches of representations, warranties and covenants. If no
breach of this Agreement has occurred or is reasonably alleged to have occurred,
such escrowed Notes, letters of credit or cash shall be released to the party
which placed such Notes, letters of credit or cash in escrow, effective as of
one hundred eighty (180) days after the Closing Date.
2.6 Allocation of Consideration. The parties hereto agree to
use their best efforts, based upon an appraisal of the Assets to be made by an
independent appraiser, to agree upon an allocation of the Purchase Price among
the Assets, and to agree to allocate the form of consideration among such
Assets, at or before the Final Closing. The parties agree to be bound by such
allocations and to file all returns and reports with respect to the transactions
contemplated by this Agreement, including, without limitation, all federal,
state and local tax returns, on the basis of such allocation.
Section 3 Company's Representations, Warranties, and Covenants
Company, represents, warrants, and covenants to Buyer, as of
the date of this Agreement and as of the Closing, as follows:
3.1 Organization and Qualification. Company is a duly
organized corporation, validly existing and in good standing under the laws of
its place of incorporation. Company is duly qualified or licensed to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction in which Company is required to be so qualified or licensed.
Company has all requisite power and authority to carry on the CATV Business as
currently conducted and to own, lease, use, and operate its Assets as they are
currently owned, leased and used and to conduct its business as it is now
conducted. The copies of Company's Articles of Incorporation, as amended, which
has been delivered to Buyer are complete and correct, and each of such documents
is in full force and effect and have not been further amended.
3.2 Authority. Company has all requisite capacity, power,
right, capitalization, and authority to enter into this Agreement and to perform
its obligations under this Agreement. The execution, delivery, and performance
of this Agreement and all other documents and instruments to be executed and
delivered in connection herewith ("Transaction Documents") by Company has been
duly authorized by all applicable corporate or partnership action of Company. No
consent of or authorization from any person or other entity, including any
Governmental Authority, is required to be obtained in connection with the
execution, delivery, and performance of this Agreement and of the Transaction
Documents by Company, except for the Required Consents described in Schedule 4.
3.3 Enforceability. This Agreement, the Transaction Documents,
and all documents, instruments, and certificates to be delivered under this
Agreement, assuming
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<PAGE>
all such documents, instruments, and certificates constitute legal, valid, and
binding obligations of Buyer, constitute legal, valid, and binding obligations
of Company, enforceable against Company in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity.
3.4 Cash Flow. Company's actual cash flow before corporate
overhead (identified in Company's financial statements as "Administration
Expenses") and after elimination of the inter-company transactions with the
McCaw/Rock Systems in Homer and Seward was not less than Three Million
Sixty-Seven Thousand and no/100 Dollars ($3,067,000.00) for the year ended
December 31, 1995. Company's audited financial statements as and for the year
ended December 31, 1995, have been provided to Buyer.
3.5 Assets. Company has exclusive, good and marketable title
to (or, in the case of Assets that are leased, valid leasehold interests in) the
Assets (other than Real Property, as to which the representations and warranties
in Section 3.16 apply). The Assets are free and clear of all Encumbrances of any
kind or nature, except (a) Permitted Encumbrances, (b) restrictions stated in
the Governmental Permits and (c) Encumbrances disclosed on Schedule 7, which
will be removed and released at or prior to the Closing. Except as set forth on
Schedules 2 or 3, none of the Equipment is leased by Company from any other
Person. The Assets are all the assets necessary to permit Buyer to conduct the
Business substantially as it is being conducted on the date of this Agreement
and in compliance with the Company Contracts and to perform all the Assumed
Liabilities (defined in Section 4.1). Except as set forth on Schedule 5, the
Equipment is in good operating condition and repair, ordinary wear and tear
excepted, given the age of such equipment and the use to which it is put, and is
suitable and adequate for continued use in the manner in which it is presently
used. No Person other than Company has been granted or, to the Company's
knowledge, has applied for a cable television franchise in any area currently
served by the Business.
3.6 Governmental Permits. Complete and correct copies of the
Governmental Permits, all of which are listed on Schedule 2 or Schedule 10, have
been delivered by Company to Buyer. The Governmental Permits are currently in
full force and effect, are not in default, and are valid under all applicable
legal requirements according to their terms. There is no legal action,
governmental proceeding or investigation, pending or threatened, to terminate,
suspend or modify any Governmental Permit and Company is in compliance with the
material terms and conditions of all the Governmental Permits and with other
applicable requirements of all Governmental Authorities (including the FCC and
the Register of Copyrights) relating to the Governmental Permits, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
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3.7 Company Contracts. All Company Contracts are described on
Schedule 3 or Schedule 10. Complete and correct copies of all Company Contracts
have been provided to Buyer. Each Company Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of Company
and Company is not and to Company's knowledge, each other party thereto is not
in breach or default of any terms or conditions thereunder.
3.8 Records. Company's books, as made available to Buyer,
contain current, complete, and accurate records of all meetings and actions of
Company's shareholders and directors, and, if any, committees of the directors.
All material actions and transactions taken or entered into by Company or
otherwise requiring action by its shareholders and directors have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Company's books and ledgers, as made available to Buyer, contain complete and
accurate records of all issuances and transfers of its shares of common stock.
The signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
3.9 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Company (a) does not and will not (with the
giving of notice or passage of time or both) (i) conflict with or result in a
breach or violation by Company of, or (ii) constitute a default by Company
under, or (iii) create any right of termination, cancellation, or acceleration
by any party pursuant to, any of the CATV Instruments or Company Contracts, any
statute, ordinance, rule, or regulation, or any agreement, instrument, judgment,
or order to which Company is a party or by which Company, the CATV Business, or
any of the Assets is bound or may be affected, and (b) does not and will not
(with the giving of notice or passage of time or both) create or impose any
Security Interest on any of the Assets.
3.10 No Finders or Brokers. Company has not entered into any
contract, arrangement, or understanding with any person or firm which may result
in any obligation of Buyer or Company to pay any finder's, broker's, or agent's
fees or commissions or other like payments as a result of the transactions
contemplated by this Agreement, except that Company shall pay all fees and
expenses due to Daniels and Associates.
3.11 Schedules. The Schedules to this Agreement list all
Assets owned, held, used, or useful for the performance of any CATV Instruments,
Company Contracts and for the lawful conduct of the CATV Business. All Schedules
to this Agreement are true, accurate, and complete.
3.12 Compliance with Laws. Company is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over the business and affairs of
Company.
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<PAGE>
3.13 Financial Statements. Company has delivered to Buyer
correct and complete copies of Company's audited financial statements for each
of the two most recent fiscal years ended prior to the date of this Agreement
and will deliver to Buyer unaudited interim quarterly financial statements for
periods subsequent to the end of the most recent fiscal year end within 30 days
after the end of each such quarter (the "Financial Statements"). The Financial
Statements are complete and correct, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except, in the case of interim financial statements,
subject to normal recurring year-end adjustments and the absence of footnotes),
and fairly present in accordance with generally accepted accounting principles
the financial condition and results of operation of Company as of the dates
indicated and for the periods covered thereby. Except as disclosed by, or
reserved against in, its most recent balance sheet included in the Financial
Statements, Company did not have as of the date of such balance sheet any
liability or obligation, whether accrued, absolute, fixed, or contingent
(including, without limitation, liabilities for taxes or unusual forward or
long-term commitments), which was material to the business, results of
operations, or financial condition of Company and which is required to be
disclosed on, or reserved against in, a balance sheet. Company has received no
notice of any fact which would form a basis for any claim by a third party
which, if asserted, could result in a liability affecting Company not disclosed
by or reserved against in the most recent balance sheet of Company. From the
date of the most recent balance sheet included in the Financial Statements to
and including the date hereof, (i) the CATV Business has been operated only in
the ordinary course, (ii) Company has not sold or disposed of any assets other
than in the ordinary course of business, (iii) there has not occurred any
material adverse change or event in the business, operations, assets,
liabilities, financial condition, or results of operations of Company compared
to the business, operations, assets, liabilities, financial condition, or
results of operations reflected in the Financial Statements, and (iv) there has
not occurred any theft, damage, destruction, or loss which has had a material
adverse effect on Company.
3.14 Tax Returns and Other Reports. Company has duly and
timely filed in proper form all federal, state, local, and foreign, income,
franchise, sales, use, property, excise, payroll, and other tax returns and
other reports (whether or not relating to taxes) required to be filed by law
with the appropriate governmental authority, and, to the extent applicable, has
paid or made provision for payment of all taxes, fees, and assessments of
whatever nature including penalties and interest, if any, which are due with
respect to any aspect of its business or any of its properties. Except as set
forth on Schedule 8, there are no tax audits pending and no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any relevant tax return.
3.15 Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
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<PAGE>
3.16 Real Property. With respect to all Real Property:
3.16.1 The Real Property and the improvements
located thereon and the continuation of business presently being conducted
thereon does not violate any material applicable laws, statutes, regulations,
codes, rules, or orders.
3.16.2 The Real Property has unobstructed access
for purposes of ingress and egress to public roads or streets or private roads
over which Company has a valid right-of-way. The Real Property is served by
utilities and services necessary for the present use of the Real Property in
connection with the CATV Business.
3.16.3 Company possesses all rights needed to
operate, maintain, repair, replace, and locate all cable, lines, towers,
equipment, or other facilities owned or used by Company in the CATV Business on
the Real Property.
3.16.4 None of the improvements on the Real
Property encroaches upon the property of others.
3.16.5 Company holds good and marketable fee simple
title to the Real Property shown as being owned by Company on Schedule 6 and the
valid and enforceable right to use and possess such Real Property, subject only
to the Permitted Encumbrances. Company has the valid and enforceable right to
use all other Real Property, subject to the leases, easements, licenses, or
rights-of-way described on Schedule 2.
3.16.6 The Real Property is in full compliance with
all material applicable health, safety, and environmental laws, rules, and
regulations ("environmental laws"). During Company's ownership or operation of
the Real Property, all activities undertaken on or affecting the Real Property
by Company or any other person has been in full compliance with all material
environmental laws. During Company's occupation of the Real Property there has
been no abatement, removal, remedial or other response actions for hazardous
substances (as defined below) at the Real Property.
3.16.6.1 Company is not aware of any
instance, prior to Company's ownership or operation, of noncompliance of the
Real Property or any activities thereon with any environmental law. Company is
not aware of any aspects of the Real Property or any operations thereon which
reasonably might give rise to any civil, criminal, administrative, or other
proceeding or notice thereof under any environmental law (an "environmental
claim").
3.16.6.2 To Company's knowledge, no
environmental claim has been asserted in the past, currently exists, or is
threatened or contemplated against Company, or against any other person or
entity, which relates to the Real Property or any operations thereon.
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<PAGE>
3.16.6.3 To Company's knowledge, the Real
Property has not in the past, and is not now, subject to any investigation,
assessment, or study by any person or government agency related to potential or
actual enforcement of any environmental law.
3.16.6.4 No hazardous substances have
been or are being released to, from, or under the Real Property or outside the
Real Property by the Company, which substances have entered or threaten to enter
onto, into, or under the Real Property. No hazardous substances have been or are
stored, treated, handled, disposed of, created, or otherwise located on, in, or
under the Real Property during the Company's occupancy.
3.16.6.5 No underground storage tanks,
surface impoundments, solid waste management units, tank systems, waste piles,
land treatment areas, landfills, or incinerators are located or, to Company's
knowledge, have been located on the Real Property. For purposes of this
paragraph, the foregoing terms shall have the meanings defined in RCRA, 42
U.S.C. section 6901 et seq., or analogous state or local laws. Without limiting
the preceding representation in this paragraph, to Company's knowledge none of
the Real Property has been used at any time as a gasoline service station or any
other station or facility for storing, pumping, dispensing, or producing
gasoline or any other petroleum product, byproduct, or waste.
3.16.6.6 There are no "PCB Items," as
that term is defined in 40 C.F.R. section 761.3, located on the Real Property.
3.16.6.7 Any and all permits, licenses,
and other authorizations or approvals required under environmental laws to own
or operate the Real Property have been secured by Company and are in full force
and effect. A list of all such permits, licenses, approvals, and authorizations
is included on Schedule 2. All bonds and other security devices associated with
any permit, license, authorization, or approval is in place.
3.16.6.8 No building or other structure
on the Real Property contains asbestos.
3.16.6.9 Company has provided to Buyer
true, complete and correct copies of all Environmental Reports in Company's
possession or control as of the date of this Agreement relating to the Real
Property or any of it. Company shall provide all additional Environmental
Reports, including supplements to existing reports, relating to the Real
Property within a three (3) working days of receipt of such reports or
supplements by Company. For purposes of this Section 3.16.6.9, "Environmental
Reports" shall mean and include any writing containing statements or opinions
about the presence or suspected presence of any Hazardous Substances on, under
or affecting the Real Property or any of it.
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<PAGE>
3.16.6.10 "Company's knowledge" as used
in this Section 3 shall refer to matters within the knowledge of Company's
current officers and general managers, after due investigation of reasonably
available Company records concerning the subjects herein discussed.
3.16.6.11 The term "hazardous substances"
means: (i) any "hazardous substance" or "pollutant or contaminant" as defined in
Sections 101(14) and (33) of CERCLA, 42 U.S.C. sections 9601(14) and (33); (ii)
any "hazardous material" as defined in Section 1802(2) of the Hazardous
Materials Transportation Act; (iii) any "oil" or "hazardous substance" as
defined in Sections 311(a)(1) and (14) of the federal Clean Water Act, 33 U.S.C.
sections 1321(a)(1) and (14); (iv) any "pesticide" as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act, at 7 U.S.C. section 136(u); and (v)
any "byproduct," "source" or "special nuclear" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. sections 2014(e), (z) and (aa). Hazardous
Substances also includes any chemical, compound, material, mixture, or substance
defined, listed, or classified under any environmental law as dangerous,
hazardous, extremely hazardous, infectious, or toxic. It also includes any
substance regulated under any environmental law due to its polluting or
dangerous properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, or reproductive effects. Finally, Hazardous
Substances specifically includes, but is not limited to, petroleum and petroleum
products, asbestos and asbestos-containing materials, and polychlorinated
biphenyls ("PCBs").
3.17 Employees. Schedule 9 contains a true and complete list
of names, positions, current hourly wages or monthly salary and other
compensation amounts of all of Company's employees (the "Employees"). Company
has complied in all respects with all material applicable laws and regulations
relating to the employment of labor, including, without limitation, the Worker
Adjustment and Retraining Notification Act, as amended, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), continuation coverage
requirements of group health plans ("COBRA"), and those relating to wages,
hours, collective bargaining, unemployment insurance, worker's compensation,
equal employment opportunity, age and disability discrimination, immigration
control, and the payment and withholding of taxes. Company has no employment
agreements, either written or oral, with any person, and all Employees are
terminable at will. Company is not a party to any contract with any labor
organization and has not agreed to recognize any union or other collective
bargaining unit. No union or other collective bargaining unit has been certified
as representing any of Company's employees, and Company has not received any
requests from any party for recognition as a representative of employees for
collective bargaining purposes.
3.18 Employee Benefits.
3.18.1 Except for those plans described on Schedule
9 hereto (the "Employee Plans"), with respect to the Employees, neither Company,
nor any of their Affiliates maintain, are a party to, contribute to or are
obligated to contribute to, and the
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<PAGE>
Employees do not receive benefits under, any of the following (whether or not
set forth in a written document):
(i) any employee pension benefit plan, as
defined in Section 3(2) of ERISA,
including (without limitation) any
multiemployer plan, as defined in section
3(37) of ERISA;
(ii) any employee welfare benefit plan, as
defined in section 3(1) of ERISA;
(iii) any bonus, deferred compensation,
incentive, restricted stock, stock
purchase, stock option, stock
appreciation right, phantom stock,
debenture, supplemental pension, profit
sharing, royalty pool, commission or
similar plan or arrangement other than
bonuses of a non-recurring basis which
may be paid to some employees in
connection with this transaction;
(iv) any plan, program, agreement, policy,
commitment or other arrangement relating
to severance or termination pay, whether
or not published or generally known;
(v) any plan, program, agreement, policy,
commitment or any other arrangement
relating to the provision of any benefit
described in section 3(1) of ERISA to
former employees or their survivors,
other than procedures intended to comply
with COBRA;
(vi) any plan, program, agreement, policy,
commitment or other arrangement relating
to loans or other extensions of credit,
loan guarantees, relocation assistance,
educational assistance, tuition payments
or similar benefits; or
(vii) any plan, program, agreement, policy,
commitment or any other arrangement
relating to employee benefits, executive
compensation or fringe benefits
(including without limitation any foreign
plan described in section 4(b)(4) of
ERISA).
3.18.2 Prior to the date of this Agreement, Company
has provided to Buyer complete, accurate and current copies of each of the
following:
(i) the text (including amendments) of each
of the Employee Plans, to the extent
reduced to writing;
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<PAGE>
(ii) a description of all material elements of
each of the Employee Plans, to the extent
not previously reduced to writing;
(iii) with respect to each Employee Plan that
is an employee benefit plan (as defined
in section 3(3) of ERISA), the following:
(A) the most recent summary plan
description, as described in
section 102 of ERISA;
(B) any summary of material
modifications that has been
distributed to participants or
filed with the U.S. Department
of Labor but that has not been
incorporated in an updated
summary plan description
furnished under Subparagraph
(A) above;
(C) the annual reports, as
described in section 103 of
ERISA, for the most recent
three (3) plan years for which
an annual report has been
prepared (including any
actuarial and financial
statements, opinions and
schedules required by Form 5500
or Section 103 of ERISA);
(D) where applicable, the actuarial
reports for the most recent
three (3) reporting periods for
which such a report has been
prepared; and
(E) any trust agreement, investment
management, contract with an
insurance or service provider,
administration agreement or
other contract, agreement or
insurance policy;
(iv) with respect to each Employee Plan that
is an employee pension benefit plan (as
defined in Section 3(2) of ERISA) and
that is neither an excess benefit plan
(as defined in Section 3(36) of ERISA)
nor a plan exempted under Section 201(2)
of ERISA, the following:
(A) the most recent determination
letter concerning the plan's
qualification under Section
401(a) of the Code, as issued
by the Internal Revenue
Service; and
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(B) any request for a determination
concerning the plan's
qualification under Section
401(a) of the Code, as filed
with the Internal Revenue
Service since the date of the
most recent determination
letter; and
(v) any handbook, manual, policy, statement
or similar written guidelines furnished
to employees, excluding any such item
that has been superseded by any
subsequent handbook, manual, policy
statement or similar written guidelines.
3.18.3 With respect to each Employee Plan that is
an employee benefit plan (as defined in Section 3(3) of ERISA) and that is
subject to ERISA and the regulations thereunder, each of such requirements has,
in all material respects, been fully met on a timely basis.
3.18.4 With respect to each Employee Plan that is
an employee benefit plan (as defined in Section 3(3) of ERISA) and that is
subject to Part 4 of Subtitle B of Title I of ERISA, none of the following now
exist or has existed within the six-year period ending on the date hereof that
could result in liability to the Company:
(i) any act or omission constituting a
material violation of Section 402 of
ERISA;
(ii) any act or omission constituting a
violation of Section 403 of ERISA;
(iii) any act or omission by the Company, its
officers, or employees constituting a
violation of Sections 404 or 405 of
ERISA;
(iv) to Company's knowledge, any act or
omission by any other person constituting
a violation of Sections 404 or 405 of
ERISA;
(v) any act or omission by the Company, its
officers, or employees that constitutes a
violation of Sections 406 and 407 of
ERISA and is not exempted by Section 408
of ERISA and Section 4975(d) of the Code;
or
(vi) any act or omission by the Company, its
officers, or employees constituting a
violation of Sections 503, 510 or 511 of
ERISA.
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<PAGE>
3.18.5 Each Employee Plan that is an employee
pension benefit plan (as defined in Section 3(2) of ERISA) and that is neither
an excess benefit plan (as defined in Section 3(36) of ERISA) nor a plan
exempted under Section 201(2) of ERISA meets all requirements for qualification
under Section 401(a) of the Code and the regulations thereunder, except to the
extent that such requirements may be satisfied by adopting retroactive
amendments under Section 401(b) of the Code and the regulations thereunder. Each
such Employee Plan has been administered substantially in accordance with its
terms and the applicable provisions of ERISA and the Code and the regulations
thereunder.
3.18.6 No Employee Plan to which Section 412 of the
Code applies has an accumulated funding deficiency (as defined in Section 412(a)
of the Code). No amendment to any such Employee Plan is precluded by any waiver,
extension or prior amendment described in Section 412(f) of the Code, and no
such waiver has been requested.
3.18.7 Company has no liability to the Pension
Benefit Guaranty Corporation, to any multiemployer plan (as defined in Section
4001(a)(3) of ERISA) or to any trustee under Subtitles D or E of Title IV of
ERISA. No event has occurred which, with the giving of notice under Sections
4063 and 4219 of ERISA, would result in such liability.
3.18.8 All contributions, premiums or other
payments due to (or under) any Employee Plan has been fully paid or adequately
provided for on the books and financial statements of Company. All accruals
(including, where appropriate, proportional accruals for partial periods) have
been made in accordance with prior practices.
3.18.9 Each Employee Plan complies with, and has
been administered in compliance with, all applicable requirements of (A) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder, (B) Title VII of the Civil Rights Act of 1964, as amended, and the
regulations thereunder and (C) the health care continuation provision of COBRA.
3.18.10 No Employee Plan provides retiree welfare
benefits to former employees of Company that cannot be canceled at will by
Company as of the Closing Date without residual liability.
3.18.11 All employee welfare benefit plans provide
coverage for all claims relating to periods prior to the Closing Date whether
such claims are filed prior to or after the Closing Date.
3.19 Litigation and Violations. Except as set forth on
Schedule 8, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations
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<PAGE>
pending or, to Company's best knowledge, threatened against or affecting Company
which (i) seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or (ii) might have a material adverse effect on
the financial position or results of operations of Company. Company is not in
violation of any term of any judgment, decree, injunction, or order to which it
is subject, which violation could have a material adverse effect on the
financial position or results of operations of Company.
3.20 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Company contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
3.21 Investment Company. Company is not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended (the "Act"), and Company has
not relied on rule 3a-2 under the Act as a means of excluding it from the
definition of an "investment company" under the Act at any time within the three
(3) year period preceding the Closing Date.
3.22 CATV Instruments and Company Contracts.struments and
Company Contracts.
3.22.1 The CATV Instruments and Company Contracts are
currently in full force and effect, are valid under all applicable laws, and are
enforceable according to their terms. Company is in compliance with and is not
material violation or default under any of the CATV Instruments or Company
Contracts. There is no legal action, governmental proceeding, or investigation,
pending or threatened, to modify, revoke, terminate, suspend, cancel, or reform
any of the CATV Instruments or Company Contracts. Company is in compliance with
other material applicable requirements of all governing or regulatory
authorities (including the APUC, the FCC and the Register of Copyrights)
relating to the CATV Instruments, including, without limitation, all material
requirements for notification, filing, reporting, posting, and maintenance of
logs and records. Except as set forth on Schedule 2, Company holds valid and
continuing CATV Instruments, Company Contracts, rights-of-way, rights-of-entry,
permits, and other rights and authorizations necessary to enable it to operate
its CATV Business. The APUC is not currently authorized to restrict the
Company's ability to change any rates charged for CATV services, and Company has
not received any notice of any franchising authority's intention to assert that
the CATV System is not subject to effective competition. There is no pending
assertion or claim that operations pursuant to any franchise have been
improperly conducted or maintained.
3.22.2 True, complete, and correct copies of the CATV
Instruments and Company Contracts and any amendments thereto effective as of the
date of this Agreement have been delivered by Company to Buyer.
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3.23 FCC Compliance. Company is duly authorized under
applicable CATV Instruments and FCC rules, regulations, and orders to distribute
the FM signals and off-air television broadcast signals presently being carried
to the Subscribers of its CATV Business, to utilize all carrier frequencies
generated by its CATV Business, and is licensed to operate all the facilities,
including, without limitation, any business radio and any cable television relay
service ("CARS") system, being operated by its CATV Business. Company has
provided all notices to Subscribers required by The Communications Act of 1934,
as amended (the "Communications Act") and FCC rules and regulations. The
operation of Company's CATV Business and of any FCC-licensed facility used in
conjunction with the operation of its CATV Business has been, and is, in
compliance with the Communications Act and FCC rules and regulations, and
Company has received no notice, and otherwise has no reason to know, of any
claimed default or violation with respect to the foregoing. Company has obtained
all required FCC clearances for the operation of the CATV System in all
necessary aeronautical frequency bands. To the extent the CATV System uses
frequencies in the aeronautical bands (108-137 and 225-400 MHZ) at power levels
at or greater than 28 dBmV, such frequencies have been offset from standard
aeronautical frequencies as provided in FCC rules and regulations, on the
channels in the Service Area. During each calendar quarter for each year since
January 12, 1992, at least 75% of the CATV System's plant has been monitored for
leakage, such that 100% of the plant has been so monitored each calendar year.
Each system keeps a log that records the location of any leak of 20 uV/m or
greater, the date the leak was detected, the date the leak was repaired, and the
probable cause of the leak. Company will continue such monitoring, repair, and
record keeping activities with respect to the CATV System through the Closing
Date. Prior to the Closing, Company will have taken the necessary measurements
for calculation of the CATV System's cumulative leakage index (CLI) and filed a
CLI report in accordance with applicable FCC rules and regulations. Where
required, Company has been certified as in compliance with the FCC's equal
employment opportunity rules for each year since 1991 to the extent the FCC has
reviewed such filing for certification. Company is in compliance with Subpart K
of FCC rules and regulations, including the network non-duplication, syndicated
exclusivity, and sports blackout requirements. The CATV System has established
appropriate record keeping procedures and is in compliance with the FCC's
Children's Television Rules. Company has duly and timely filed all required
reports with the FCC. Company has delivered to Buyer copies of all current
reports and filings, and all reports and filings for the past two years, made or
filed with the FCC by Company pursuant to FCC rules and regulations. Company
shall make available to Buyer all other past reports and filings made or filed
by Company pursuant to FCC rules and regulations.
3.24 APUC Compliance. Company is duly authorized to operate
its CATV Business under APUC certificates as set forth in Schedule 2. Company
holds the APUC certificates set forth in Schedule 2. The APUC certificates are
in full force and effect, without any materially adverse modification,
amendment, revocation, suspension, termination, cancellation, reformation or
condition. To the best of Company's knowledge,
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after due inquiry, there is no APUC proceeding or any APUC investigation pending
or threatened, for the purpose of modifying, revoking, terminating, suspending,
canceling or reforming any of the certificates. Company operates its Cable
Systems in accordance with all material APUC rules, regulations and orders.
3.25 Patents, Trademarks, and Copyrights. Company has timely
and accurately made all requisite filings and payments with the Register of
Copyrights and is otherwise in compliance with all applicable rules and
regulations of the Copyright Office. Company has delivered to Buyer copies of
all current reports and filings, and all reports and filings for the past two
(2) years, made or filed by Company pursuant to Copyright rules and regulations.
Company shall make available to Buyer all other past reports and filings made or
filed by Company pursuant to Copyright rules and regulations. Company does not
possess any patent, patent right, trademark, or copyright and is not a party to
any license or royalty agreement with respect to any patent, trademark, or
copyright except for licenses respecting program material and obligations under
the Copyright Act of 1976 applicable to CATV systems generally. The Assets are
free of the rightful claim of any third party by way of copyright infringement
or the like.
3.26 No Other Assets or Liabilities. Company has no assets of
any kind other than the Assets, CATV Instruments, and Company Contracts
described on the Schedules and Company has no liabilities, obligations, or
commitments of any kind other than obligations under the CATV Instruments and
Company Contracts described on the Schedules and liabilities disclosed on the
Financial Statements except liabilities, obligations and commitments incurred in
the normal course of business since the date of the Financial Statements.
3.27 Required Consents. As further set forth in Section 6.8,
Company and Buyer will have as of the Closing Date obtained the Required
Consents, unless Buyer agrees in writing that any Required Consent need not be
obtained until after the Closing Date. A true and complete list of all Required
Consents is set forth on Schedule 4.
3.28 Overbuilds. No area presently served by Company's CATV
business is presently subject to or, to Company's best knowledge, threatened to
be subject to an overbuild situation. Company is currently the only cable
television operator providing or, to Company's best knowledge, intending to
provide cable television service in the Service Area. No person or entity other
than Company has been granted or, to the Company's knowledge, has applied for
APUC Certificates or a CATV franchise agreement in any of the communities (or
any of the unincorporated areas) presently served by Company's CATV Business.
3.29 Effect of Certificates. All certificates of Company
delivered under this Agreement shall be deemed to be additional representations
and warranties of Company.
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<PAGE>
3.30 Subscriber Numbers. As of the Closing Date, the CATV
Business together with the CATV Systems operated by the McCaw/Rock Seward Cable
System Joint Venture and the McCaw/Rock Homer Cable System Joint Venture will
have no fewer than 9,750 subscribers and no fewer than 4,390 Pay TV Units, none
of which were more than sixty-two (62) days delinquent in payment for service.
3.31 No Insolvency. As of even date and as of the Closing
Date, Company is not and shall not be insolvent.
3.32 Compliance with Law.
3.32.1 The ownership, leasing and use of the Assets
as they are currently owned, leased and used and the conduct of the CATV
Business as it is currently conducted do not violate any state, federal or local
laws, which violation, individually or in the aggregate, would have a material
adverse effect on a System, the CATV Business or Company. Company has received
no notice claiming a violation by Company or the CATV Business of any Legal
Requirement applicable to Company or the CATV Business as it is currently
conducted and to Company's best knowledge, there is no basis for any claim that
such a violation exists.
3.32.2 Company has complied, and the CATV Business is
in compliance, in all material respects, with the specifications set forth in
Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the
Copyright Act of 1976 and the rules and regulations of the U.S. Copyright
Office, the Register of Copyrights and the Copyright Royalty Tribunal, the
Communications Act of 1934, the rules and regulations of the FCC, including
provisions of any thereof pertaining to signal leakage, to a utility pole make
ready and to grounding and bonding of cable television systems (in each case as
the same is currently in effect), and all other applicable material legal
requirements relating to the construction, maintenance, ownership and operation
of the Assets, the Systems and the Business.
3.32.3 Notwithstanding the foregoing, Company has
used its best efforts to comply in all material respects with the provisions of
the Cable Television Consumer Protection and Competition Act of 1992 and the FCC
rules and regulations promulgated thereunder (the "1992 Cable Act") as such laws
relate to the operation of the Business. Except as provided in Schedule 8,
Company has complied in all material respects with the must carry and
retransmission consent provisions of the 1992 Cable Act. Company has delivered
to Buyer complete and correct copies of all FCC Forms 393, 1200, 1205, 1210,
1215, 1220, 1225, 1235 and 1240 filed with respect to the System and copies of
all other FCC Forms filed by Company and correspondence with any Governmental
Authority relating to rate regulation generally or specific rates charged to
subscribers with respect to the Systems, including copies of any complaints
filed with the FCC with respect to any rates charged to Subscribers of the
Systems, and any other documentation supporting an exemption from the rate
regulation provisions of
REGISTRATION STATEMENT
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<PAGE>
the 1992 Cable Act claimed by Company with respect to any of the Systems
(collectively, "Rate Regulation Documents"). Company has received no notice from
any Governmental Authority with respect to an intention to enforce customer
service standards pursuant to the 1992 Cable Act and Company has not agreed with
any Governmental Authority to establish customer service standards that exceed
the standards in the 1992 Cable Act. In addition, Company has also delivered to
Buyer documentation for each of the Systems in which the franchising authority
has not certified to regulate rates as of the date of this Agreement showing a
determination of allowable rates using a benchmark methodology. Company has not
made any election with respect to any cost of service proceeding conducted in
accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or
any similar proceeding (a "Cost of Service Election") with respect to any of the
Systems.
3.33 Disclosure. No representation or warranty by Company in
this Agreement or in any Schedule or Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Company pursuant
to this Agreement, contains or will contain any untrue statement of material
fact, or omits or will omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances in which made. Without limiting the generality of the
foregoing, the information set forth in the Schedules concerning the Business is
accurate and complete in all material respects.
3.34 Parent Entity. Company is an ultimate parent entity (as
the term "ultimate parent entity" is defined in 16 C.F.R. section 801.1(a)(3)).
The total assets based on the most recent audited balance sheet of Company are
(and, immediately prior to the Closing, will be) less than $10,000,000, as
determined in accordance with 16 C.F.R. sections 801.1(b), 801.1(c), and 801.11.
Neither Seller nor any entity directly or indirectly controlled by Seller (as
the term "control" is defined in 16 C.F.R. section 801.1(b)) is engaged in
manufacturing.
Section 4 Assumed Liabilities and Excluded Assets.
4.1 Assignment and Assumption. Company will assign, and Buyer
will assume and perform, the Assumed Liabilities, which are defined as: (a)
Company's obligations to subscribers of the Business for (i) subscriber deposits
held by Company as of the Closing Date and which are refundable, (ii) subscriber
advance payments held by Company as of the Closing Date for services to be
rendered by a System after the Closing Date and (iii) the delivery of cable
television service to subscribers of the Business after the Closing Date; and
(b) obligations accruing and relating to periods after the Closing Date under
Governmental Permits listed on Schedule 2 (to the extent that such Governmental
Permits are transferrable) and Company Contracts listed on Schedule 3. Except as
set forth in Section 2.3, Buyer will not assume or have any responsibility for
any liabilities or obligations of Company other than the Assumed
REGISTRATION STATEMENT
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<PAGE>
Liabilities. In no event will Buyer assume or have any responsibility for any
liabilities or obligations associated with the Excluded Assets.
4.2 Excluded Assets. The Excluded Assets, which will be
retained by Company, will consist of the following: (a) upon Buyer's request,
programming contracts; (except for those set forth on Schedule 3); (b) insurance
policies and rights and claims thereunder (except as otherwise provided in
Section 6.19); (c) bonds, letters of credit, surety instruments and other
similar items; (d) cash and cash equivalents; (e) Company's trademarks, trade
names, service marks, service names, logos and similar proprietary rights
(subject to Buyer's rights under Section 6.24); (f) Company's rights under any
agreement governing or evidencing an obligation of Company for borrowed money;
(g) Company's rights under any contract, license, authorization, agreement or
commitment other than those creating or evidencing Assumed Liabilities; and (h)
the assets described on Schedule 10.
Section 5 Buyer's Representations, Warranties, and Covenants
Buyer represents, warrants, and covenants to Company as
follows:
5.1 Organization and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Alaska; has
all requisite power, right, and authority to execute, deliver, and perform this
Agreement; and has taken all action required by law, its Articles of
Incorporation and Bylaws, and otherwise to authorize the execution, delivery,
and performance of this Agreement.
5.2 Capitalization. The authorized capital stock of Buyer
consists of 50,000,000 shares of Class A common stock, of which 19,696,207
shares are issued and outstanding; 10,000,000 shares of Class B common stock, of
which 4,175,434 are issued and outstanding, and 1,000,000 shares of preferred
stock, of which no shares are issued and outstanding, all as of April 15, 1996.
As of the Closing, the GCI Shares will be duly authorized, validly issued, fully
paid and nonassessable and free of any Security Interests. There are no
outstanding or authorized (i) securities of Buyer convertible into or
exchangeable or exercisable for any shares of its capital stock, except that
each share of Class B common stock is convertible into one share of Class A
common stock, or (ii) subscriptions, options, warrants, calls, rights,
commitments, or other agreements or obligations of any kind obligating Buyer to
issue any additional shares of its capital stock or any other securities
convertible into or evidencing the right to acquire or subscribe for any shares
of its capital stock, except pursuant to (a) Buyer's December 1986 Stock Option
Plan, (b) Buyer's December, 1986 Employee Stock Purchase Plan; (c) that June
1989, option agreement granted to John Lowber to acquire 100,000 shares of
Buyer's Class A common stock at $0.75 per share; (d) that June 1989, incentive
agreement with William Behnke to acquire 85,190 shares of Buyer's Class A common
stock for $.001 per share; and (e) those shares proposed to be issued as
follows: (i) the proposed issuance of Two Million (2,000,000) shares of Buyer's
Class A common stock
REGISTRATION STATEMENT
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<PAGE>
to MCI Telecommunication Corporation ("MCI") for Thirteen Million and no/100
Dollars ($13,000,000.00), (ii) the acquisition of the ongoing cable television
business and cable television systems of Alaskan Cable Network, Inc., for not
more than Two Million Nine Hundred Twenty-Three Thousand Seventy-Seven
(2,923,077) shares of Buyer's Class A Common Stock; (iii) the acquisition of the
ongoing cable television systems of Prime Cable of Alaska, L.P. ("Prime") for
not more than Eleven Million Eight Hundred Thousand (11,800,000) shares of GCI's
Class A Common Stock; and (iv) any Buyer's Shares and Notes issued in connection
with (ii) and (iii) herein for the escrow holdbacks.
5.3 Enforceability. This Agreement constitutes the legal,
valid, and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity. There is
no litigation at law, in equity, or in any other proceeding or investigation
pending or threatened against Buyer which might materially impair the ability of
Buyer to perform under this Agreement.
5.4 Records. Buyer's minute books, as made available to
Company, contains current, complete, and accurate records of all meetings and
actions of Buyer's directors, and, if any, committees of the board of directors.
All material actions and transactions taken or entered into by Buyer or
otherwise requiring action by its directors and/or shareholders have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Buyer's books and ledgers, as made available to Company, contain complete and
accurate records of all issuances and transfers of its stock interests. The
signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
5.5 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 12, the execution, delivery, and
performance of this Agreement by Buyer (a) does not and will not (with the
giving of notice or passage of time or both ) (i) conflict with or result in a
breach or violation by Buyer of, or (ii) constitute a default by Buyer under, or
(iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of its contracts, any statute, ordinance, rule, or
regulation, or any agreement, instrument, judgment, or order to which Buyer is a
party or by which Buyer is bound or may be affected, and (b) does not and will
not (with the giving of notice or passage of time or, both) create or impose any
Security Interest on the GCI Shares.
5.6 Compliance with Laws. Buyer is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over Buyer's business and affairs.
5.7 Financial Statements. Buyer has delivered to Company
correct and complete copies of Buyer's audited financial statements for each of
the two most recent
REGISTRATION STATEMENT
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<PAGE>
fiscal years ended prior to the date of this Agreement and unaudited interim
monthly financial statements for periods subsequent to the end of the most
recent fiscal year end (the "Financial Statements"). The Financial Statements
are complete and correct, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby (except, in the case of interim financial statements, subject to
normal recurring year-end adjustments and the absence of footnotes), and fairly
present in accordance with generally accepted accounting principles the
financial condition and results of Buyer's operations as of the dates indicated
and for the periods covered thereby. Except as disclosed by, or reserved against
in, its most recent balance sheet included in the Financial Statements, Buyer
did not have as of the date of such balance sheet any liability or obligation,
whether accrued, absolute, fixed or contingent (including, without limitation,
liabilities for taxes or unusual forward or long-term commitments), which was
material to Buyer's business, results of operations or financial condition and
which is required to be disclosed on, or reserved against in, a balance sheet.
Buyer has received no notice of any fact which may form a basis for any claim by
a third party which, if asserted, could result in a liability affecting Buyer
not disclosed by or reserved against in Buyer's most recent balance sheet. From
the date of the most recent balance sheet included in the Financial Statements
to and including the date hereof, (i) Buyer's business has been operated only in
the ordinary course, (ii) Buyer has not sold or disposed of any assets other
than in the ordinary course of business, (iii) there has not occurred any
material adverse change or event in Buyer's business, operations, assets,
liabilities, financial condition, or results of operations compared to the
business, operations, assets, liabilities, financial condition, or results of
operations reflected in the Financial Statements, and (iv) there has not
occurred any theft, damage, destruction, or loss which has had a material
adverse effect on Buyer.
5.8 Tax Returns and Other Reports. Buyer has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule 13, there are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any relevant
tax return.
5.9 Transfer Taxes. There are no sales, use, transfer, excise,
or license taxes, fees, or charges applicable with respect to the transactions
contemplated by this Agreement.
5.10 Litigation and Violations. Except as set forth on
Schedule 14, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Buyer's best knowledge, threatened
against or affecting Buyer which
REGISTRATION STATEMENT
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<PAGE>
(i) seek to restrain or enjoin the consummation of the transactions contemplated
by this Agreement or (ii) might have a material adverse effect on Buyer's
financial position or results of operations. Buyer is not in violation of any
term of any judgment, decree, injunction, or order to which it is subject, which
violation could have a material adverse effect on the financial position or
results of operations of Buyer.
5.11 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Buyer contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
5.12 Investment Company. Buyer is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Buyer has not relied
on rule 3a-2 under the Act as a means of excluding it from the definition of an
"investment company" under the Act at any time within the three (3) year period
preceding the Closing Date.
5.13 No Finders or Brokers. Neither Buyer nor any of its
Affiliates have entered into any contract, arrangement, or understanding with
any person or firm which may result in any obligation of Company to pay any
finder's, broker's, or agent's fees or commissions or other like payments as a
result of the transactions contemplated by this Agreement.
5.14 No Insolvency. As of even date and as of the Closing
Date, Buyer is not and shall not be insolvent.
Section 6 Conduct Prior to Closing
6.1 Operation in Ordinary Course. Company shall continue to
operate the CATV Business prior to the Closing Date in the ordinary course as
presently operated under its standard operating practices and generally in
accordance with its 1996 budget, including all required budgeted maintenance
capital expenditures for current maintenance, unless otherwise agreed by Buyer,
including, without limitation, payment of all expenses in a timely manner
consistent with prior business practices without accelerating or delaying any
payments, maintaining business books, records, and files all in accordance with
past practices, consistently applied, and maintaining the Assets (including
maintenance of the inventories of spare equipment and parts listed on Schedule
5), and continuing to implement procedures for disconnection and discontinuance
of service to Subscribers whose accounts are delinquent or past due, in
accordance with current practice and policy as of the date of this Agreement.
Without limiting the generality of the foregoing, Company agrees that Company,
or anyone acting on Company's behalf, shall not, without Buyer's prior written
consent, (i) enter into or modify any material agreement, contract, or
commitment which, if entered into prior to
REGISTRATION STATEMENT
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<PAGE>
the date of this Agreement, would be required to be disclosed on any Schedule to
this Agreement, (ii) place or permit to exist any lien, encumbrance, security
interest, claim or charge of any kind against the Assets, (iii) enter into or
continue any discussions, negotiations or contracts relating to the sale,
assignment, or transfer any Assets of the Company or the CATV Business except
(a) in the ordinary course of business and (b) for Company's payment of
dividends to its shareholders in cash, (iv) commit any act or omit to do any act
which would cause a breach of any CATV Instrument or Company Contract or permit
any amendment to or cancellation of any CATV Instrument or Company Contract, (v)
commit any violation of any law, statute, rule, governmental regulation or
order, (vi) change the rate charged for Basic CATV Service or Pay TV or add or
delete any program service, except in the ordinary course of business. Company
shall maintain insurance on the CATV Business and the Assets until the Closing
Date consistent with past practice and policy, and Company shall bear all risk
of loss on or prior to Closing with respect to the CATV Business and the Assets
as a result of any loss, claim, casualty, or calamity. At Buyer's request and
expense, Company shall also make its budgeted capital expenditures for rebuilds,
upgrades or improvements.
6.2 Agents. Company agrees that Buyer's designated agent shall
be included in all material business discussions regarding Company's conduct of
its affairs which are other than in the ordinary or usual course of business.
6.3 Company Contracts. All Company Contracts are described on
Schedule 3 or Schedule 10. Complete and correct copies of all Company Contracts
have been provided to Buyer. Each Company Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of Company
and Company is not and to Company's knowledge, each other party thereto is not
in breach or default of any terms or conditions thereunder.
6.4 No New Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan) to purchase securities prior to the Closing, except (i)
for the proposed issuance of Two Million (2,000,000) shares of Buyer's Class A
common stock to MCI Telecommunication Corporation ("MCI") for Thirteen Million
and no/100 Dollars ($13,000,000.00), (ii) the acquisition of the ongoing cable
television business and cable television systems of Alaskan Cable Network, Inc.,
for not more than Two Million Nine Hundred Twenty Three Thousand Seventy Seven
(2,923,077) shares of Buyer's Class A Common Stock; (iii) the acquisition of the
ongoing cable television business and cable television systems of Prime Cable of
Alaska, L.P. ("Prime"), for not more than Eleven Million Eight Hundred Thousand
(11,800,000) shares of GCI's Class A Common Stock; and (iv) any Buyer's Shares
and Notes issued in connection with (ii) and (iii) herein for the escrow
holdbacks. Neither Buyer nor anyone acting on Buyer's behalf shall enter into or
continue any discussions, negotiations or contracts relating to the sale of all
or any portion of its assets or equity, except in the ordinary course of
business.
REGISTRATION STATEMENT
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<PAGE>
6.5 Employees. Company shall use its best efforts to preserve
its relationship with its employees and to pay to those employees all salaries,
commissions, and other compensation to which they are entitled for services
rendered prior to the Closing Date.
6.6 Access to Premises and Records. The parties shall cause
Company and Buyer to give to the parties and their representatives full access
at reasonable times to (i) all the premises and books and records of the CATV
Business and to all of the Assets and (ii) Buyer's premises, books and records,
and each shall furnish to the parties and their representatives all information
regarding the business and properties of Company and Buyer as shall from time to
time reasonably requested. Furthermore, Buyer shall be given the opportunity to
perform a field audit of Company's accounts with Company's cooperation prior to
Closing. Buyer agrees that it will exercise this right of access solely for the
purposes of completing its investigation in connection with this Agreement and
that the confidentiality of any data or information acquired by Buyer in
connection with this transaction shall be maintained by Buyer and its
representatives in accordance with Section 18.17. Without limiting Buyer's
rights of access stated above, Company shall permit Buyer and/or such agents or
experts as Buyer shall designate, full access to the Real Property or any of it
and all records concerning the Real Property during reasonable business hours
for purposes of such independent investigation Buyer shall desire to conduct. At
Buyer's sole option, such investigation may include testing of the soil,
groundwater, building components, tanks, containers and equipment on the Real
Property as Buyers or Buyer's agents or experts shall deem necessary to
determine or confirm the environmental condition of the Real Property.
Performance of such an inspection or review shall not in any way modify or
otherwise affect Buyer's rights or Company's obligations under this Agreement,
including but not limited to Company's representations and warranties in Section
3.16 above.
6.7 Existing Relationships. Company shall use its best efforts
to preserve the CATV Business as a going concern and to preserve existing
relationships with the APUC, and its suppliers, customers, and others having
business dealings with Company. Buyer shall use its best efforts to preserve its
business as a going concern and to preserve its existing relationships with
suppliers, customers and others having business dealings with it.
6.8 Required Consents. Company and Buyer agree to cooperate
and use their reasonable commercial efforts to obtain all Required Consents in a
form and upon terms and conditions reasonably satisfactory to Buyer. Company
will afford Buyer the opportunity to review, approve, and revise the form of
Required Consents prior to delivery to any consenting party. Nothing contained
herein shall be deemed to require Buyer to undertake any extraordinary or
unreasonable measures to obtain such Required Consents, including, without
limitation, the initiation or prosecution of legal proceedings, the payment of
any fees, or agreeing to change any terms of any CATV Instruments or Company
Contracts.
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6.9 Compliance with CLI Standards. Company shall notify Buyer
at least 10 days prior to the annual CLI compliance and reporting tests, which
tests shall be made not later than June 30, 1996, and representatives of Buyer
and Company shall jointly inspect the CATV Systems to determine if the CATV
Systems are reasonably in compliance with the CLI standards under applicable FCC
rules and regulations ("CLI Standards") and to the extent the CATV Systems or
any portion thereof are not in compliance with CLI Standards, to determine the
steps to be taken by Company (including, to the extent required, the replacement
or upgrading of equipment and the institution of maintenance procedures) in
order to cause the CATV Systems to reasonably comply with CLI Standards prior to
the Closing Date ("the Remedial Steps"). If Buyer and Company fail to agree as
to whether the CATV Systems or any portion thereof reasonably complies with CLI
Standards or as to the Remedial Steps to be taken, Buyer and Company shall
jointly select a qualified engineering firm to inspect the CATV Systems (the
"Inspector"). Company shall cooperate fully with any representative of the
Inspector in making such inspection. Once the inspection is completed, the
Inspector shall, as promptly as practical after its engagement, deliver a
written report to Buyer and Company stating whether or not the CATV Systems are
in compliance and if not, recommend Remedial Steps which will cause the CATV
Systems to fully comply with CLI Standards. The Inspector's determination and
report shall be final and binding on Buyer and Company. Fees and expenses
incurred by the Inspector shall be paid by Buyer if the CATV Systems are found
by the Inspector to comply and by Company if any substantial portion of the CATV
System is found not to comply with CLI Standards.
6.10 MDU Agreements. Company represents and warrants that
agreements have been granted to Company from all MDU property owners serviced by
the Company, and that it has provided access to all such agreements which are
listed on Schedule 11 to Buyer.
6.11 Public Announcements. Except as may be required by
applicable law or regulation, neither Buyer nor Company shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other parties, which consent shall not be unreasonably withheld and shall be
promptly given. Notwithstanding the foregoing, Company acknowledges and agrees
that Buyer shall make all press releases it deems necessary under the securities
law, rules and regulations.
6.12 Due Diligence. Within 10 days after the date of execution
of this Agreement, the parties agree to deliver fully completed Schedules and
all due diligence materials reasonably requested by any party. Any party shall
have 10 days after receipt to review such completed Schedules and due diligence
materials and to notify the applicable party of any problems or concerns arising
as a result of such review. If Company and Buyer are unable to resolve any such
problems or concerns by negotiating a mutually satisfactory modification to this
Agreement, the objecting party shall have the
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right to terminate this Agreement within 10 days after notifying the other
parties of such problems or concerns and no party shall have any further
obligations hereunder.
6.13 Correction of any Noncompliance Prior to Closing.
Notwithstanding any other provision of this Agreement, the parties acknowledge
and agree that further investigation is required to determine whether the
representations and warranties contained in Sections 3.16, 3.17, 3.18 and 3.25
are true and correct as of the date of execution of this Agreement. To the
extent that the parties determine that any such representation and warranty is
not true and correct as of the date of execution of this Agreement, the parties
intend that Company shall take whatever action is necessary to assure that such
representations and warranties are true and correct as of the Closing Date and
the fact that such representations and warranties were not true and correct as
of the date of execution of this Agreement shall not be deemed to be a breach of
this Agreement. With respect to any filings and associated payments required to
be made by Company in order to make the representations and warranties contained
in Sections 3.24, 3.25 and 3.27 true and correct, copies of such filings
indicating the filing date with the FCC, the APUC, or Copyright Office, as
appropriate, shall be delivered to Buyer at least ten (10) days prior to the
Closing Date.
6.14 Leased Equipment. Company shall pay the remaining
balances on any leases for Equipment used in the CATV Business and deliver title
to such Equipment free and clear of all Encumbrances (other than Permitted
Encumbrances) to Buyer at the Closing.
6.15 Estoppel Certificates, Franchise Forms.
6.15.1 Company will use reasonable efforts to obtain,
at its expense, such estoppel certificates or similar documents from lessors and
other Persons who are parties to Company Contracts as Buyer may reasonably
request.
6.15.2 Company will execute and deliver to the
appropriate Governmental Authority, the FCC Forms 394 prepared by Buyer with
respect to each franchise as to which such Form 394 is required within two
Business Days after it receives each such Form 394 from Buyer.
6.16 HSR Notification. If applicable, as soon as practicable
after the execution of this Agreement, but in any event no later than 45 days
after such execution, Company and Buyer will each complete and file, or cause to
be completed and filed, any notification and report required to be filed under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); and each such filing shall request early termination of the waiting
period imposed by the HSR Act. The parties shall use their reasonable best
efforts to respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
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information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from any other Governmental
Authority in connection with antitrust matters. Company and Buyer shall use
their respective reasonable best efforts to overcome any objections which may be
raised by the FTC, the Antitrust Division or any other Governmental Authority
having jurisdiction over antitrust matters. Notwithstanding the foregoing, Buyer
shall not be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of Buyer or
any of its Affiliates, if Buyer determines in good faith that such change would
be materially adverse to the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates having
significant assets, net worth, or revenue. Notwithstanding anything to the
contrary in this Agreement, if Buyer, in its sole opinion, considers a request
from a governmental agency for additional data and information in connection
with the HSR Act to be unduly burdensome, Buyer may terminate this Agreement.
Within 10 days after receipt of a statement therefor, Company will reimburse
Buyer for one-half of the filing fees payable by Buyer in connection with
Buyer's filing under the HSR Act.
6.17 No Shopping. None of Company, its shareholders or any
agent or representative of any of them will, during the period commencing on the
date of this Agreement and ending with the earlier to occur of the Closing or
the termination of this Agreement, directly or indirectly (a) solicit or
initiate the submission of proposals or offers from any Person for, or (b)
furnish any information to any Person other than Buyer relating to, any direct
or indirect acquisition or purchase of all or any portion of the Assets.
6.18 Notification of Certain Matters. Company will promptly
notify Buyer of any fact, event, circumstance or action (a) which, if known on
the date of this Agreement, would have been required to be disclosed to Buyer
pursuant to this Agreement or (b) the existence or occurrence of which would
cause any of Company's representations or warranties under this Agreement not to
be correct and complete.
6.19 Risk of Loss; Condemnation.
6.19.1 Company will bear the risk of any loss or
damage to the Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If any such loss or
damage is so substantial as to prevent normal operation of any material portion
of a System or the replacement or restoration of the lost or damaged property
within 20 days after the occurrence of the event resulting in such loss or
damage, Company will immediately notify Buyer of that fact and Buyer, at any
time within 10 days after receipt of such notice, may elect by written notice to
Company either (i) to waive such defect and proceed toward consummation of the
acquisition of the Assets in accordance with terms of this Agreement or (ii)
terminate thi
s Agreement. If Buyer elects so to terminate this Agreement, Buyer
and Company will be discharged of any and all obligations hereunder. If Buyer
elects to consummate the
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<PAGE>
transactions contemplated by this Agreement notwithstanding such loss or damage
and does so, there will be no adjustment in the consideration payable to Company
on account of such loss or damage but all insurance proceeds payable as a result
of the occurrence of the event resulting in such loss or damage will be
delivered by Company to Buyer, or the rights to such proceeds will be assigned
by Company to Buyer if not yet paid over to Company.
6.19.2 If, prior to the Closing, any part of or
interest in the Assets is taken or condemned as a result of the exercise of the
power of eminent domain, or if a Governmental Authority having such power
informs Company or Buyer that it intends to condemn all or any part of the
Assets (either such even, a "Taking"), then Buyer may terminate this Agreement.
If Buyer does not elect to terminate this Agreement, then (a) Buyer will have
the sole right, in the name of Company, if Buyer so elects, to negotiate for,
claim, contest and receive all damages with respect to the Taking, (b) Company
will be relieved of its obligation to convey to Buyer the Assets or interests
that are the subject of the Taking, (c) at the Closing, Company will assign to
Buyer all of Company's rights to all damages payable with respect to such Taking
and will pay to Buyer all damages previously paid to Company with respect to the
Taking and (d) following the Closing, Company will give Buyer such further
assurances of such rights and assignment with respect to the taking as Buyer may
from time to time reasonably request.
6.20 Lien and Judgment Searches. Buyer will obtain at
Company's expense, (a) the results of a lien search conducted by a professional
search company of records in the offices of the secretaries of state in each
state and county clerks in each county where there exist tangible Assets, and in
the state and county where Company's principal offices are located, including
copies of all financing statements or similar notices or filings (and any
continuation statements) discovered by such search company and (b) the results
of a search of the dockets of the clerk of each federal and state court sitting
in the city, county or other applicable political subdivision where the
principal office or any material assets of Company may be located, with respect
to judgments, orders, writs or decrees against or affecting Company or any of
the Assets.
6.21 Transfer Taxes. Buyer and Company will share equally the
payment of any state or local sales, use, transfer, excise, documentary or
license taxes or fees.
6.22 Letter to Programmers. At Buyer's request, Company will
transmit a letter in the form of Exhibit G to all programmers from which Company
purchases programming.
6.23 Updated Schedules. Not less than five business days prior
to Closing, Company will deliver to Buyer revised copies of Schedules 1 through
11 which shall have been updated and marked to show any changes occurring
between the date of this Agreement and the date of delivery; provided, however,
that for purposes of
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Company's representations and warranties and covenants in this Agreement, all
references to the Schedules will mean the version of the Schedules attached to
this Agreement on the date of signing, and provided further that if the effect
of any such updates to Schedules is to disclose any one or more additional
properties, privileges, rights, interests or claims as Assets, Buyer, at or
before Closing, will have the right (to be exercised by written notice to
Company) to cause any one or more of such items to be designated as and deemed
to constitute Excluded Assets for all purposes under this Agreement.
6.24 Use of Company's Name. Buyer may continue to operate the
Systems using Company's rights to the name "Cablevision" linked to the name of
the community being serviced and all derivations and abbreviations of such name
and related marks. Within one hundred eighty (180) days after the Closing Date,
Buyer will discontinue using and will dispose of all items of stationery,
business cards and literature bearing such names or marks. Notwithstanding the
foregoing, Buyer will not be required to remove or discontinue using any such
name or mark that is affixed to converters or other items in or to be used in
subscriber homes or properties, or as are used in a similar fashion making such
removal or discontinuation impracticable for Buyer.
6.25 Subscriber Billing Services. Company will provide to
Buyer, access to its outside billing system services provider ("Transitional
Billing Services") in connection with the System and Assets acquired by Buyer
6.26 Satisfaction of Conditions. Each party will use its best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 17, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect, any of the
Assumed Liabilities.
Section 7 Closing
The Closing shall occur at the law offices of Foster, Pepper &
Shefelman, 1111 Third Avenue, Suite 3400, Seattle, WA 98101, at 10:00 o'clock
a.m. local time, on such date acceptable to Company and Buyer within five (5)
business days after all conditions to Closing contained in this Agreement have
been met, or at such different place, time, or date as may be agreed by Company
and Buyer. Until the Closing or earlier termination of this Agreement, the
parties shall cooperate fully by exchanging information upon reasonable request
and in all other reasonable ways to enable all parties to prepare for the
Closing and to determine whether the conditions to the Closing have been
satisfied. Either Buyer or Company may terminate this Agreement upon written
notice to the others if the Closing hereunder has not occurred by October 31,
1996, or, if the Alaska Public Utilities Commission's consent shall not have
been obtained by such date, then at Buyer's or Company's option, no later than
December 31,
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1996, unless the APUC has earlier notified the parties that no consent will be
given to this transaction, in which case the Agreement shall be terminated at
that time, and the parties shall thereupon be relieved of any further obligation
hereunder; provided, however, if a party's breach of this Agreement has
prevented the consummation of the transactions contemplated hereby, such party
shall not be entitled to terminate this Agreement under this Section 7. The
Closing Date may be further extended by mutual consent of the parties.
Section 8 Deliveries by Company at Closing
At Closing, Company shall deliver to Buyer:
8.1 the Bills of Sale for the Assets in the form attached as
Exhibit B;
8.2 an Assignment and Assumption of Agreement in the form
attached as Exhibit C;
8.3 one or more Assignments of Leases in the form attached as
Exhibit D and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
8.4 a Non-Compete Agreement signed by Company and the
Shareholders of the Company, excluding Craig McCaw, Wayne Perry and Donald
Adams, in the form attached as Exhibit F; shall be delivered in consideration
for the other agreements set forth herein and for no further consideration;
8.5 an affidavit of Company, under penalty of perjury, that
Company is not a "foreign person" (as defined in the Foreign Investment in Real
Property Tax Act and applicable regulations) and that Buyer is not required to
withhold any portion of the consideration payable under this Agreement under the
provisions of such Act in the form attached as Exhibit H;
8.6 motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets;
8.7 incumbency and specimen signature certificates, dated the
Closing Date, from Company with respect to the officers or managers of Company
executing this Agreement and any other document delivered hereunder by or on
behalf of Company;
8.8 a certificate of Company, dated the Closing Date, signed
by a proper officer of Company certifying that (A) except (1) as a result of the
taking by any person of any action contemplated under this Agreement or (2)
insofar as any representation or warranty relates to any specified earlier date,
all of the representations and warranties
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<PAGE>
of Company in this Agreement are true and correct in all material respects on
the Closing Date with the same force and effect as if made on and as of the
Closing Date, and (B) Company has performed and complied in all material
respects with all of its covenants and agreements set forth in, and satisfied in
all material respects all conditions required to be satisfied by it pursuant to,
this Agreement except as such covenants, agreements, or conditions shall have
been waived by Buyer at or before the Closing Date;
8.9 a certified copy of resolutions of the boards of
directors, and if necessary, the shareholders, as applicable, of Company
authorizing the execution and delivery by Company of this Agreement and any
other agreements executed by Company pursuant hereto, and the performance of the
obligations of Company hereunder and thereunder;
8.10 an opinion of Company's counsel, dated the Closing Date,
covering matters customary with respect to the transactions contemplated by this
Agreement, in form and substance satisfactory to Buyer;
8.11 an opinion of special communications, FCC and APUC
counsel to Company, dated the Closing Date, covering matters customary with
respect to the APUC and FCC aspects of the transactions contemplated by this
Agreement, in the form and substance satisfactory to Buyer;
8.12 releases or terminations, in form and substance
reasonably satisfactory to Buyer, of all Security Interests with respect to the
Assets and all financing statements or other instruments with respect thereto
except for the Permitted Encumbrances described in Schedule 7;
8.13 to the extent in the possession of Company or its agents,
all contracts not terminated pursuant to this Agreement, all unexpired
warranties, any leases of personal property, any business and other licenses and
permits related to Company or the CATV Business;
8.14 to the extent in the possession of Company or its agents,
all blueprints, schematics, drawings, maps, system design bill of materials,
engineering and technical data related to the Assets or the CATV Business;
8.15 tax, judgment, and lien searches of the relevant public
records dated no more than fifteen (15) days prior to Closing, or dated as of
such other date acceptable to Buyer and Company, indicating all Security
Interests against the Assets, the CATV Systems, or the CATV Business; and
8.16 Schedules 1-11 which have been updated to reflect any
material changes from the date of execution of this Agreement to the Closing
Date; provided,
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however, that if any such change has a material adverse effect on the condition,
financial or otherwise, of Company or the CATV Business, Buyer shall have the
right to terminate this Agreement with no further obligations to Company
hereunder.
8.17 Guaranty. Contemporaneously with the signing of this
Agreement, Company is causing its Shareholders to deliver the Guaranty in the
form of Exhibit E. The liability of each Shareholder under the Guaranty for any
indemnity for breach by the Company of a representation, warranty or covenant
shall be limited to an amount not to exceed such Shareholders' pro rata portion
of such liability based upon the value of the consideration received by such
Shareholder in this transaction and the maximum aggregate liability of each
Shareholder shall be limited to the amount of consideration received by such
Shareholder in this transaction.
Drafts of each of the items listed in this Section 8 shall be
delivered by Company to Buyer within a reasonable time prior to Closing for
Buyer's review and approval.
Section 9 Deliveries by Buyer at Closing
At Closing, Buyer shall deliver to Company:
9.1 certified check or wire transfer documents evidencing
payment of the Sixteen Million Six Hundred Fifty
Thousand Dollars cash, as adjusted in accordance with
Section 2.3, constituting the Purchase Price, such
payment to be made in accordance with instructions
received from the Company at least two business days
prior to the Closing Date;
9.2 Notes in the amount of Nine Million Two Hundred
Thousand Dollars together with Eight Hundred Thousand
Dollars of Notes to be placed in escrow in accordance
with Section 2.5;
9.3 a certificate of good standing of Buyer issued by the
Secretary of State of Alaska dated in 1996;
9.4 an incumbency and specimen signature certificate,
dated the Closing Date, with respect to the officers
of Buyer executing this Agreement and any other
document delivered hereunder by or on behalf of
Buyer;
9.5 a certificate of Buyer, dated the Closing Date,
signed by a proper officer of Buyer certifying that
(A) except (1) as a result of the taking by any
person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified
REGISTRATION STATEMENT
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earlier date, all of the representations and
warranties of Buyer in this Agreement are true and
correct in all material respects on the Closing Date
with the same force and effect as if made on and as
of the Closing Date, and (B) Buyer has performed and
complied in all material respects with all of its
covenants and agreements set forth in, and satisfied
in all material respects all conditions required to
be satisfied by it pursuant to, this Agreement except
as such covenants, agreements or conditions shall
have been waived by Company at or before the Closing
Date;
9.6 a certified copy of resolutions of the board of
directors of Buyer authorizing the execution and
delivery of this Agreement and any other agreements
executed pursuant hereto, and the performance of the
obligations of Buyer hereunder and thereunder; and
9.7 Schedules 12-14 which have been updated to reflect
any material changes from the date of execution of
this Agreement to the Closing Date; provided,
however, that if any such change has a material
adverse effect on the condition, financial or
otherwise, of Buyer, Company shall have the right to
terminate this Agreement with no further obligations
to Buyer hereunder.
Section 10 Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject, at Buyer's option, to
fulfillment of each of the following conditions as of the Closing Date:
10.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Company contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Company, and Company shall have performed and
complied in all material respects with all of its covenants and agreements set
forth herein and satisfied in all material respects all conditions required to
be satisfied by it pursuant to this Agreement at or before the Closing Date.
10.2 Deliveries Complete. All documents required to have been
delivered by Company to Buyer and all actions required to have been taken by
Company, at or prior to the Closing Date, shall have been delivered or taken.
REGISTRATION STATEMENT
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10.2.1 Company has executed (or caused to be
executed) and delivered to Buyer the items set forth in Section 8.
10.2.2 Company has delivered to Buyer: (a) evidence,
in form and substance satisfactory to Buyer, that all of the Required Consents
have been obtained or given and are in full force and effect; and (b) to the
extent obtained, the estoppel certificates or similar documents described in
Section 6.15.
10.2.3 Company has delivered releases, in form
satisfactory to Buyer, of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances) and a certificate of no taxes due with respect to
Company and the Assets issued by appropriate state taxing authorities as of a
date no earlier than 10 days prior to the Closing.
10.3 No Adverse Change. No material adverse change in the CATV
Business or the Assets shall have occurred (other than changes which affect the
United States CATV industry considered as a whole). The CATV Business shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects the CATV Business or the Assets, whether
or not covered by insurance; provided, however, that if Company has repaired at
its expense all damage caused by any loss, casualty, or calamity prior to the
Closing to Buyer's reasonable satisfaction, the condition set forth in this
Section 10.3 shall be deemed satisfied.
10.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Buyer to realize the benefits of the
transactions contemplated herein.
10.5 Inspection. Within thirty (30) days of this Agreement,
the results and findings of a due diligence inspection of the Assets and CATV
Business by Buyer shall be satisfactory to Buyer in its reasonable discretion,
and the condition of the Assets and CATV Business shall be as represented by
Company herein and as otherwise disclosed to Buyer prior to the date hereof.
Buyer shall notify Company within 31 days of this Agreement of the results of
such due diligence inspection.
10.6 Cash Flow. As of the Closing Date, Company's twelve (12)
month trailing operating cash flow before corporate overhead (identified in
Company's financial statements as "Administrative Expenses") together with the
twelve (12) month trailing operating cash flow before corporate overhead for the
McCaw/Rock Homer Cable System Joint Venture and the McCaw/Rock Seward Cable
System Joint Venture shall be no less than Three Million Five Hundred Thousand
and no/100 Dollars ($3,500,000). Provided, however, if the sale of the assets of
the McCaw/Rock Homer Cable System Joint Venture and the McCaw/Rock Seward Cable
System Joint Venture to Buyer or an
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affiliate of Buyer does not occur on about the Closing Date, Company's twelve
(12) month trailing operating cash flow before corporate overhead (identified in
Company's financial statements as "Administrative Expenses") shall be no less
than Three Million and no/100 Dollars ($3,000,000.00).
Section 11 Conditions to Obligations of Company
The obligation of Company to consummate the transactions
contemplated by this Agreement shall be subject, at Company's option, to
fulfillment of each of the following conditions as of the Closing Date:
11.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Buyer contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Buyer, and Buyer shall have performed and complied
in all material respects with all of its covenants and agreements set forth
herein, and satisfied in all material respects all conditions required to be
satisfied by it pursuant to this Agreement at or before the Closing Date.
11.2 Deliveries Complete. All documents required to have been
delivered by Buyer to Company and all actions required to have been taken by
Buyer, at or prior to the Closing Date, shall have been delivered or taken.
11.3 No Adverse Change. No material adverse change in Buyer's
business shall have occurred (other than changes which affect the United States
telephone industry considered as a whole). Buyer's business operations shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects Buyer, whether or not covered by
insurance; provided, however, that if Buyer has repaired at its expense all
damage caused by any loss, casualty, or calamity prior to the Closing to
Company's reasonable satisfaction, the condition set forth in this Section 11.3
shall be deemed satisfied.
11.3.1 Buyer has executed and delivered to Company an
Assignment and Assumption of Agreement in the form attached as Exhibit C.
11.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Company to realize the benefits of the
transactions contemplated herein.
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Section 12 Conditions to Both Parties Obligations
12.1 Consents. All Required Consents and Buyer's Required
Consents or waivers thereof shall have been obtained and shall be in full force
and effect as of the Closing Date.
12.2 No Governmental Action. No investigation, action, or
proceeding shall have been commenced by the Department of Justice or the Federal
Trade Commission or any other governmental entity challenging or seeking to
enjoin the consummation of the transactions contemplated by this Agreement and
neither Buyer nor Company shall have been notified of a present intention by the
Assistant Attorney General in charge of the Antitrust Division of the Department
of Justice, the Director of the Bureau of Competition of the Federal Trade
Commission or any governmental entity (or their respective designees) to
commence, or recommend the commencement of, such an investigation, action, or
proceeding.
12.3 Waiver of Conditions. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
Section 13 Transactions Subsequent to Closing.
13.1 Further Actions. At any time and from time to time after
the Closing, each party hereto agrees, at its own expense (except as otherwise
provided herein), to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
13.2 COBRA Benefits. Company shall comply with all
requirements of COBRA.
Section 14 Registration Rights Agreement.
In connection with each Conversion Period and any conversion
of the Notes by the holders of such Notes during such Conversion Period, the
distribution to and, to the extent required because of affiliate status or
otherwise, subsequent resales or distributions by holders of the GCI Shares,
will be registered under the Securities Act of 1933, as amended. Any such
registration required in connection with the resale or distribution by a holder
of the GCI Shares shall be upon the terms and conditions set forth in the
Registration Rights Agreement, the form of which is attached hereto as Exhibit
A, which is hereby incorporated by reference. All expenses in connection with
the registration (other than underwriting discounts, selling commissions and
fees and expenses of counsel to holders in connection with any such resale or
distribution) and keeping any prospectus current will be paid by the Buyer.
REGISTRATION STATEMENT
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Section 15. Agreement Not to Compete
15.1 Agreement. Company and Shareholders, excluding Craig
McCaw, Wayne Perry and Donald Adams, shall provide to Buyer at Closing an
executed Non-Compete Agreement in the form attached to this Agreement as Exhibit
F, the terms and conditions of which are hereby incorporated by reference. Such
Non-Compete Agreements shall be given in consideration of the sale of Assets set
forth herein and shall not be subject to additional consideration.
15.2 Breach of Agreement. If this Section 15 is breached or
threatened to be breached, Company expressly consents that, in addition to any
other remedy Buyer may have, Buyer may apply to any court of competent
jurisdiction for injunctive relief in order to prevent the continuation of any
existing breach or the occurrence of any threatened breach.
15.3 Enforceability. If any provision of this Section 15 is
determined to be unreasonable or unenforceable, such provision and the remainder
of this Section 15 shall not be declared invalid but rather shall be modified
and enforced to the maximum extent permitted by law.
Section 16 Survival of Representations and Warranties; Indemnification
16.1 Survival. Except as otherwise provided, the
representations, warranties, and covenants and related indemnity agreements
contained in or made pursuant to this Agreement (including the Exhibits and
Schedules) by Buyer and by Company shall survive the Closing and shall terminate
on the first anniversary of the Closing Date. Notwithstanding the preceding
provisions of this Section 16.1, the representations, warranties, and covenants
(and related indemnities) in Sections 3.15, 3.17, 3.18, 3.19 and 3.25 shall
survive the Closing for the period of sixty (60) days after the expiration of
the relevant statute of limitations for claims related thereto. The
representations and warranties relating to the ownership of the Assets shall
continue in full force and effect without limitation. Buyer's covenants and
obligations under the Notes and with respect to the issuance, delivery and
registration of GCI Shares shall continue in full force and effect without
limitation.
16.2 Indemnity by Company. Company agrees to indemnify,
defend, and hold harmless Buyer and its officers, directors, Affiliates,
employees, attorneys, agents and shareholders (the "Buyer's Indemnitees")
against and in respect of any and all claims, suits, actions, proceedings
(formal and informal), investigations, judgments, deficiencies, losses, damages,
settlements, liabilities and expenses (including, without limitation, reasonable
legal fees and expenses of attorneys chosen by the Buyer's Indemnitees), or on
any Schedule to, this Agreement (collectively, "Losses"), as and when incurred
arising out of or based upon (1) any breach of any representation, warranty,
covenant, or agreement of Company contained in this Agreement or in any
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other agreement executed and delivered by Company hereunder or in connection
herewith, or (2) the ownership of the Assets or the conduct of the CATV Business
or any other matters relating to the business of Company for the period prior to
the Closing Date, including, without limitation, any actions taken by Company
prior to the Closing Date but which do not become effective until after the
Closing Date. No indemnification shall be required to be made by Company under
this Section as a result of any breach of any representation, warranty, covenant
or agreement of the Company until the amount of Buyer's Losses under this
Agreement exceed in the aggregate $50,000. At such time as such aggregate amount
of Buyer's Losses exceeds $50,000, Buyer may seek to recover all of its Losses,
including the first dollar thereof in accordance with the provisions of this
Section, provided, however, that no indemnification shall be required in excess
of the amount of the Notes actually received, in the aggregate, pursuant to the
Agreement. Company shall not be held liable for any unintentional error in any
representation or warranty or any unintentional inaccuracy or incompleteness of
data, information or material which it otherwise might have been liable for
hereunder if, on or before 10 business days prior to the Closing Date, the
Company shall have provided Buyer with written notices of such error, inaccuracy
or incompleteness and a written statement of the corrections necessary to cure
the same and if, notwithstanding such notice, Buyer shall have elected to close
this transaction.
16.3 Indemnity by Buyer. Buyer agrees to indemnify, defend,
and hold harmless Company and its partners, managers, officers, directors,
Affiliates, employees, attorneys, agents and shareholders (the "Sellers'
Indemnitees") against and in respect of any Losses as and when incurred arising
out of or based upon (1) any breach of any representation, warranty, covenant or
agreement of Buyer contained in this Agreement or in any other agreement
executed and delivered by Buyer hereunder or in connection herewith; or (2) the
conduct of the CATV Business or any other matters relating to the business of
Company for the period on and after the Closing Date.
16.4 Defense of Claims. No right to indemnification under this
Section 16 shall be available to any of Buyer's Indemnitee or Sellers'
Indemnitee (the "Indemnified Party") unless such Indemnified Party shall have
given to the party obliged to provide indemnification of such Indemnified Party
(the "Indemnitor") a notice (a "Claim Notice") describing in reasonable detail
the facts giving rise to any claim for indemnification hereunder promptly after
receipt of knowledge by officers or management personnel of the Indemnified
Party of the facts upon which such claim is based; provided, however, that the
failure of any Indemnified Party to so notify the Indemnitor shall not relieve
the Indemnitor from any indemnification liability it may have except to the
extent that failure to so notify the Indemnitor materially prejudices the
Indemnitor's ability to defend against such claim. Upon receipt by the
Indemnitor of the Claim Notice from an Indemnified Party with respect to any
claim of a third party, such Indemnitor may assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party, and the Indemnified
Party shall cooperate in the defense or prosecution thereof and shall furnish
such records, information and testimony and attend all such
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conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested in connection therewith. The Indemnified Party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Party unless (i) the
Indemnitor shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses available to it, or to any other Indemnified Party who has
submitted a Claim Notice to the Indemnitor, which are different from or
additional to those available to the Indemnitor, in either of which events such
fees and expenses shall be borne by the Indemnitor (but in no event shall the
Indemnitor be required to pay the fees and expenses of more than one counsel
employed by more than one Indemnified Party with respect to any claim) and the
Indemnitor shall not have the right to direct the defense of any such action on
behalf of the Indemnified Party. The Indemnified Party shall give written notice
to the Indemnitor of any proposed settlement of any claim, which settlement the
Indemnitor may reject in its reasonable judgment within ten (10) days of receipt
of such notice. The Indemnitor shall have the right, in its sole discretion, to
settle any claim for monetary damages for which indemnification has been sought
and is available hereunder.
16.5 Right to Offset. Company and Buyer shall have the option
to recoup all or part of its Losses (in lieu of seeking any indemnification
therefor to which it is entitled under this Section 16) by notifying the other
that it is offsetting the amount of the Note Holdback by the amount of its
Losses if the amount of such Losses is determined before such party releases the
applicable Note Holdback. The Indemnitee shall notify the Indemnitor of its
claim for Losses to be offset against the applicable Note Holdback (including
the details forming the basis of such claim) as soon as practically possible
after obtaining knowledge of the basis for its claim for Losses to be so offset.
If a party disagrees with the asserted claim for Losses to be so offset, the
parties shall submit the dispute to arbitration. The amount of such disputed
claim shall then continue to be subject to the Note Holdback until the dispute
is resolved. At the end of the Note Holdback period the Indemnitee shall release
to the Indemnitor the remaining balance of the applicable Note Holdback. An
arbitrator named by the accounting firm of Deloitte & Touche, LLP shall resolve
any dispute between the parties with respect to the Losses offset against the
Note Holdback within thirty (30) days, which determination shall be binding and
conclusive; provided, however, that if the nature of the disputed claim is not
of the type which would normally be determined by a certified public accountant,
the parties shall agree within ten (10) days on another person to serve as the
arbitrator, or if the parties cannot so agree, the Indemnitee shall select an
arbitrator from the list of arbitrators maintained by the American Arbitration
Association and Indemnitor shall select an arbitrator from the list of
arbitrators maintained by the American Arbitration Association and the two (2)
arbitrators so selected shall select a third arbitrator from the list of
arbitrators maintained by the American Arbitration Association and such panel of
three (3) arbitrators shall resolve the disputed claim for Losses offset against
the Note Holdback within thirty (30) days. Nothing contained in this Section
16.5 shall be
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<PAGE>
deemed to limit a party's obligation to indemnify to the extent that the amount
to which an Indemnitee is entitled under Section 16 exceeds the amount of the
applicable Note Holdback.
16.6 Determination of Indemnified Amounts. The indemnification
obligations of the parties under this Section 16 shall be subject to the
following:
16.6.1 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 16 as
a result of any Loss suffered by the Indemnified Party shall be reduced to the
extent the amount of such Loss is actually offset by the receipt by the
Indemnified Party of insurance proceeds pursuant to the terms of the insurance
policies, if any, covering such Loss or by the receipt of any recovery by the
Indemnified Party from a third party with respect to such Loss.
16.6.2 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 16 as
a result of any Loss suffered by the Indemnified Party shall be reduced by the
amount of any tax benefit actually realized by the Indemnified Party with
respect to such Loss, to the extent such benefit actually offsets such Loss,
provided that such reduced amount shall be increased by the amount of any taxes
payable by such Indemnified Party as a result of the Indemnitor's payment of
such Loss.
16.6.3 Amounts payable by the Indemnitor in respect
of any Losses shall be payable by the Indemnitor and shall bear interest at the
rate of ten and one-half percent (10.5%) per annum from the date the Loss for
which indemnification is sought were incurred by the Indemnified Party until the
date of payment of indemnification by the Indemnitor.
Section 17 Termination
17.1 Mutual Consent. This Agreement may be terminated by the
written consent of Buyer and Company. Upon such termination, no party hereto
shall have any further liability to the other, except as provided in Section
17.2.
17.2 Default by Company. Buyer shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that
Company defaults in the performance of any material obligation hereunder or if
any representation or warranty of Company is materially false, and Company fails
to correct or satisfy such default or falsity within ten (10) days after written
notice is given to Company or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Company promptly and
diligently prosecutes the cure or satisfaction. If such notice is given within
ten (10) days of the Closing Date, the Closing shall be delayed for the number
of days to permit the cure of the default but in no event more than thirty (30)
days. In the event that Company has failed to cure the default within the
required period, Buyer shall be
REGISTRATION STATEMENT
Page II-307
<PAGE>
entitled to exercise all of its rights in law or in equity by reason of the
breach by Company of this Agreement. If Company shall breach or threaten to
breach any of the provisions of this Agreement, Buyer, in addition to any other
remedies it may have at law or in equity, will be entitled to a restraining
order, injunction or other similar remedy in order to specifically enforce the
provisions of this Agreement. Company and Buyer specifically acknowledge that
money damages alone would be an inadequate remedy for the injuries and damage
which would be suffered and incurred by Buyer as a result of a breach by Company
of any provisions of this Agreement. In the event that Buyer seeks an injunction
hereunder, Company hereby waives any requirement for the posting of a bond or
other security. Notwithstanding anything to the contrary contained in this
Section 17.2, Buyer shall have the right to waive any default by Company and
require the transactions contemplated by this Agreement to be consummated on the
Closing Date.
17.3 Default by Buyer. Company shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that Buyer
defaults in the performance of any material obligation hereunder or if any
representation or warranty of Buyer is materially false, and Buyer fails to
correct or satisfy such default or falsity within ten (10) days after written
notice is given to Buyer or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Buyer promptly and diligently
prosecute the cure or satisfaction. If such notice is given within ten (10) days
of the Closing Date, the Closing shall be delayed for the number of days to
permit the cure of the default but in no event more than thirty (30) days. In
the event Buyer has failed to cure the default within the required period,
Company shall be entitled to exercise all of its rights in law by reason of
Buyer's breach of this Agreement. If Buyer shall breach or threaten to breach
the provisions of Section 18.17 of this Agreement, Company, in addition to any
other remedies it may have at law, will be entitled to a restraining order,
injunction or other similar equitable remedy in order to specifically enforce
such provision of this Agreement. Company and Buyer specifically acknowledge
that money damages alone would be an inadequate remedy for the injuries and
damage which would be suffered and incurred by Company as a result of a breach
by Buyer of the provisions of Section 18.17 of this Agreement. If Company seeks
an injunction hereunder, Buyer hereby waives any requirement for the posting of
a bond or other security. Notwithstanding anything to the contrary contained in
this Section 17.3, Company shall have the right to waive any default by Buyer
and require the transactions contemplated by this Agreement to be consummated on
the Closing Date.
Section 18 Miscellaneous
18.1 Expenses. Except as otherwise expressly provided in this
Agreement, Company will bear its own expenses, and Buyer will bear its own
expenses incident to the negotiation, preparation and consummation of this
Agreement and all other agreements executed and delivered by it hereunder or in
connection herewith, including all fees and expenses of its or their respective
counsel and accountants,
REGISTRATION STATEMENT
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<PAGE>
whether or not the transactions contemplated hereby or thereby are consummated.
Buyer will pay the fees necessary in connection with the transfer of the APUC
licenses and any FCC fees necessary in connection with any approvals which are
required to be obtained by Buyer and the Company will pay the FCC filing fees
and the transfer of the IB business radio licenses. The filing fees for any
filing mandated by the Hart-Scott-Rodino Antitrust Improvement Act of 1976 shall
be borne equally by Company and Buyer.
18.2 Modification. This Agreement (including the Exhibits and
Schedules hereto) sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements among
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party hereto.
18.3 Attorneys' Fees. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other party.
18.4 Right to Specific Performance. Company and Buyer
acknowledge that the unique nature of the Assets to be purchased by Buyer and
the convertible Notes to be received by the Company pursuant to this Agreement
renders money damages an inadequate remedy for the breach by Company and/or
Buyer of their obligations under this Agreement, and Company and Buyer agree
that in the event of such breach, Buyer and/or Company will upon proper action
instituted by it, be entitled to a decree of specific performance of this
Agreement.
18.5 Notice. Any notice given pursuant to this Agreement to
any party hereto shall be deemed to have been duly given five (5) business days
after being mailed by registered or certified mail, return receipt requested, or
when received if hand delivered, delivered via overnight messenger service or by
facsimile as follows:
If to Company: Alaska Cablevision, Inc.
135 Lake Street South, Suite
265
Kirkland, WA 98033
Attention: Sam Evans
Facsimile No.: (206) 828-0226
with a copy to:
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attention: Robert Diercks
Facsimile No.: (206) 447-9700
REGISTRATION STATEMENT
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<PAGE>
If to Buyer: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
Attention: John M. Lowber, CFO
and Senior Vice
President
Facsimile No.: (907) 265-5676
or at such other address as either party shall from time to time designate by
written notice, in the manner provided herein, to the other party hereto. All
references to days in this Agreement shall be deemed to refer to calendar days
unless otherwise specified.
18.6 Waiver. Any waiver must be in writing, and any waiver by
any party of a breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
18.7 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of Company and Buyer
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assignable by
any party without the prior written consent of the others, which consent shall
not be unreasonably withheld. Notwithstanding anything to the contrary contained
herein, Buyer may, without Company's consent, assign its rights under this
Agreement to any Affiliate of Buyer.
18.8 No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
18.9 Rights Cumulative. All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or more
rights or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
18.10 Further Actions. Company and Buyer will execute and
deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
REGISTRATION STATEMENT
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<PAGE>
18.11 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
effect at the option of the party for whose benefit such provision was made.
18.12 Captions. The Article and Section titles used in this
Agreement are inserted as a matter of convenience and for reference only and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any of the provisions hereof.
18.13 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
18.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Alaska without giving effect to
conflict of laws.
18.15 Incorporation by Reference. The Exhibits and Schedules
attached hereto are an integral part of this Agreement and are incorporated
herein by reference.
18.16 Construction. This Agreement has been negotiated by
Buyer and Company and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
18.17 Confidentiality. The parties will hold and cause their
officers, directors, employees, attorneys, investors, accountants,
representatives, agents, consultants, and advisors to hold in strict confidence
the provisions of this Agreement as well as all information (other than such
information as may be publicly available) furnished in connection with the
transactions contemplated by this Agreement, except as otherwise required by
law, and except as to disclosure to the parties' agents, advisors and financial
institutions. Neither party shall issue any press release or otherwise make any
public statement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Company
acknowledges that Buyer shall issue press releases regarding the general terms
and conditions of the transactions contemplated hereby, as required by the
securities disclosure laws, rules and regulations. Buyer shall have no
obligation to obtain Company's consent for such press releases, but shall
provide Company with copies thereof and give reasonable consideration to
Company's suggestions thereon.
REGISTRATION STATEMENT
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ALASKA CABLEVISION, INC.
By: /s/
Name:
Title:
GENERAL COMMUNICATION, INC.
By /s/
John M. Lowber, Senior Vice
President
REGISTRATION STATEMENT
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<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of
this day of , 1996, is between General Communication, Inc., an
Alaska corporation ("GCI"), and the respective owners of all of the capital
stock of Alaska Cablevision, Inc. ("ACI"), who currently own shares of common
stock of GCI as described below (such holders collectively referred to herein as
"Sellers").
RECITALS
A. Pursuant to an Asset Purchase Agreement dated as of May
, 1996, between GCI and ACI (the "Purchase Agreement"), ACI has acquired in
aggregate Ten Million and no/100 Dollars ($10,000,000) of GCI's subordinated
notes ("Notes"), which are convertible into shares of GCI's voting Class A
common stock, no par value ("GCI Stock"). GCI understands that ACI intends to
distribute the Notes to Sellers who may then exercise the right to convert the
Notes to GCI Stock. The distribution of such shares of GCI Stock will not be
registered with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, however any Seller may require registration
of such shares in order to sell all of such shares. All such shares of GCI Stock
which Sellers may obtain following the conversion of all or any of the Notes and
any securities issued in exchange for or in respect of such stock, whether
pursuant to a stock dividend, stock split, stock reclassification or otherwise
are collectively referred to in this Agreement as the "Registrable Shares."
B. GCI desires to grant registration rights to Sellers, and
any successor affiliates permitted under Section 7(c) hereof of Sellers, as the
holders of all or any portion of the Registrable Shares. Sellers and such
permitted successors and assigns are referred to in this Agreement as the
"Holders" or, individually as a "Holder."
AGREEMENT
In consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
1. Demand Registration.
(a) GCI hereby covenants and agrees that the
distribution to Holders of the Notes and their subsequent conversion, if any,
into Registrable Shares, all pursuant to the terms set forth in that Asset
Purchase Agreement ("APA") dated May , 1996 shall not be registered under the
Securities Act of 1933, as amended, effective with such distribution. However,
to the extent that subsequent resales or distributions by Holders are required
to be registered, GCI shall provide one (1) Registration per year to Holders
upon demand, for the ten (10) year period commencing on the Final Closing
REGISTRATION STATEMENT
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<PAGE>
Date. Holders hereby covenant and agree not to sell any Registrable Shares
during a one hundred and eighty (180) day stand still period following the
Closing Date (as defined in the Purchase Agreement), provided that a request for
registration pursuant to (b) below may be made during such period in order to
begin the registration process during such period. Any and all remaining
Registrable Shares may be sold following the stand still period. If further
required to permit resales of the Registrable Shares by Holders, Holders shall
at any time and from time to time, have the right to require registration under
the Securities Act of 1933, as amended ("Securities Act"), of all or any portion
of the Registrable Shares on the terms and subject to the conditions set forth
in this Agreement.
(b) Upon receipt by GCI of a Holder's written request
for registration, GCI shall (i) promptly notify each other Holder in writing of
its receipt of such initial written request for registration, and (ii) as soon
as is practicable, but in no event more than sixty (60) days after receipt of
such written request, file with the Securities and Exchange Commission
("Commission"), and use its best efforts to cause to become effective, a
registration statement under the Securities Act ("Registration Statement") which
shall cover the Registrable Shares specified in the initial written request and
any other written request from any other Holder received by GCI within twenty
(20) days of GCI giving the notice specified in clause (i) hereof.
(c) If so requested by any Holder requesting
participation in a public offering or distribution of Registrable Shares
pursuant to this Section 1 or Section 2 of this Agreement ("Selling Holder"),
the Registration Statement shall provide for delayed or continuous offering of
the Registrable Shares pursuant to Rule 415 promulgated under the Securities Act
or any similar rule then in effect ("Shelf Offering"). If so requested by a
majority in number of shares to be sold by the Selling Holders, the public
offering or distribution of Registrable Shares under this Agreement shall be
pursuant to a firm commitment underwriting, the managing underwriter of which
shall be an investment banking firm selected and engaged by the Selling Holders
and approved by GCI, which approval shall not be unreasonably withheld. GCI
shall enter into the same underwriting agreement as shall the Selling Holders,
containing representations, warranties and agreements not substantially
different from those customarily made by an issuer in underwriting agreements
with respect to secondary distributions. GCI, as a condition to fulfilling its
obligations under this Agreement, may require the underwriters to enter into an
agreement in customary form indemnifying GCI against any Losses (as defined in
Section 6) that arise out of or are based upon an untrue statement or an alleged
untrue statement or omission or alleged omission in the Disclosure Documents (as
defined in Section 6) made in reliance upon and in conformity with written
information furnished to GCI by the underwriters specifically for use in the
preparation thereof.
(d) Each Selling Holder may, before such a
Registration Statement becomes effective, withdraw its Registrable Shares from
sale, should the terms of sale not be reasonably satisfactory to such Selling
Holder; if all Selling Holders
REGISTRATION STATEMENT
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<PAGE>
who are participating in such registration so withdraw, however, such
registration shall be deemed to have occurred for the purposes of Section 4 of
this Agreement, unless such Selling Holders pay (pro rata, in proportion to the
number of Registrable Shares requested to be included) within twenty (20) days
after any such withdrawal, all of GCI's out-of-pocket expenses incurred in
connection with such registration.
(e) Notwithstanding the foregoing, GCI shall not be
obligated to effect a registration pursuant to this Section 1 during the period
starting with the date thirty (30) days prior to GCI's estimated date of filing
of, and ending on a date four (4) months following the effective date of, a
registration statement pertaining to an underwritten public offering of equity
securities for GCI's account, provided that (i) GCI is actively employing in
good faith all reasonable efforts to cause such registration statement to become
effective and that GCI's estimate of the date of filing on such registration
statement is made in good faith, and (ii) GCI shall furnish to the Holders a
certificate signed by GCI's President stating that in the Board of Directors'
good-faith judgment, it would be seriously detrimental to GCI or its
shareholders for a Registration Statement to be filed in the near future; and in
such event, GCI's obligations to file a Registration Statement shall be deferred
for a period not to exceed six (6) months.
2. Incidental Registration. Each time that GCI proposes to
register any of its equity securities under the Securities Act (other than a
registration effected solely to implement an employee benefit or stock option
plan or to sell shares obtained under an employee benefit or stock option plan
or a transaction to which Rule 145 or any other similar rule of the Commission
under the Securities Act is applicable), GCI will give written notice to the
Holders of its intention to do so. Each of the Selling Holders may give GCI a
written request to register all or some of its Registrable Shares in the
registration described in GCI's written notice as set forth in the foregoing
sentence, provided that such written request is given within twenty (20) days
after receipt of any such GCI notice. Such request will state (i) the amount of
Registrable Shares to be disposed of and the intended method of disposition of
such Registrable Shares, and (ii) any other information GCI reasonably requests
to properly effect the registration of such Registrable Shares. Upon receipt of
such request, GCI will use its best efforts promptly to cause all such
Registrable Shares intended to be disposed of to be registered under the
Securities Act so as to permit their sale or other disposition (in accordance
with the intended methods set forth in the request for registration), unless the
sale is a firmly underwritten public offering and GCI determines reasonably and
in good faith in writing that the inclusion of such securities would adversely
affect the offering or materially increase the offering's costs. In which case
such securities and all other securities to be registered, other than those to
be offered for GCI's account, shall be excluded to the extent GCI determines.
The number of secondary shares included in such registration shall be shared pro
rata by all security holders based upon the amount of GCI's securities requested
by such security holders to be sold thereunder. GCI's obligations under this
Section 2 shall apply to a registration to be effected for securities to be sold
for GCI's account as well as a registration statement which includes securities
to be
REGISTRATION STATEMENT
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<PAGE>
offered for the account of other holders of GCI equity securities; however, the
registration rights granted pursuant to the provisions of this Section 2 are
subject to the registration rights granted by GCI pursuant to (a) the
Registration Rights Agreement dated as of January 18, 1991, between GCI and
WestMarc Communications, Inc.; (b) the Registration Rights Agreements dated as
of March 31, 1993, and , 1996, both between GCI and MCI
Telecommunications Corporation; (c) the Registration Rights Agreement dated as
of , 1996, between GCI and the owner of Alaskan Cable
Network, Inc.; and (d) the Registration Rights Agreement dated as of
, 1996, between GCI and the owners of Prime Cable of Alaska,
L.P.
In connection with a registration to be effected pursuant to
this Section 2, the Selling Holders shall enter into the same underwriting
agreement as shall GCI and the other selling security holders, if any, provided
that such underwriting agreement contains representations, warranties and
agreements on the part of the Selling Holders that are not substantially
different from those customarily made by selling security holders in
underwriting agreements with respect to secondary distributions.
If, at any time after giving notice of GCI's intention to
register any of its securities under this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
GCI shall determine for any reason not to register such securities, GCI may, at
its election, give notice of such determination to Holders and thereupon will be
relieved of its obligation to register the Registrable Shares in connection with
such registration.
3. Expenses of Registration. GCI shall pay all costs and
expenses incurred in connection with the registration of the Registrable Shares,
except that each Selling Holder shall pay all fees and disbursements of such
Selling Holder's own attorneys and accountants, and all transfer taxes and
brokerage and underwriters' discounts and commissions attributable to the
Registrable Shares being offered and sold by such Selling Holder.
4. Limitations on Registration Rights. Notwithstanding the
provisions of Section 1 of this Agreement, GCI shall not be required to effect
any registration under that Section if (i) the request(s) for registration cover
an aggregate number of Registrable Shares of less than 150,000 shares, (ii) GCI
has previously filed ten (10) registration statements under the Securities Act
pursuant to Section 1, (iii) GCI, in order to comply with such request, would be
required to (A) undergo a special interim audit or (B) prepare and file with the
Commission, sooner than would otherwise be required, pro forma or other
financial statements relating to any proposed transaction, or (iv) if a
registration is not required in order to permit resale by Holders. The first
demand registration under this Agreement may be requested only by the Holders of
a minimum of ten percent (10%) of the Registrable Shares.
REGISTRATION STATEMENT
Page II-316
<PAGE>
5. Obligations with Respect to Registration.
(a) If and whenever GCI is obligated by the
provisions of this Agreement to effect the registration of any Registrable
Shares under the Securities Act, GCI shall promptly:
(i) Prepare and file with the Commission
any amendments and supplements to the Registration Statement and to the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated thereunder with respect
to the disposition of all Registrable Shares covered by the Registration
Statement for the period required to effect the distribution of such Registrable
Shares. However, in no event shall GCI be required to do so (i) in the case of a
Registration Statement filed pursuant to Section 1, for a period of more than
thirty-six (36) months following the effective date of the Registration
Statement and (ii) in the case of a Registration Statement filed pursuant to
Section 2, for a period exceeding the greater of (A) the period required to
effect the distribution of securities for GCI's account and (B) the period
during which GCI is required to keep such Registration Statement in effect for
the benefit of selling security holders other than the Selling Holders;
(ii) Notify the Selling Holders and their
underwriter, and confirm such advice in writing, (A) when a Registration
Statement becomes effective, (B) when any post-effective amendment to a
Registration Statement becomes effective, and (C) of any request by the
Commission for additional information or for any amendment of or supplement to a
Registration Statement or any prospectus relating thereto;
(iii) Furnish, at Selling Holders'
expense, to the Selling Holders such number of copies of a preliminary, final,
supplemental or amended prospectus, in conformity with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, as may
reasonably be required in order to facilitate the disposition of the Registrable
Shares covered by a Registration Statement, but only while GCI is required under
the provisions hereof to cause a Registration Statement to remain effective; and
(iv) Register or qualify at GCI's expense
the Registrable Shares covered by a Registration Statement under such other
securities or blue sky laws of such jurisdictions in the United States as the
Selling Holders shall reasonably request, and do any and all other acts and
things which may be necessary to enable each Selling Holder whose Registrable
Shares are covered by such Registration Statement to consummate the disposition
in such jurisdictions of such Registrable Shares. Provided, however, that GCI
shall in no event be required to qualify to do business as a foreign corporation
or as a dealer in any jurisdiction where it is not so qualified, to amend its
articles of incorporation or to change the composition of its assets at the time
to conform
REGISTRATION STATEMENT
Page II-317
<PAGE>
with the securities or blue sky laws of such jurisdiction, to take any action
that would subject it to service of process in suits other than those arising
out of the offer and sale of the Registrable Shares covered by the Registration
Statement or to subject itself to taxation in any jurisdiction where it has not
therefore done so.
(b) GCI's obligations under this Agreement with
respect to the Selling Holder shall be conditioned upon the Selling Holder's
compliance with the following:
(i) Such Selling Holder shall cooperate
with GCI in connection with the preparation of the Registration Statement, and
for so long as GCI is obligated to file and keep effective the Registration
Statement, shall provide to GCI, in writing, for use in the Registration
Statement, all such information regarding the Selling Holder and its plan of
distribution of the Registrable Shares as may be necessary to enable GCI to
prepare the Registration Statement and prospectus covering the Registrable
Shares, to maintain the currency and effectiveness thereof and otherwise to
comply with all applicable requirements of law in connection therewith;
(ii) During such time as the Selling
Holder may be engaged in a distribution of the Registration Shares, such Selling
Holder shall comply with Rules 10b-2, 10b-6 and 10b-7 promulgated under the
Exchange Act and pursuant thereto it shall, among other things: (A) not engage
in any stabilization activity in connection with GCI's securities in
contravention of such rules; (B) distribute the Registrable Shares solely in the
manner described in the Registration Statement; (C) cause to be furnished to
each broker through whom the Registrable Shares may be offered, or to the
offeree if an offer is not made through a broker, such copies of the prospectus
covering the Registrable Shares and any amendment or supplement thereto and
documents incorporated by reference therein as may be required by law; and (D)
not bid for or purchase any GCI securities or attempt to induce any person to
purchase any GCI securities other than as permitted under the Exchange Act; and
(iii) If the Registration Statement
provides for a Shelf Offering, then at least ten (10) business days prior to any
distribution of the Registrable Shares, any Selling Holder who is an "affiliated
purchaser" (as defined in Rule 10b-6 promulgated under the Exchange Act) of GCI
shall advise GCI in writing of the date on which the distribution by such
Selling Holder will commence, the number of the Registrable Shares to be sold
and the manner of sale. Such Selling Holder also shall inform GCI when each
distribution of such Registrable Shares is over.
(c) Notwithstanding anything to the contrary in this
Agreement, if at any time after the filing of a Registration Statement or after
it is declared effective by the Commission, GCI determines, in its reasonable
business judgment, that such registration and the offering of Registrable Shares
covered by such registration could materially interfere with or otherwise
materially adversely affect any financing,
REGISTRATION STATEMENT
Page II-318
<PAGE>
acquisition, corporate reorganization or other material transaction or
development involving GCI or any of its Affiliates or require GCI to disclose
matters that otherwise would not be required to be disclosed at such time, then
GCI may require the suspension by Sellers of the Distribution of any Registrable
Shares for a reasonable period of time, but not in excess of fifteen (15)
consecutive Business Days (a "Blackout Period"), by giving notice to Sellers.
Any such notice need not specify the reasons for such suspension if GCI
determines, in its reasonable business judgment, that doing so would materially
interfere with or materially adversely affect such transaction or development or
would result in the disclosure of material nonpublic information. In the event
that such notice is given, then until GCI has determined, in its reasonable
business judgment, that such registration and distribution would no longer
materially interfere with the matters disclosed in the preceding sentence and
has given notice thereof to Sellers, GCI's obligations under Sections 1 and 2
will be suspended. No more than four (4) Blackout Periods may occur, and the
number of days included in all Blackout Periods may not exceed forty-five (45)
Business Days, in any period of twelve (12) consecutive calendar months. In the
event of a suspension pursuant to this Section, then upon notice from GCI that
such suspension is no longer in effect, Sellers may recommence distribution of
Registrable Shares. GCI will give notice to Sellers of the commencement and the
termination of any Blackout Period. Each Blackout Period will begin and end when
the applicable notice is given (unless it earlier terminates pursuant to the
terms hereof). The time period mentioned in Section 5(i) will be extended by the
number of days included in all Blackout Periods during which the distribution by
Sellers under an applicable Registration Statement has been suspended.
6. Indemnification.
(a) By GCI. In the event of any registration under
the Securities Act of any Registrable Shares pursuant to this Agreement, GCI
shall indemnify and hold harmless any Selling Holder, any underwriter of such
Selling Holder, each officer, director, employee or agent of such Selling
Holder, and each other person, if any, who controls such Selling Holder or
underwriter within the meaning of Section 15 of the Securities Act, against any
losses, costs, claims, damages or liabilities, joint or several (or actions in
respect thereof) ("Losses"), incurred by or to which each such indemnified party
may become subject, under the Securities Act or otherwise, but only to the
extent such Losses arise out of or based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, in any preliminary prospectus (if used
prior to the effective date of such Registration Statement) or in any final
prospectus or in any post effective amendment or supplement thereto (if used
during the period GCI is required to keep the Registration Statement effective)
("Disclosure Documents"), (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements made therein not misleading or (iii) any violation of any federal or
state securities laws or rules or regulations thereunder committed by GCI in
connection with
9
<PAGE>
the performance of its obligations under this Agreement. GCI will reimburse each
such indemnified party for all legal or other expenses reasonably incurred by
such party in connection with investigating or defending any such claims,
including, subject to such indemnified party's compliance with the provisions of
the last sentence of subsection (c) of this Section 6, any amounts paid in
settlement of any litigation, commenced or threatened, so long as GCI's counsel
agrees with the reasonableness of such settlement Provided, however, that GCI
shall not be liable to an indemnified party in any such case to the extent that
any such Losses arise out of or are based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission (x) made in any such
Disclosure Documents in reliance upon and in conformity with written information
furnished to GCI by or on behalf of such indemnified party specifically for use
in the preparation thereof, (y) made in any preliminary or summary prospectus if
a copy of the final prospectus was not delivered to the person alleging any
loss, claim, damage or liability for which Losses arise at or prior to the
written confirmation of the sale of such Registrable Shares to such person and
the untrue statement or omission concerned had been corrected in such final
prospectus or (z) made in any prospectus used by such indemnified party if a
court of competent jurisdiction finally determines that at the time of such use
such indemnified party had actual knowledge of such untrue statement or omission
or (ii) the delivery by an indemnified party of any prospectus after such time
as GCI has advised such indemnified party in writing that the filing of a
post-effective amendment or supplement thereto is required, except the
prospectus as so amended or supplemented, or the delivery of any prospectus
after such time as GCI's obligation to keep the same current and effective has
expired.
(b) By the Selling Holders. In the event of any
registration under the Securities Act of any Registrable Shares pursuant to this
Agreement, each Selling Holder shall, and shall cause any underwriter retained
by it who participates in the offering to agree to, indemnify and hold harmless
GCI, each of its directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls GCI within
the meaning of Section 15 of the Securities Act, against any Losses, joint or
several, incurred by or to which such indemnified party may become subject,
under the Securities Act or otherwise, but only to the extent such Losses arise
out of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any of the Disclosure Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements made therein not misleading, if the
statement or omission was in reliance upon and in conformity with written
information furnished to GCI by such indemnifying party specifically for use in
the preparation thereof, (ii) the delivery by such indemnifying party of any
prospectus after such time as GCI has advised such indemnifying party in writing
that the filing of a post-effective amendment or supplement thereto is required,
except the prospectus as so amended or supplemented, or after such time as the
obligation of GCI to keep the Registration Statement effective and current has
expired or (iii) any violation by such
REGISTRATION STATEMENT
Page II-320
<PAGE>
indemnifying party of its obligations under Section 5(b) of this Agreement or
any information given or representation made by such indemnifying party in
connection with the sale of the Selling Holder's Registrable Shares which is not
contained in and not in conformity with the prospectus (as amended or
supplemented at the time of the giving of such information or making of such
representation). Each Selling Holder shall, and shall cause any underwriter
retained by it who participates in the offering to agree to, reimburse each such
indemnified party for all legal or other expenses reasonably incurred by such
party in connection with investigating or defending any such claim, including,
subject to such indemnified party's compliance with the provisions of the last
sentence of subsection (c) of this Section 6, any amounts paid in settlement of
any litigation, commenced or threatened.
(c) Third Party Claims. Promptly after the receipt by
any party hereto of notice of any claim, action, suit or proceeding by any
person who is not a party to this Agreement (collectively, an "Action") which is
subject to indemnification hereunder, such party ("Indemnified Party") shall
give reasonable written notice to the party from whom indemnification is claimed
("Indemnifying Party"). The Indemnifying Party shall be entitled, at the
Indemnifying Party's sole expense and liability, to exercise full control of the
defense, compromise or settlement of any such Action unless the Indemnifying
Party, within a reasonable time after the giving of such notice by the
Indemnified Party, shall (i) admit in writing to the Indemnified Party, the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this Section 6, (ii) notify the Indemnified Party in writing of the
Indemnifying Party's intention to assume the defense thereof and (iii) retain
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The Indemnified Party and the Indemnifying Party shall
cooperate with the party assuming the defense, compromise or settlement of any
such Action in accordance herewith in any manner that such party reasonably may
request. If the Indemnifying Party so assumes the defense of any such Action,
the Indemnified Party shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof.
The fees and expenses of such separate counsel shall be the Indemnified Party's
sole expense, unless (i) the Indemnifying Party has agreed to pay such fees and
expenses, (ii) any relief other than the payment of money damages is sought
against the Indemnified Party or (iii) the Indemnified Party shall have been
advised by its counsel that there may be one or more legal defenses available to
it which is different from or additional to those available to the Indemnifying
Party, and in any such case the fees and expenses of such separate counsel shall
be borne by the Indemnifying Party. No Indemnifying Party shall settle or
compromise any such Action in which any relief other than the payment of money
damages is sought against any Indemnified Party unless the Indemnified Party
consents in writing to such compromise or settlement, which consent shall not be
unreasonably withheld. No Indemnified Party shall settle or compromise any such
Action for which it is entitled to indemnification hereunder without the
Indemnifying Party's prior written consent, unless the Indemnifying Party shall
have failed, after reasonable notice thereof, to undertake control of such
Action in the manner provided above in this Section 6.
REGISTRATION STATEMENT
Page II-321
<PAGE>
(d) Contribution. If the indemnification provided for
in subsections (a) or (b) of this Section 6 is unavailable to or insufficient to
hold the indemnified party harmless under subsections (a) or (b) above in
respect of any Losses referred to therein for any reason other than as specified
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and such indemnified party on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault 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 (or omitted to be supplied by) GCI or the
Selling Holder (or underwriter) and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
Losses referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
7. Miscellaneous.
(a) Notices. All notices, requests, demands, waivers
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or mailed, certified or registered mail with postage prepaid, or sent
by facsimile, as follows:
(i) if to GCI at:
General Communication, Inc.
2550 Denali Street, Suite
1000
Anchorage, Alaska 99503
ATTN: Chief Financial
Officer
Facsimile: (907) 265-5676
(ii) if to Sellers, at:
Alaska Cablevision, Inc.
135 Lake Street South,
Suite 265
Kirkland, WA 98033
ATTN: Sam Evans
Facsimile: (206) 828-0226
REGISTRATION STATEMENT
Page II-322
<PAGE>
with a copy to:
Foster, Pepper & Shefelman
1111 Third Avenue, Suite
3400
Seattle, WA 98101
ATTN: Robert J. Diercks
Facsimile: (206) 447-9700
(iii) if to any Holders other
than Sellers, at the
address provided to GCI
(and if none provided, to
Sellers at the above
address)
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
(b) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto and supersedes all prior agreements
and understandings, oral and written, between the parties hereto with respect to
the subject matter hereof.
(c) Assignment; Binding Effect; Benefit. Sellers may
assign any of their rights under this Agreement in whole or in part to any of
their affiliates to which Sellers transfer any of the Registrable Shares,
without GCI's prior written consent (which shall include spouses, children,
heirs, beneficiaries, personal representatives and successors by operation of
law, assignees or transferees who receive a transfer by gift, by testamentary or
charitable trust, by any transfer among the Sellers, or by any transfer pursuant
to a pledge, encumbrance or hypothecation). Except for such permitted transfers,
(i) no party may assign its rights under this Agreement without the prior
written consent of GCI and (ii) this Agreement will be binding on and inure to
the benefit of, the parties and their respective successors and assigns. Nothing
in this Agreement, expressed or implied is intended to confer on any person
other than the parties hereto or their respective successors and assigns
(including, in the case of Sellers, any successor or assign of Sellers as the
holder of Registrable Shares), any rights, remedies, obligations or liabilities
under or by reason of this Agreement, other than rights conferred upon
indemnified persons under Section 6.
(d) Amendment and Modification. This Agreement may be
amended or modified only by an instrument in writing signed by or on behalf of
each party and any other person then a Holder. Any term or provision of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof.
REGISTRATION STATEMENT
Page II-323
<PAGE>
(e) Section Headings. The section headings contained
in this Agreement are inserted for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
(g) Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Alaska, without regard to the conflict
of laws and rules thereof.
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GENERAL COMMUNICATION, INC.
By
John M. Lowber, Senior Vice President
SELLERS:
--------------------------------------
By:
Name:
Its:
--------------------------------------
By:
Name:
Its:
--------------------------------------
By:
Name:
Its:
REGISTRATION STATEMENT
Page II-324
<PAGE>
EXHIBIT B
BILL OF SALE
Pursuant to the terms of that certain Asset Purchase
Agreement, by and between GENERAL COMMUNICATION, INC., and ALASKA CABLEVISION,
INC., dated May , 1996, ALASKA CABLEVISION, INC., hereby sells, transfers and
conveys title to the fixtures and equipment and other personal property listed
on the attached Schedules numbered through , free and clear of all liens
and encumbrances except those listed thereon, to GENERAL COMMUNICATION, INC.
Dated , 1996.
ALASKA CABLEVISION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-325
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT ("Assignment") is made effective as
of , 1996, by and between ALASKA CABLEVISION, INC., a Delaware
corporation, 135 Lake Street South, Kirkland, Washington 98033 ("Assignor") and
GENERAL COMMUNICATION, INC., an Alaska corporation, 2550 Denali Street, Suite
1000, Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is a party to that certain contract by and between
Assignor, and ("Contracting Party"), effective as of ,
19 ("Contract"), a true and complete copy of which is attached hereto as
Exhibit A and incorporated herein.
B. Pursuant to Section of the Contract, Assignor has the
right at any time to assign the contract upon the written approval of
Contracting Party.
C. Assignor and Assignee have entered into an Asset Purchase
Agreement dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee
is purchasing all of the assets of Assignor except those expressly excluded in
the Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has
agreed to assign and Assignee has agreed to assume all of Assignor's right,
title and interest in and obligations under the Contract.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval
of Contracting Party as provided in Section 2 below, Assignor hereby assigns and
transfers to Assignee all of Assignor's right, title and interest in the
Contract, and Assignee hereby accepts the assignment and assumes and agrees to
perform, and fully comply with, from the effective date of this Assignment, as a
direct obligation to the Contracting Party, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Contract.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising under the Contract, from and after the
date of approval of this Assignment.
REGISTRATION STATEMENT
Page II-326
<PAGE>
2. Approval by Contracting Party. Assignor agrees to act
promptly and in good faith to obtain the written approval of this Assignment by
the Contracting Party as required by Section of the Contract.
3. Assignor's Warranty. Except as otherwise provided in the
Asset Purchase Agreement, Assignor hereby warrants that as of the effective date
of this Assignment the Contract is in good standing, with no claims, lawsuits,
liens, or defaults; and with all required monies, fees, and other payments
having been timely made, and that Assignor and Contracting Party are in
substantial compliance with all Contract terms.
4. Successors. This Assignment shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
5. Governing Law. This Assignment shall be governed by the
laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment on the date first written below.
ASSIGNOR:
ALASKA CABLEVISION, INC.
By:
Name:
Its:
ASSIGNEE:
GENERAL COMMUNICATION, INC.
By:
Name:
Its:
REGISTRATION STATEMENT
Page II-327
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
The Contracting Party hereby acknowledges and consents to the
above Assignment and agrees to render to Assignee the performance formerly due
the Assignor under the terms of the Contract. The Contracting Party hereby
releases Assignor from all obligations of the Contract from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of the obligations under the Contract.
-----------------------------------
By:
Name:
Its:
REGISTRATION STATEMENT
Page II-328
<PAGE>
EXHIBIT D
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE ("Assignment") is made effective as
of , 1996, by and between ALASKA CABLEVISION, INC., a Delaware
corporation, 135 Lake Street South, Kirkland, Washington 98033 ("Assignor"), and
GENERAL COMMUNICATION, INC., an Alaska corporation, 2550 Denali Street, Suite
1000, Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is the lessee under that certain Lease by and
between Assignor and ("Lessor"), dated effective as of ,
19 , ("Lease"), a true and complete copy of which is attached hereto as
Exhibit A and incorporated herein; and which Lease is made of record by a
Memorandum of Lease dated , 19 , and recorded in the Recording
District on , 19 , in Book , at Page , a true and complete
copy of which memorandum is attached hereto as Exhibit B and incorporated
herein.
B. Pursuant to Section of the Lease, Assignor has the
right at any time to assign the Lease upon the written approval of Lessor.
C. Assignor and Assignee have entered into an Asset Purchase
Agreement dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee
is purchasing all of the assets of Assignor except those expressly excluded in
the Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has
agreed to assign and Assignee has agreed to assume all of Assignor's right,
title and interest in and obligations under the Lease.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval
of Lessor as provided in Section 2 below, Assignor hereby assigns, conveys and
transfers to Assignee all of Assignor's right, title and interest in the Lease,
and Assignee hereby accepts the assignment and assumes and agrees to perform,
and fully comply with, from the effective date of this Assignment, as a direct
obligation to the Lessor under the Lease, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Lease.
Assignee further undertakes to defend, indemnify and hold
REGISTRATION STATEMENT
Page II-329
<PAGE>
Assignor harmless from, and against any liability arising from and after the
date of the approval of the Assignment.
2. Approval
by Lessor. Assignor agrees to act promptly and in
good faith to obtain the written approval of this Assignment by the Lessee as
required by Section of the Lease.
3. Assignor's Warranty. Except as otherwise provided in the
Asset Purchase Agreement, Assignor hereby warrants that as of the effective date
of this Assignment the Lease is in good standing, with no claims, lawsuits,
liens, or defaults; and with all required rents, fees, and other payments having
been timely made, and that Assignor and Lessor are in substantial compliance
with all Lease terms.
4. Successors. This Assignment shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.
5. Recording. The parties, in conjunction with the Lessor,
agree to execute a Notice of Assignment of the Lease suitable for recording
purposes, the form of which is attached hereto as Attachment 1.
6. Governing Law. This Assignment shall be governed by the
laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment on the date first written below.
ASSIGNOR:
ALASKA CABLEVISION, INC.
By:
Its:
ASSIGNEE:
GENERAL COMMUNICATION, INC.
By:
Its:
REGISTRATION STATEMENT
Page II-330
<PAGE>
ACKNOWLEDGMENTS
STATE OF )
) ss.
COUNTY )
The foregoing instrument was acknowledged before me this
day of , 1996, by of Alaska Cablevision, Inc., a
Delaware corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
) ss.
)
The foregoing instrument was acknowledged before me this
by of GENERAL COMMUNICATION, INC., an Alaska corporation, on
behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-331
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
Lessor in the above-referenced Lease, hereby
acknowledges and consents to the above assignment and agrees to render to
Assignee the performance due under the terms of said Lease. Lessor hereby
releases Assignor from all obligations of the Lease from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of Lessee's obligations under the Lease.
-----------------------------
By:
Its:
STATE OF )
) ss.
)
The foregoing instrument was acknowledged before me this
by of , a corporation, on
behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
REGISTRATION STATEMENT
Page II-332
<PAGE>
ATTACHMENT 1 TO EXHIBIT D
Notice of Assignment of Lease
RECORD THIS INSTRUMENT
IN THE
RECORDING DISTRICT.
This Notice of Assignment of Lease ("Notice") is made by and
among Alaska Cablevision, Inc., a Delaware corporation, 135 Lake Street South,
Kirkland, WAshington 98033 ("Assignor"), and General Communication, Inc. an
Alaska corporation, 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503, and
is made effective this day of , 199 .
1. Under an Assignment of Lease dated , 199 ,
Assignor has assigned and Assignee has accepted all of Assignor's right, title
and interest in the Lease, a memorandum of which was recorded in the
recording district on , in Book , Page .
2. The subject property description is as set out on the
attached Schedule A.
ALASKA CABLEVISION, INC.
DATED: By:
Its:
GENERAL COMMUNICATION, INC.
DATED: By:
Its:
REGISTRATION STATEMENT
Page II-333
<PAGE>
STATE OF )
) ss.
COUNTY )
The foregoing instrument was acknowledged before me this
day of , 1996, by of Alaska Cablevision, Inc., a
Delaware corporation, on behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
STATE OF )
) ss.
)
The foregoing instrument was acknowledged before me this
by of GENERAL COMMUNICATION, INC., an Alaska corporation, on
behalf of the corporation.
NOTARY PUBLIC, STATE OF
My Commission Expires:
AFTER RECORDING, RETURN THIS DOCUMENT TO:
Hartig, Rhodes, Norman,
Mahoney & Edwards, P.C.
717 K Street
Anchorage, Alaska 99501
Attn.: Bonnie J. Stratton, Esq.
(907) 276-1592
REGISTRATION STATEMENT
Page II-334
<PAGE>
EXHIBIT E
GUARANTY
FOR VALUE RECEIVED, and in order to induce GENERAL
COMMUNICATION, INC., a Alaska corporation ("Buyer"), to enter into that certain
Asset Purchase Agreement ("Agreement"), dated as of May , 1996, between Buyer
and Alaska Cablevision, Inc. ("Seller"), and to induce Buyer to perform its
obligations under and to consummate the transactions described in the Agreement
the undersigned ("Guarantor"), agrees as follows:
1. Definitions. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
2. Representations and Warranties of Guarantor. Guarantor
represents and warrants to Buyer that this Guaranty is Guarantor's legal, valid,
and binding obligation, enforceable against Guarantor in accordance with its
terms.
3. Guaranty. Guarantor, severally, and not jointly, hereby
absolutely, irrevocably and unconditionally, subject to the provisions herein,
guarantees the full and prompt payment when due of any and all monies which may
become due and payable at any time (1) as a result of breaches of Seller's
representations, warranties and covenants under the Agreement, or (2) under or
pursuant to indemnification provisions therein ("Obligations"). Guarantor
further agrees that the following terms and conditions shall apply to this
Guaranty. Guarantor further agrees that the following terms and conditions shall
apply to this Guaranty:
(a) This Guaranty is in all respects continuing,
absolute and unconditional.
(b) This Guaranty is a guaranty of payment when due,
and not of collection.
(c) Buyer may, from time to time, at Buyer's sole
discretion and without notice to Guarantor, take any or all of the following
actions:
(i) Obtain or accept a security interest
in any property of Company to secure payment of any or all of the Obligations;
(ii) Obtain the primary or secondary
obligation of any third party in addition to Guarantor with respect to any or
all of the Obligations;
REGISTRATION STATEMENT
Page II-335
<PAGE>
(iii) Release, compromise or extend any
of the Obligations or any obligation of any nature of any other obligor with
respect to any of the Obligations;
(iv) Release, compromise or extend any
obligation of Guarantor hereunder; and
(v) Release any security interest in, or
surrender, release, or permit any substitution or exchange for, all or any part
of any property securing any of the Obligations or any obligation hereunder, or
release, compromise, extend, alter, or modify any obligation of any nature of
any obligor with respect to any such property.
(d) As between Buyer and Guarantor, Buyer may apply
any amounts it receives from any source for any Obligation (arising by whatever
means) toward the payment of any Obligation then due and payable, in such order
of application as Buyer may from time to time elect. Notwithstanding any
performance or payments made by or for the account of Guarantor pursuant to this
Guaranty, Guarantor will not be subrogated to any rights of Buyer until Buyer
shall have received full performance and payment of all of the Obligations and
Guarantor's performance of all obligations hereunder. Without limiting the
generality of the foregoing, Guarantor agrees and acknowledges that if Buyer is
required at any time to return all or any part of any payment applied by Buyer
to the payment of the Obligations or any costs or expenses covered by this
Guaranty, whether by virtue of Seller's insolvency, bankruptcy, or
reorganization or otherwise, the Obligations to which the returned payment was
applied shall be deemed to have continued in existence and this Guaranty shall
continue to be effective or to be reinstated, as the case may be, as to such
Obligations, as though such payment had not been received and Buyer had not made
such application.
(e) Guarantor hereby expressly waives:
(i) Notice of Buyer's acceptance of this
Guaranty;
(ii) Presentment, demand, notice of
dishonor, protest, and all other notices whatsoever; and
(iii) All diligence in collection of or
realization upon any payments on, or assurance of performance of, any of the
Obligations or any obligation hereunder, or in collection on, realization upon,
or protection of any security for, or guaranty of, any of the Obligations or any
obligation hereunder.
(f) Provided that, notwithstanding anything set forth
above, the guaranty of Guarantor and Guarantor's obligations hereunder shall be
limited to an amount: (a) which does not exceed such Guarantor's pro rata
portion of such liability or
REGISTRATION STATEMENT
Page II-336
<PAGE>
liabilities based upon a percentage determined by dividing the value of the
consideration actually received by such Guarantor pursuant to the Agreement by
the aggregate value of all the consideration actually received by all Guarantors
pursuant to the Agreement (including value received by any Guarantor released or
waived pursuant to the above provisions), and (b) which does not exceed, in the
aggregate, the amount of consideration received by such Guarantor pursuant to
the Agreement.
4. Notices. All notices and communications under this Guaranty
shall be in writing and shall be deemed to have been duly given when delivered
by messenger, by overnight delivery service, or by facsimile (receipt
confirmed), or mailed by first class certified mail, return receipt requested;
if to Guarantor addressed to , ,
Attention: ; and if to Buyer, addressed to Buyer's address set
forth in the Agreement; or in each case to such other address respectively as
the party shall have specified by notice to the other.
5. Integration, Assignment, Modification, Payment of Expenses
and Construction. This Guaranty constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any prior
written or oral agreements between Guarantor and Buyer. Guarantor may not assign
this Guaranty without Buyer's prior written consent. Subject to the foregoing,
this Guaranty will inure to Buyer's benefit, and be binding upon Guarantor, and
their respective successors and assigns. This Guaranty may be amended or
modified only by a writing signed by Guarantor and Buyer. Buyer and Guarantor
shall each pay its own costs and expenses in connection with the negotiation and
execution of this Guaranty. Guarantor agrees to pay all of Buyer's expenses
(including, without limitation, costs and expenses of litigation and reasonable
attorneys' fees) in enforcing or endeavoring to realize upon this Guaranty or in
endeavoring to collect any amount payable under this Guaranty which is not paid
when due. The unenforceability or invalidity of any provision of this Guaranty
shall not affect the validity of the remainder of this Guaranty.
6. Waiver. The failure of Buyer to insist upon strict
performance of any of the terms, conditions, agreements, or covenants in this
Guaranty in any one or more instances shall not be deemed to be a waiver by
Buyer of its rights to enforce thereafter any of such terms, conditions,
agreements, or covenants. Any waiver by Buyer of any of the terms, conditions,
agreements, or covenants in this Guaranty must be in writing signed by Buyer.
7. Applicable Law. This Guaranty will be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Alaska, without regard to the conflicts of laws rules of such state.
REGISTRATION STATEMENT
Page II-337
<PAGE>
8. Section Headings. The section headings used in this
Guaranty are for the convenience of Buyer and Guarantor only and shall not
affect the construction or interpretation of the provisions of this Guaranty.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed by a duly authorized officer as of , 1996.
----------------------------------------
Name:
REGISTRATION STATEMENT
Page II-338
<PAGE>
EXHIBIT F
Non-Compete Agreement
April , 1996
Gentlemen:
Reference is made to that certain Asset Purchase Agreement dated as of
April , 1996, (the "Agreement") between Alaskan Cablevision, Inc.
("Seller") and General Communication, Inc. ("Buyer"). This letter is being
delivered to you pursuant to Section of the Agreement. Capitalized terms
used herein, unless otherwise defined herein, shall have the meanings ascribed
to them in the Agreement. The undersigned ("Shareholders") are certain of the
shareholders of the Seller (specifically excluding Craig McCaw, Wayne Perry, and
Donald Adams), holding a majority of the shares of Seller, and to induce Buyer
to perform its obligations under and to consummate the transactions described in
the Agreement, Seller and Shareholders are providing this Non-Compete Agreement.
Seller and Shareholders, severally and not jointly, agree that as of
the date hereof, through the Final Closing Date, and for a period of five (5)
years thereafter, Seller and Shareholders will not, and Seller will cause its
key employees for so long as such employees are employed by Seller, not to own,
manage, operate, joint, control, or be connected with (as an employee,
consultant, partner, officer, director, shareholder or investor, other than
through ownership of up to a five percent (5%) equity interest in a publicly
traded entity), any business competing with Company in the provision of CATV
services related to distribution, by means of cable, microwave, fiber optic,
satellite receivers, or broadcasts, both terrestrial and spatial, of data,
audio, and video signals, to businesses, residences, multi-family dwellings,
hotels, motels, trailers, and other users, within the Service Areas.
If the terms or provisions of this Non-Compete Agreement are breached
or threatened to be breached, Seller and Shareholders, each for and on behalf of
itself and Seller on behalf of its Affiliates, employees, officers and
directors, expressly consent that, in addition to any other remedy Buyer may
have, Buyer may apply to any court of competent jurisdiction for injunctive
relief in order to prevent the continuation of any existing breach or the
occurrence of any threatened breach.
REGISTRATION STATEMENT
Page II-339
<PAGE>
If any provision of this Non-Compete Agreement is determined to be
unreasonable or unenforceable, such provision and the remainder of this
Non-Compete Agreement shall not be declared invalid, but rather shall be
modified and enforced to the maximum extent permitted by law.
Very truly yours,
ALASKA CABLEVISION, INC.
By:
Name:
Title:
SHAREHOLDERS:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-340
<PAGE>
EXHIBIT G
LETTER TO PROGRAMMERS
[DATE]
To: Programmer from
Dear :
The purpose of this letter is to inform you of the impending sale of
systems now owned by Alaska Cablevision, Inc. ("Seller") to General
Communication, Inc. ("GCI"). GCI will not assume the Seller's programming
contract currently in place to serve the systems described in the Asset Purchase
Agreement dated May , 1996, between GCI and Seller. This is not a notice
deleting your programming from these systems; GCI or its agent will contact you
about continuation of coverage of your service.
Very truly yours,
REGISTRATION STATEMENT
Page II-341
<PAGE>
EXHIBIT H
AFFIDAVIT
STATE OF )
) ss.
COUNTY OF )
This Affidavit is delivered pursuant to the Asset Purchase Agreement
dated as of May , 1996, between Alaska Cablevision, Inc. ("Seller") and
General Communication, Inc., an Alaska corporation ("Buyer"). Section 1445 of
the United States Internal Revenue Code of 1986, as amended ("IRC"), provides
that a transferee of a United States real property interest must withhold tax if
the transferor is a foreign person. The undersigned, being the duly elected
of Seller and being duly sworn, certifies and agrees
on behalf of Seller as follows:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
IRC and the regulations promulgated thereunder).
2. Seller's U.S. taxpayer identification number is .
3. Seller understands that this certification may be disclosed to the
Internal Revenue Service.
4. Seller hereby agrees to indemnify and hold harmless Buyer and
Buyer's shareholders, partners and agents of, from and against any and all loss,
liability, interest, penalties, costs, damages, claims or causes of action which
may arise or be incurred by Buyer or Buyer's agents by reason of any failure of
any representation or warranty made in this Affidavit to be true and correct in
all respects, including but not limited to any liability for failure to withhold
any amount required under IRC section 1445.
REGISTRATION STATEMENT
Page II-342
<PAGE>
Dated this day of , 1996.
SELLER:
ALASKA CABLEVISION, INC.
By:
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
Subscribed and sworn to before me this day of , 1996.
Notary Public for the State of
My Commission Expires:
REGISTRATION STATEMENT
Page II-343
<PAGE>
EXHIBIT I
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is dated as of , 1996 and
entered into among National Bank of Alaska ("Escrow Agent"), Alaska Cablevision,
Inc. a Delaware corporation ("Seller"), and General Communication, Inc., an
Alaska corporation ("GCI"). Seller and GCI are collectively referred to in this
Agreement as "Transaction Parties." Seller and GCI are parties to Asset Purchase
Agreement dated as of May , 1996 ("Purchase Agreement").
For valuable consideration received, the parties agree as follows:
1. Escrow Agent. The Transaction Parties appoint and designate Escrow
Agent as escrow agent for the purposes set forth in this Agreement, and Escrow
Agent accepts such appointment on the terms provided in this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish and maintain
an escrow account (which, together with all instruments and securities delivered
to Escrow Agent by and on behalf of Seller or GCI, are referred to collectively
as the "Escrow Fund"). Upon the execution of this Agreement, GCI shall deliver
on behalf of Seller to Escrow Agent Convertible Subordinated Notes in the
aggregate principal amount of Eight Hundred Thousand Dollars ($800,000)
("Seller's Escrow Notes"). Upon execution hereof, GCI will cause delivery to
Escrow Agent of Convertible Subordinated Notes in the aggregate principal amount
of Eight Hundred Thousand Dollars ($800,000) ("GCI Escrow Notes"). Escrow Agent
will hold and disburse the Escrow Fund in accordance with this Agreement.
3. Disbursement of Sellers' Escrow Deposit.
(a) Except as otherwise provided in this Section 3(a), Escrow
Agent will disburse the Seller's Escrow Notes to Seller on , 199
[181 days after the Closing Date] ("Escrow Disbursement Date"). If, prior to the
Escrow Disbursement Date, Escrow Agent receives a certificate signed on behalf
of GCI (a "GCI Claim Certificate") in the form of Exhibit A with completed
information concerning the nature and amount of an indemnification claim by GCI
under the Purchase Agreement ("GCI Claim Amount"), Escrow Agent will retain in
the Escrow Fund that number of the Sellers' Escrow Notes as is equal to the
certified GCI Claim Amount for disbursement in accordance with Section 3(a)(i)
or (ii) as applicable ("Retained Seller's Notes"). Escrow Agent will disburse
the remainder of the Seller's Escrow Notes that are not required to be retained
pursuant to the preceding sentence to Seller on the Escrow Disbursement Date. If
a GCI Claim Certificate is delivered to Escrow Agent prior to the Escrow
Disbursement Date, Escrow Agent will retain the Retained Seller's Notes in the
Escrow Fund pursuant to this Agreement until either:
REGISTRATION STATEMENT
Page II-344
<PAGE>
(i) Escrow Agent receives joint written instructions
signed on behalf of Seller and GCI specifying the method for
disbursing the Retained Seller's Notes in which case the
Escrow Agent shall promptly disburse the Retained Seller's
Notes in accordance with such instructions; or
(ii) Escrow Agent receives instructions from Deloitte
and Touche, LLP, or an arbitrator with the American
Arbitration Association, pursuant to Section 15.5 of the
Purchase Agreement, or an official copy of a final,
non-appealable order issued by a court of competent
jurisdiction specifying the method for disbursement of the
Retained Seller's Notes in which case Escrow Agent shall
promptly disburse retained Seller's Notes in accordance with
such instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the Seller's Escrow Notes in accordance
with any joint written instructions signed by the Transaction Parties.
(c) GCI will deliver a copy of any GCI Claim Certificate to
Seller contemporaneously with or before delivery of the GCI Claim Certificate to
Escrow Agent.
4. Disbursement of the GCI Escrow Deposit.
(a) Except as otherwise provided in this Section 4(a), Escrow
Agent will disburse the GCI Escrow Notes to GCI on the Escrow Disbursement Date.
If, prior to the Escrow Disbursement Date, Escrow Agent receives a certificate
signed on behalf of Seller (a "Seller's Claim Certificate") in the form of
Exhibit B with completed information concerning the nature and amount of an
indemnification claim by Seller under the Purchase Agreement ("Seller's Claim
Amount"), Escrow Agent shall retain in the Escrow Fund that number of GCI Escrow
Notes as is equal to the certified Seller Claim Amount for disbursement
("Retained GCI Notes"). Escrow Agent will disburse the remainder of the GCI
Escrow Notes that are not required to be retained pursuant to the preceding
sentence to GCI on the Escrow Disbursement Date. If a Seller's Claim Certificate
is delivered to Escrow Agent prior to the Escrow Disbursement Date, Escrow Agent
will retain the Retained GCI Notes, in the Escrow Fund pursuant to this
Agreement until either:
(i) Escrow Agent receives joint written instructions
signed on behalf of Seller and GCI specifying the method for
disbursing the Retained GCI Notes, in
REGISTRATION STATEMENT
Page II-345
<PAGE>
which case such Notes shall be disbursed promptly by Escrow
Agent in accordance with such instructions; or
(ii) Escrow Agent receives instructions from Deloitte
and Touche, LLP, or an arbitrator with the American
Arbitration Association, pursuant to Section 15.5 of the
Purchase Agreement, or an official copy of a final,
non-appealable order issued by a court of competent
jurisdiction specifying the method for disbursement of the
Retained GCI Notes, in which case such Notes shall be
disbursed promptly by Escrow Agent in accordance with such
instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the GCI Escrow Notes in accordance with
any joint written instructions signed by Seller and GCI.
(c) Seller will deliver a copy of any Seller's Claim
Certificate to GCI contemporaneously with or before delivery of the Seller's
Claim Certificate to Escrow Agent.
5. Rights, Duties and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or determine the
performance or nonperformance of any provision of any agreement between the
Transaction Parties, including, but not limited to, the Purchase Agreement,
which will not bind Escrow Agent in any manner. Escrow Agent assumes no
responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement, except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement.
(b) Escrow Agent will not be personally liable for any act it
may do or omit to do under this Agreement as such agent while acting in good
faith and in the exercise of its own best judgment, and any act done or omitted
by it in accordance with the written advice of its counsel will be conclusive
evidence of such good faith unless, in any event, the same constitutes gross
negligence or willful misconduct. Escrow Agent will have the right at any time
to consult with its counsel upon any question arising under this Agreement and
will incur no liability for any delay reasonably required to obtain the advice
of counsel.
(c) Other than those notices or demands expressly provided in
this Agreement, Escrow Agent is expressly authorized to disregard any and all
notices or demands given by Seller or GCI, or by any other person, firm or
corporation, excepting only orders or process of court, and Escrow Agent is
expressly authorized to comply with and obey any and all final process, orders,
judgments, or decrees of any court, and to the extent Escrow Agent obeys or
complies with any thereof of any court, it will not be liable to any party to
this Agreement or to any other person, firm or corporation
REGISTRATION STATEMENT
Page II-346
<PAGE>
excepting only orders or process of court, and Escrow Agent is expressly
authorized to comply with and obey any and all final process, orders, judgments,
or decrees of any court, and to the extent Escrow Agent obeys or complies with
any thereof of any court, it will not by reason of such compliance be liable to
any party to this Agreement or to any other person, firm or corporation by
reason of such compliance.
(d) In consideration of the acceptance of this Escrow by
Escrow Agent, GCI agrees for it and its successors and assigns, to pay to Escrow
Agent its charges, fees and reasonable expenses as contemplated by this
Agreement. The escrow fees or charges will be Two Thousand and no/100 Dollars
($2,000.00). Such sum is intended as compensation for Escrow Agent's ordinary
services as contemplated by this Agreement. In the event Escrow Agent renders
services not provided for in this Agreement, Escrow Agent will be entitled to
receive from the Transaction Parties reasonable compensation and reasonable
costs, if any, for such extraordinary services.
(e) Escrow Agent will be under no duty or obligation to
ascertain the identity, authority or right of Seller or GCI (or their agents) to
execute or deliver or purport to execute or deliver this Agreement or any
certificates, documents or papers or payments deposited or called for or given
under this Agreement.
(f) Escrow Agent will not be liable for the outlawing of any
rights under any statute of limitations or by reason of laches in respect of
this Agreement or any documents or papers deposited with Escrow Agent.
(g) In the event of any dispute among the parties to this
Agreement as to the facts or as to the validity or meaning of any provision of
this Agreement, or any other fact or matter relating to this Agreement or to the
transactions between Seller and GCI, Escrow Agent is instructed that it will be
under no obligation to act, except in accordance with this Agreement or under
process or order of court or, if there is no such process or order, until it has
filed or caused to be filed an appropriate action interpleading Sellers' Agent
and GCI and delivering the Escrow Fund (or the portion of the Escrow Fund in
dispute) to such court, and Escrow Agent will sustain no liability for its
failure to act pending such process of court or order or interpleader of action.
6. Modification of Agreement. The provisions of this Agreement may be
supplemented, altered, amended, modified, or revoked by writing only, signed by
GCI and Seller and approved in writing by Escrow Agent, and upon payment of all
fees, costs and expenses incident thereto.
7. Assignment of Agreement. No assignment, transfer, conveyance or
hypothecation of any right, title or interest in and to the subject matter of
this Agreement will be binding upon any party, including Escrow Agent, unless
all fees,
REGISTRATION STATEMENT
Page II-347
<PAGE>
costs, and expenses incident thereto have been paid and then only by the assent
thereto by all parties in writing.
8. Miscellaneous.
(a) All notices and communications under this Agreement will
be in writing and will be deemed to be duly given if sent by registered mail,
return receipt requested, personal delivery or telecopier, as follows:
To Escrow Agent: National Bank of Alaska
Escrow Department
301 W. Northern Lights Boulevard
Anchorage, Alaska 99503
Attention: Michael Walton, Vice President
Telecopy: (907) 265-2139
To GCI at: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503-2781
Attention: John M. Lowber, CFO and Senior Vice
President
Telecopy: (907) 265-5676
With a copy (which will not constitute notice) to:
Hartig, Rhodes, Norman, Mahoney & Edwards, P.C.
717 K Street
Anchorage, Alaska 99501-3397
Attention: Bonnie J. Stratton, Esq.
Telecopy: (907) 277-4352
To Seller at: Alaska Cablevision, Inc.
135 Lake Street South, Suite 265
Kirkland, Washington 98033
Attention: Sam Evans
Telecopy: (206) 828-0226
REGISTRATION STATEMENT
Page II-348
<PAGE>
with a copy to:
Foster Pepper & Shefelman
Suite 3400
1111 Third Avenue
Seattle, Washington 98101
Attention: Robert Diercks
Telecopy: (206)447-9700
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any such notice or communication
given in the manner specified in this Section 8(a) will be deemed to have been
given as of the date received. In the event that Escrow Agent, in its sole
discretion, determines that an emergency exists, Escrow Agent may use such other
means of communication as Escrow Agent deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement GCI and Seller are to deliver a jointly signed writing to Escrow
Agent or jointly advise Escrow Agent in writing, such writing may in each and
all cases are signed jointly or in counterparts and such counterparts will be
deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from its duties
or obligations under this Agreement by giving notice in writing of such
resignation to the Transaction Parties at least 30 days in advance of such
resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by the Transaction Parties of
a successor escrow agent, which will be a federally chartered bank having
combined capital and surplus of at least $100,000,000.00; provided, that if any
such appointment of any successor agent is not effectuated within 30 days of
such written notice, Escrow Agent may file an action for interpleader and
deposit all funds with a court of competent jurisdiction, all as provided for in
Section 5(g). Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by GCI, Seller, Escrow Agent
and the successor escrow agent. Any successor escrow agent appointed under the
provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent.
(e) GCI and Seller hereby jointly and severally agree to
indemnify Escrow Agent for, and to hold it harmless against, any loss, liability
or reasonable
REGISTRATION STATEMENT
Page II-349
<PAGE>
out-of-pocket expense arising out of or in connection with this Agreement and
carrying out its duties hereunder, including the reasonable out-of-pocket costs
and expenses of defending itself against any claim of liability, except in those
cases where Escrow Agent has been guilty of gross negligence or willful
misconduct (provided, that in no event will the Transaction Parties be liable
for any allocated cost or expense of persons regularly employed by Escrow
Agent). Anything in this Agreement to the contrary notwithstanding, in no event
will Escrow Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including, but not limited to, lost profits),
even if Escrow Agent has been advised of the likelihood of such loss or damage
and regardless of the form of action.
(h) This Agreement will be governed by and construed in
accordance with the law of the State of Alaska without regard to its principles
of conflicts of laws and any action brought under this Agreement will be brought
in the courts of the State of Alaska, located in the Third Judicial District at
Anchorage. Each party hereto irrevocably waives any objection on the grounds of
venue, forum non-convenience or any similar grounds and irrevocably consents to
service of process by mail or in any other manner permitted by applicable law
and consents to the jurisdiction of such courts.
(i) Except as otherwise specified herein, each of the parties
will pay all costs and expenses incurred or to be incurred by it in negotiating
and preparing this Escrow Agreement and in closing and carrying out the
transactions contemplated by this Escrow Agreement.
(j) If any legal action or proceeding is brought for the
enforcement of this Escrow Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Escrow Agreement, the successful or prevailing party or parties will be entitled
to recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
The parties have caused this Agreement to be signed the day
and year first above written.
NATIONAL BANK OF ALASKA, N.A.
By
Roderick R. Shipley, Senior Vice
President
REGISTRATION STATEMENT
Page II-350
<PAGE>
GCI:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
TIN:
Seller:
ALASKA CABLEVISION, INC.
By:
Name:
Title:
TIN:
REGISTRATION STATEMENT
Page II-351
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of General Communication, Inc. ("GCI"),
certifies as follows:
A. GCI and Alaska Cablevision, Inc. ("Seller") are parties to that
certain Asset Purchase Agreement dated as of May , 1996 ("Purchase
Agreement").
B. GCI in good faith believes that Seller has breached certain
representations, warranties, covenants or obligations made by Seller in the
Purchase Agreement or are obligated to indemnify GCI with respect to certain
claims. In particular, GCI in good faith is asserting claims against Seller
based on the following:
[reasonably detailed description of claim and reference to
portion of Purchase Agreement in question to be inserted by
GCI at time of delivery of Certificate].
C. Attached to this Certificate is a copy of GCI's notice to Seller
relating to the claim pursuant to the Purchase Agreement. GCI intends to pursue
the claim with due diligence. GCI in good faith believes the amount of its claim
described in its notice is $ .
D. GCI is furnishing this Certificate to National Bank of Alaska which
is acting as Escrow Agent pursuant to the terms of an Escrow Agreement dated
, 1996 among GCI, Seller and National Bank of Alaska. GCI has
delivered or contemporaneously is delivering a copy of this Certificate to
Seller as well.
This Certificate is signed this day of , 199 .
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-352
<PAGE>
Receipt of this Certificate is acknowledged this day of
, 199 .
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-353
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of Alaska Cablevision, Inc. ("Seller")
certifies as follows:
A. Seller and General Communication, Inc. ("GCI") are parties to that
certain Asset Purchase Agreement dated as of May , 1996 ("Purchase
Agreement").
B. Seller, in good faith, believes that GCI has breached certain
representations, warranties, covenants or obligations made by GCI in the Asset
Purchase Agreement or is obligated to indemnify Seller. In particular, Seller,
in good faith, is asserting claims against GCI based on the following:
[reasonably detailed description of claim and reference to portion of Purchase
Agreement in question to be inserted by Seller at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of Seller's notice to GCI
relating to the claim pursuant to the Purchase Agreement. Seller intends to
pursue the claim with due diligence. Seller, in good faith, believes the amount
of the claim described in its notice is $ .
D. Seller is furnishing this Certificate to National Bank of Alaska
which is acting as Escrow Agent pursuant to the terms of an Escrow Agreement
dated , 1996 among GCI, Seller and National Bank of Alaska. Seller has
delivered or contemporaneously is delivering a copy of this Certificate to GCI
as well.
This Certificate is signed this day of , 1996.
ALASKA CABLEVISION, INC.
By:
Name:
Title:
Receipt of this Certificate is acknowledged this day of ,
1996.
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-354
<PAGE>
EXHIBIT J
CONVERTIBLE SUBORDINATED NOTE
, 1996 $
FOR VALUE RECEIVED, General Communication, Inc., an Alaska
corporation, of 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503 ("GCI"),
promises to pay to Alaska Cablevision, Inc., a Delaware corporation, of 135 Lake
Street South, Suite 285, Kirkland, Washington 98033 ("Company"), the principal
sum of ($ ) plus
interest from , 1996, according to the terms hereof. Payments on
this Note shall be applied: first, to the payment of accrued interest; and
second to the reduction of principal of this Note.
1. Capitalized Terms. Capitalized terms used herein shall have the same
meaning ascribed to such terms under that certain Asset Purchase Agreement by
and between GCI and Company dated May , 1996 ("APA"), unless otherwise defined
herein.
2. Interest. This Note shall bear interest at the rate of
percent ( %) per annum.
3. Term. All amounts due under this Note, including principal and
interest not previously converted into GCI Shares as provided for in Section 5,
shall be due and payable in full on , 2006.
4. No Prepayment. This Note is not subject to prepayment, in full or in
part, except with the consent of both Permitted Holder and Company. Payments of
principal and interest shall be made in lawful money of the United States of
America by wire transfer of immediately available federal funds to the account
of the Permitted Holder at such banking institution as the Permitted Holder
shall designate in writing or in the absence of such designation or upon request
of the Permitted Holder by check sent to the address of the Permitted Holder.
5. Subordination. This Note shall be subordinated to all of GCI's now
existing and later incurred senior indebtedness, as defined in the APA,
including without limitation, the credit facility from NationsBank of Texas,
N.A., pursuant to that amended and restated credit agreement as of April 26,
1996, as extended, increased, replaced or refinanced, and any and all bank or
similar financial institution indebtedness assumed or later incurred as part of,
or in furtherance of the purposes of, the transactions contemplated under the
APA and related agreements. These subordination provisions are intended solely
for the purpose of defining the relative rights of the Permitted Holder on the
one hand, and the holders of the senior indebtedness, on the other hand. Nothing
contained herein is intended to or shall impair the obligation of the Company,
which is unconditional and absolute, to pay to the Permitted Holder the
principal of and interest due and payable in accordance with its terms, nor
shall anything herein prevent the Permitted Holder
REGISTRATION STATEMENT
Page II-355
<PAGE>
from exercising all remedies otherwise permitted by applicable law or hereunder
subject to the rights of holders of senior indebtedness as provided for herein.
6. Conversion. This Note and the accrued interest shall be convertible
by the Permitted Holders hereof on an annual basis into GCI Shares during a
fifteen (15) day period each year for ten (10) years ("Conversion Period(s)").
The first Conversion Period shall commence on this date, and the second through
the tenth Conversion Periods shall commence on the day of each
of each year thereafter and shall conclude fifteen (15) days
thereafter, respectively. All or any portion of the then-outstanding
indebtedness under this Note including the accrued interest thereon shall be
convertible into GCI Shares. The Conversion Price for the first Conversion
Period is $6.50 per GCI Share and the Conversion Price for each subsequent
Conversion Period shall be an amount equal to $6.50 plus an amount per GCI share
equal to the accrued interest on each $6.50 principal amount of the indebtedness
being converted, on a non-compounded basis as set forth in Schedule 1. The
number of GCI Shares into which this Note shall be converted shall be determined
by dividing the unpaid principal amount and all accrued and unpaid interest
hereunder by the Conversion Price. The number of GCI Shares to be issued shall
be appropriately adjusted in the event of a stock dividend, any stock split or
combination of outstanding shares of the Company's stock, or any
reclassification or reorganization of the Company's stock. As of the time of any
such conversion, the Company shall issue and deliver to the Permitted Holder, or
on the Permitted Holder's written order, a certificate or certificates for the
number of shares of fully-paid and nonassessable GCI Shares issuable upon the
conversion of this Note. No fractional shares shall be issued in connection with
any exercise hereunder and the Company shall pay the amount attributable to any
fractional share in lawful money of the United States.
7. Sufficient Stock. During the period this Note or any portion thereof
remains outstanding, the Company shall at all times have authorized and reserved
for the purpose of issuance upon exercise of the conversion right set forth
herein, a sufficient number of GCI Shares to provide for the exercise of the
conversion right.
8. Assignment. This Note shall be transferred or assigned only to
Shareholders of the Company and to their family members, heirs and assigns by
operation of law and to other limited transferees as set out in Schedule 2
hereof ("Permitted Holders"), and in all other respects is not assignable,
transferable or negotiable.
REGISTRATION STATEMENT
Page II-356
<PAGE>
9. Place and Manner of Payment. Any indebtedness outstanding hereunder
which has not been converted to GCI Shares shall be paid at maturity upon
presentment of this Note at GCI's place of business in Anchorage, Alaska, or
such other location as the parties may mutually agree. The Company waives
presentment, notice of dishonor and protest. No delay by the Permitted Holder in
exercising any rights hereunder shall be considered a waiver of such rights.
10. Default. If Default be made in the payment of this Note when it is
due and this Note is placed in the hands of an attorney for collection, or if
any suit or action is instituted to collect this Note or any part thereof, the
undersigned promises and agrees to pay in addition to the costs and
disbursements provided by statute, a reasonable sum for attorney's fees. If
default is made in the payment of any amount payable hereunder, including by
conversion, when due or following request for conversion, then all the unpaid
principal balance of this Note and all accrued interest shall bear interest at
the lower of twenty percent (20%) per year, compounded monthly, or the highest
rate allowed by applicable law, without the need for any notice or demand.
11. Waiver. The Undersigned waives demand, protest and notice of
demand.
12. Governing Law. This Note shall be governed by the laws of the State
of Alaska. Venue for any litigation concerning this Note shall be in the State
of Alaska, Third Judicial District, at Anchorage.
DATED this day of , 1996.
GENERAL COMMUNICATION, INC.
By:
Its:
REGISTRATION STATEMENT
Page II-357
EXHIBIT 2.6
ASSET PURCHASE AGREEMENT
dated as of
May , 1996
between
GENERAL COMMUNICATION, INC.
or its wholly-owned subsidiary
an Alaska corporation
("Buyer")
and
McCAW/ROCK HOMER CABLE SYSTEMS,
a joint venture
("Seller")
REGISTRATION STATEMENT
Page II-358
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions...................................................................................365
1.1 Affiliate............................................................................365
---------
1.2 APUC.................................................................................365
----
1.3 APUC Certificate.....................................................................365
----------------
1.4 Assets...............................................................................365
------
1.5 Basic CATV Services..................................................................365
-------------------
1.6 Basic Subscriber.....................................................................366
----------------
1.7 CATV.................................................................................366
----
1.8 CATV Business........................................................................366
-------------
1.9 CATV Instruments.....................................................................366
----------------
1.10 CATV System..........................................................................366
-----------
1.11 Closing and Closing Date.............................................................366
------------------------
1.12 COBRA................................................................................366
-----
1.13 Current Assets.......................................................................366
--------------
1.14 Employees............................................................................366
---------
1.15 Employee Plans.......................................................................367
--------------
1.16 Encumbrance..........................................................................367
-----------
1.17 Equipment............................................................................367
---------
1.18 Equivalent Basic Subscribers or EBS's................................................367
-------------------------------------
1.19 ERISA................................................................................368
-----
1.20 Excluded Assets......................................................................368
---------------
1.21 FCC..................................................................................368
---
1.22 Financial Statements.................................................................368
--------------------
1.23 Governmental Authority...............................................................368
----------------------
1.24 Intangibles..........................................................................368
-----------
1.25 MDU Agreements.......................................................................368
--------------
1.26 MDU Complex..........................................................................368
-----------
1.27 Pay TV...............................................................................368
------
1.28 Pay TV Units.........................................................................368
------------
1.29 Permitted Encumbrances...............................................................368
----------------------
1.30 Person...............................................................................369
------
1.31 Purchase Price.......................................................................369
--------------
1.32 Real Property........................................................................369
-------------
1.33 Required Consents....................................................................369
-----------------
1.34 Security Interest....................................................................370
-----------------
1.35 Seller Contracts.....................................................................370
----------------
1.36 Service Area.........................................................................370
------------
1.37 Subscribers..........................................................................370
-----------
1.38 System...............................................................................370
------
REGISTRATION STATEMENT
Page II-359
<PAGE>
Section 2. Sale of Assets................................................................................370
2.1 Sale of Assets.......................................................................370
--------------
2.2 Purchase Price.......................................................................370
--------------
2.3 Purchase Price Adjustment............................................................370
-------------------------
2.4 Holdback.............................................................................373
--------
Section 3. Seller's Representations, Warranties, and Covenants...........................................373
3.1 Organization and Qualification.......................................................373
------------------------------
3.2 Authority............................................................................374
---------
3.3 Enforceability.......................................................................374
--------------
3.4 Cash Flow............................................................................374
---------
3.5 Assets...............................................................................374
------
3.6 Governmental Permits.................................................................375
--------------------
3.7 Seller Contracts.....................................................................375
----------------
3.8 Records..............................................................................375
-------
3.9 No Breach or Violation...............................................................375
----------------------
3.10 No Finders or Brokers................................................................376
---------------------
3.11 Schedules............................................................................376
---------
3.12 Compliance with Laws.................................................................376
--------------------
3.13 Financial Statements.................................................................376
--------------------
3.14 Tax Returns and Other Reports........................................................377
-----------------------------
3.15 Transfer Taxes.......................................................................377
--------------
3.16 Real Property........................................................................377
-------------
3.17 Employees............................................................................380
---------
3.18 Employee Benefits....................................................................380
-----------------
3.19 Litigation and Violations............................................................384
-------------------------
3.20 Disclosure...........................................................................384
----------
3.21 Investment Company...................................................................384
------------------
3.22 CATV Instruments and Seller Contracts................................................385
-------------------------------------
3.23 FCC Compliance.......................................................................385
--------------
3.24 APUC Compliance......................................................................386
---------------
3.25 Patents, Trademarks, and Copyrights..................................................386
-----------------------------------
3.26 No Other Assets or Liabilities.......................................................387
------------------------------
3.27 Required Consents....................................................................387
-----------------
3.28 Overbuilds...........................................................................387
----------
3.29 Effect of Certificates...............................................................387
----------------------
3.30 Subscriber Numbers...................................................................387
------------------
3.31 No Insolvency........................................................................387
-------------
3.32 Compliance with Law..................................................................387
-------------------
3.33 Disclosure...........................................................................388
----------
3.34 Parent Entity........................................................................389
-------------
Section 4. Assumed Liabilities and Excluded Assets.......................................................389
4.1 Assignment and Assumption............................................................389
-------------------------
REGISTRATION STATEMENT
Page II-360
<PAGE>
4.2 Excluded Assets......................................................................389
---------------
Section 5. Buyer's Representations, Warranties, and Covenants............................................389
5.1 Organization and Authority...........................................................389
--------------------------
5.2 Capitalization.......................................................................390
--------------
5.3 Enforceability.......................................................................390
--------------
5.4 Records..............................................................................390
-------
5.5 No Breach or Violation...............................................................391
----------------------
5.6 Compliance with Laws.................................................................391
--------------------
5.7 Financial Statements.................................................................391
--------------------
5.8 Tax Returns and Other Reports........................................................392
-----------------------------
5.9 Transfer Taxes.......................................................................392
--------------
5.10 Litigation and Violations............................................................392
-------------------------
5.11 Disclosure...........................................................................392
----------
5.12 Investment Company...................................................................392
------------------
5.13 No Finders or Brokers................................................................392
---------------------
5.14 No Insolvency........................................................................393
-------------
Section 6. Conduct Prior to Closing......................................................................393
6.1 Operation in Ordinary Course.........................................................393
----------------------------
6.2 Agents...............................................................................393
------
6.3 Seller Contracts.....................................................................394
----------------
6.4 No New Buyer Securities..............................................................394
-----------------------
6.5 Employees............................................................................394
---------
6.6 Access to Premises and Records.......................................................394
------------------------------
6.7 Existing Relationships...............................................................395
----------------------
6.8 Required Consents....................................................................395
-----------------
6.9 Compliance with CLI Standards........................................................395
-----------------------------
6.10 MDU Agreements.......................................................................396
--------------
6.11 Public Announcements.................................................................396
--------------------
6.12 Due Diligence........................................................................396
-------------
6.13 Correction of any Noncompliance Prior to Closing.....................................396
------------------------------------------------
6.14 Leased Equipment.....................................................................397
----------------
6.15 Estoppel Certificates and Franchise Forms............................................397
-----------------------------------------
6.16 HSR Notification.....................................................................397
----------------
6.17 No Shopping..........................................................................397
-----------
6.18 Notification of Certain Matters......................................................398
-------------------------------
6.19 Risk of Loss; Condemnation...........................................................398
--------------------------
6.20 Lien and Judgment Searches...........................................................399
--------------------------
6.21 Transfer Taxes.......................................................................399
--------------
6.22 Letter to Programmers................................................................399
---------------------
6.23 Updated Schedules....................................................................399
-----------------
6.24 Use of Seller's Name.................................................................399
--------------------
6.25 Subscriber Billing Services..........................................................399
---------------------------
REGISTRATION STATEMENT
Page II-361
<PAGE>
6.26 Satisfaction of Conditions...........................................................400
--------------------------
Section 7. Closing.......................................................................................400
Section 8. Deliveries by Seller at Closing...............................................................400
Section 9. Deliveries by Buyer at Closing................................................................402
Section 10. Conditions to Obligations of Buyer............................................................404
10.1 Accuracy of Representations and Compliance with Conditions...........................404
----------------------------------------------------------
10.2 Deliveries Complete..................................................................404
-------------------
10.3 No Adverse Change....................................................................404
-----------------
10.4 Restraint of Proceedings.............................................................405
------------------------
10.5 Inspection...........................................................................405
----------
10.6 Cash Flow............................................................................405
---------
Section 11. Conditions to Obligations of Seller...........................................................405
11.1 Accuracy of Representations and Compliance with Conditions...........................405
----------------------------------------------------------
11.2 Deliveries Complete..................................................................405
-------------------
11.3 No Adverse Change....................................................................405
-----------------
11.4 Restraint of Proceedings.............................................................406
------------------------
Section 12. Conditions to Both Parties Obligations........................................................406
12.1 Consents.............................................................................406
--------
12.2 No Governmental Action...............................................................406
----------------------
12.3 Waiver of Conditions.................................................................406
--------------------
Section 13. Transactions Subsequent to Closing............................................................406
13.1 Further Actions......................................................................406
---------------
13.2 COBRA Benefits.......................................................................406
--------------
Section 14. Agreement Not to Compete......................................................................406
14.1 Agreement............................................................................406
---------
14.2 Breach of Agreement..................................................................407
-------------------
14.3 Enforceability.......................................................................407
--------------
Section 15. Survival of Representations and Warranties; Indemnification.......................................407
15.1 Survival.............................................................................407
--------
15.2 Indemnity by Seller..................................................................407
-------------------
15.3 Indemnity by Buyer...................................................................408
------------------
15.4 Defense of Claims....................................................................408
-----------------
REGISTRATION STATEMENT
Page II-362
<PAGE>
15.5 Right to Offset......................................................................409
---------------
15.6 Determination of Indemnified Amounts.................................................409
------------------------------------
Section 16. Termination...................................................................................410
16.1 Mutual Consent.......................................................................410
--------------
16.2 Default by Seller....................................................................410
-----------------
16.3 Default by Buyer.....................................................................411
----------------
Section 17. Miscellaneous.................................................................................411
17.1 Expenses.............................................................................411
--------
17.2 Modification.........................................................................411
------------
17.3 Attorneys' Fees......................................................................412
---------------
17.4 Right to Specific Performance........................................................412
-----------------------------
17.5 Notice...............................................................................412
------
17.6 Waiver...............................................................................413
------
17.7 Binding Effect; Assignment...........................................................413
--------------------------
17.8 No Third Party Beneficiaries.........................................................413
----------------------------
17.9 Rights Cumulative....................................................................413
-----------------
17.10 Further Actions......................................................................413
---------------
17.11 Severability.........................................................................413
------------
17.12 Captions.............................................................................413
--------
17.13 Counterparts.........................................................................414
------------
17.14 Governing Law........................................................................414
-------------
17.15 Incorporation by Reference...........................................................414
--------------------------
17.16 Construction.........................................................................414
------------
17.17 Confidentiality......................................................................414
---------------
</TABLE>
EXHIBITS
A - Bill of Sale
B - Escrow Agreement
C - Assignment and Assumption Agreement
D - Assignment of Lease
E - Non-Compete Agreement
F - Guaranty
G - Letter to Programmers
H - FIRPTA Affidavit
SCHEDULES
1 - The CATV Business (including Rate Schedule)
2 - Company Contracts
3 - Company Contracts
4 - Required Consents
REGISTRATION STATEMENT
Page II-363
<PAGE>
5 - Equipment and Vehicles Owned
6 - Real Property Owned
7 - Security Interests to Be Discharged Prior to Closing and
Permitted Security Interests
8 - Proceedings and Judgments
9 - Employee Matters
10 - Excluded Assets
11 - MDU Agreements
12 - Buyer's Required Consents
13 - Buyer's Tax Matters
14 - Buyer's Proceedings and Judgments
REGISTRATION STATEMENT
Page II-364
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of May
, 1996, among General Communication, Inc., an Alaska corporation, or its
wholly-owned subsidiary, ("Buyer"), and McCaw/Rock Homer Cable System, a joint
venture ("Seller"). This Agreement states the terms upon which Seller agrees to
sell to Buyer, and Buyer agrees to purchase from Seller, all of Seller's Assets
(as defined below).
WHEREAS, Seller is engaged in the business of providing cable
television services to subscribers in and around the Service Area (defined
below); and
WHEREAS, Buyer desires to purchase and Seller desires to sell
all of Seller's Assets used or useful in connection with the CATV Business
(defined below);
In consideration of the terms, conditions, and agreements
contained in this Agreement, the parties agree as follows:
Section 1 Definitions
1.1 Affiliate. "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with a person or entity;
"control" means the ownership, directly or indirectly, of equity securities or
other ownership interests in a person or entity by another person or entity,
which represent more than 50% of the voting power or equity ownership in such
person or entity.
1.2 APUC. "APUC" shall mean the Alaska Public Utilities
Commission.
1.3 APUC Certificate. "APUC Certificate" shall mean the
applicable certificate of public convenience and necessity issued by APUC, being
Certificate No. 401 for the Service Area legally described herein.
1.4 Assets. "Assets" shall include all properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description, that are owned, held, used, or useful in the CATV
Business located in and around the Service Area in which Sellers any right,
title or interest, including but not limited to the CATV Instruments, the
Intangibles, Seller Contracts, the Equipment, and the Real Property, but
excluding any Excluded Assets set forth on Schedule 10.
1.5 Basic CATV Services. "Basic CATV Services" shall mean CATV
programming sold to Subscribers as a package and delivered to such Subscribers
by coaxial cable, including broadcast and satellite service programming for
which a Subscriber pays a fixed monthly fee to Seller, but not including Pay TV.
REGISTRATION STATEMENT
Page II-365
<PAGE>
1.6 Basic Subscriber. "Basic Subscriber" shall mean any person
who pays Seller the full monthly price (but including a subscriber who receives
a senior citizen discount, but not including a subscriber who receives any other
discount) for Basic CATV Services in accordance with standard rates charged by
Seller as set forth on Schedule 1, who was not solicited since March 14, 1996,
to purchase such services by any promotions, offers of discounts, or
extraordinary marketing techniques which promotions, discounts, or marketing
techniques were inconsistent with Seller's previous business practices, and who
has paid in full without discount (except for senior citizen discounts) at least
one monthly payment in the ordinary course of business for CATV services and who
is not pending disconnection for any reason (other than non-payment of a
delinquent bill in an amount less than Ten and 01/100 Dollars ($10.01), and who
is not delinquent in payment for an amount in excess of Ten and no/100 Dollars
($10.00) for such CATV services. For this purpose, a Subscriber shall be
delinquent if any part of his or her account is more than sixty-two (62) days
past due from the invoice date.
1.7 CATV. "CATV" shall mean cable television.
1.8 CATV Business. "CATV Business" shall refer to all of the
Assets and business of the CATV Systems as presently conducted by Seller in and
around the Service Area as described on Schedule 1 to this Agreement.
1.9 CATV Instruments. "CATV Instruments" shall refer to all
intangible CATV channel distribution rights owned, used, or held for use by
Seller, all franchise agreements, pole attachment rights, leases, licenses,
easements, crossing permits and service agreements, as described on Schedule 2
to this Agreement.
1.10 CATV System. "CATV System" shall refer to a complete CATV
reception and distribution system of Seller which is part of Seller's CATV
Business and consisting of one or more headends, equipment, Subscriber drops and
associated electronic equipment, which is, or is capable of being, without
modification, operated as an independent system without interconnections to
other systems. Any systems which are interconnected or which are served in total
or in part by a common headend shall be considered a single CATV System.
1.11 Closing and Closing Date. "Closing" shall refer to the
consummation of the transactions contemplated by this Agreement, to take place
at a meeting held at the place and on the date ("Closing Date") specified in
Section 7 of this Agreement.
1.12 COBRA. "COBRA" shall be as defined in Section 3.17.
1.13 Current Assets. "Current Assets" shall be as defined in
Section 2.3(ii).
1.14 Employees. "Employees" shall be as defined in Section
3.17.
REGISTRATION STATEMENT
Page II-366
<PAGE>
1.15 Employee Plans. "Employee Plans" shall be as defined in
Section 3.18.
1.16 Encumbrance. Any mortgage, lien, security interest,
security agreement, conditional sale or other title retention agreement,
limitation, pledge, option, charge, assessment, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer or any
exception to or defect in title or other ownership interest (including
reservations, rights-of-way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.17 Equipment. "Equipment" shall refer to all tangible
personalty, electronic devices, trunk and distribution coaxial and optical fiber
cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and
pole hardware, Subscriber's devices (including, without limitation, converters,
encoders, transformers behind television sets and fittings), "headend"
(origination, earth stations, transmission and distribution system) hardware,
test equipment, vehicles, and other personal property and facilities owned,
leased, used, or held for use in the CATV Business, as described on Schedule 5
to this Agreement.
1.18 Equivalent Basic Subscribers or EBS's. "Equivalent Basic
Subscribers" or "EBS's" shall mean at a specified date a number representing the
sum of the equivalent of Basic Subscribers of each franchise area in the CATV
Systems derived by dividing (a) the total monthly billings for sales by Seller
of Basic CATV Services for the most recent month ended prior to such specified
date to single family households which pay less than the full non-discounted
(other than senior citizen discounts) monthly price for Basic CATV Services and
to bulk accounts (provided that in no event shall such billings include more
than a single month's charges for any such single family household or single
bulk account), by (b) the full non-discounted monthly price charged by Seller to
single family households for Basic CATV Services in accordance with standard
rates charged by Seller at the Closing Date in such franchise area; provided,
however, that in no event shall such standard rates charged by Seller at the
Closing Date be less than those set forth on Schedule 1. For purposes of the
foregoing, there shall be excluded (a) all billings to any discounted single
family household or bulk account for which a payment of more than ten dollars is
more than sixty-two (62) days past due from the invoice date (whether for Basic
CATV Services or Pay TV or otherwise); (b) all billings to any discounted single
family household or bulk account which has not paid at least one month's payment
for Basic CATV Services, including payment of all installation charges owed and
due; (c) that portion of the billings to each discounted (other than senior
citizen discounts) single family household or bulk account which represents an
installation or other non-recurring charge, a charge for any outlet or
connection other than the first outlet or first connection in any single family
household or, with respect to a bulk account, in any residential unit (e.g.
individual apartment or rental unit), a charge for any tiered service (whether
or not included within Pay TV), or a pass-through charge for copyright fees,
sales taxes, etc.; (d) all billings to
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any discounted single family household or bulk account which is pending
disconnection for any reason; and (e) all billings to any discounted single
family household or bulk account which was solicited since March 14, 1996, by
any promotions, offers of discounts, or extraordinary marketing techniques which
promotions, discounts, or marketing techniques were inconsistent with Seller's
previous business practices.
1.19 ERISA. "ERISA" shall be as defined in Section 3.17.
1.20 Excluded Assets. "Excluded Assets" shall refer to those
Assets which will not be owned by Seller on the Closing Date as listed on
Schedule 10.
1.21 FCC. "FCC" shall mean the Federal Communications
Commission.
1.22 Financial Statements. "Financial Statements" shall be as
defined in Section 3.13.
1.23 Governmental Authority. (a) The United States of America,
(b) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (c) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof, or (d) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.24 Intangibles. "Intangibles" shall mean all general
intangibles including, but not limited to, Subscriber lists, accounts
receivable, claims (excluding any claims relating to Excluded Assets), patents,
copyrights, and goodwill, if any.
1.25 MDU Agreements. "MDU Agreements" shall mean the fully
executed agreements required by Section 6.10 hereof.
1.26 MDU Complex. "MDU Complex" shall mean any apartment,
condominium, or townhome complex or mobile home park and any other multiple unit
dwelling project subject to common ownership which currently receives cable
television service from the CATV Business.
1.27 Pay TV. "Pay TV" shall mean premium programming services
selected by and sold to Subscribers for monthly fees in addition to the fee for
Basic CATV Services.
1.28 Pay TV Units. "Pay TV Units" shall mean each Pay TV
service subscribed for by all Basic Subscribers.
1.29 Permitted Encumbrances. "Permitted Encumbrances" shall
mean: (i) liens for taxes, assessments and governmental charges not yet due and
payable, or
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the validity of which are being contested diligently and in good faith, and
installments of special assessments not yet due and payable; (ii) statutory
liens arising in connection with the ordinary course of business not yet
delinquent or the validity of which are being contested diligently and in good
faith; (iii) zoning laws and ordinances and similar governmental regulations;
(iv) rights reserved to any municipality or government, statutory or public
authority to regulate the affected property; and (v) as to Real Property
interests, any liens, encumbrances, easements, rights-of-way, servitudes,
permits, leases, other minor title defects, conditions, covenants and
restrictions, and minor imperfections or irregularities in title which are
reflected in the public records. The foregoing notwithstanding, "Permitted
Encumbrances" shall not include any item of which Seller has warranted the
absence of elsewhere in this Agreement and furthermore shall not prevent or
inhibit in any way the conduct of Seller's CATV Business. No implication is made
from the foregoing or any reference to Permitted Encumbrances in this Agreement
or in any documents or instruments delivered in connection herewith that Buyer
shall be or shall become liable or responsible for any liens, taxes,
assessments, charges, or statutory liens described in (i) or (ii) above accruing
or arising for the period prior to the Closing Date or which are imposed or
assessed against Seller for the period prior to the Closing Date; and Seller
shall remain fully liable and responsible therefor and shall indemnify and hold
Buyer harmless from and against any thereof pursuant to Section 16.
1.30 Person. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.31 Purchase Price. The "Purchase Price" for Seller's Assets
shall be as defined in Section 2.2.
1.32 Real Property. "Real Property" shall mean all realty,
including appurtenances, improvements, and fixtures located thereon and any
other interests in real property owned by Seller and used or held for use in the
CATV Business, including, without limitation, fee interests in Seller's offices
and headend sites, leasehold interests, easements, wire crossing permits and
rights of entry described on Schedule 6 to this Agreement.
1.33 Required Consents. "Required Consents" shall mean all
governmental franchises, approvals, licenses, consents, and any and all other
authorizations or approvals and consents, necessary and required for Seller to
transfer and convey, and Buyer to purchase, the Assets, and for Buyer to conduct
Seller's CATV Business at the places and in the manner in which such CATV
Business is presently conducted and will be conducted on the Closing Date. All
of Company's Required Consents are listed on Schedule 4 and all of Buyer's
Required Consents are listed on Schedule 12 to this Agreement.
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1.34 Security Interest. "Security Interest" shall mean any
mortgage, lien, security interest, security agreement, limitation, pledge,
option, charge, assessment, restrictive agreement, restriction, encumbrance,
adverse interest, claim, restraint on transfer, or claim against title with
respect to any of the Assets.
1.35 Seller Contracts. "Seller Contracts" shall refer to all
contracts and agreements pertaining to the lawful ownership, operation, and
maintenance of the CATV Business or used in the CATV Business, other than CATV
Instruments, as described on Schedule 3 to this Agreement.
1.36 Service Area. "Service Area" shall mean the area in which
Seller operates the CATV Business, specifically in and around Homer, Alaska,
pursuant to applicable APUC Certificate No. 401.
1.37 Subscribers. "Subscribers" shall mean all Basic
Subscribers and EBS's.
1.38 System. A complete cable television reception and
distribution system operated in the conduct of the Business, consisting of one
or more headends, subscriber drops and associated electronic and other
equipment, and which is, or is capable of being, without modification, operated
as an independent system without interconnections to other systems. Any systems
which are interconnected or which are served in total or in part by a common
headend will be considered a single System.
Section 2 Sale of Assets.
2.1 Sale of Assets. At the Closing, upon the terms and
conditions set forth in this Agreement, Seller agrees to sell, convey, transfer,
assign, and deliver to Buyer, and Buyer agrees to purchase from Seller, all of
the Seller's right, title and interest in, to and under the Assets. Except as
otherwise provided, all the Assets are intended to be transferred to Buyer,
whether or not described in the Schedules.
2.2 Purchase Price. Buyer will deliver to Seller at the
Closing One Million Four Hundred Sixty-Six Thousand One Hundred Thirty-two
Dollars ($1,466,132.00) in cash less a holdback of Seventy-five Thousand Dollars
($75,000.00), and as adjusted by Section 2.3. Such payment in cash constitutes
the "Purchase Price."
2.3 Purchase Price Adjustment. The Purchase Price payable in
cash shall be:
decreased by:
(i) the Assumed Liabilities as
described in Section 4.1 (a)(i)
and (ii) which, as of the
Closing Date, are
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liabilities as accrued and/or
which in accordance with GAAP
should have been accrued as
liabilities as of the Closing
Date;
and increased by:
(ii) current assets other than cash
and cash equivalents ("Current
Assets") of Seller at the
Closing Date, such as prepaid
expenses of Seller which relate
to goods and services that are
to be received by Buyer after
the Closing Date and in respect
of which Buyer will receive a
benefit, and accounts
receivable.
Receivables Adjustment. Seller's subscriber accounts
receivable which relate to the billing periods prior to the billing period in
which the Closing Date occurs, and in the event the Closing Date does not occur
on the last day of a billing period, the amount of the subscriber accounts
receivable which relate to the billing period in which the Closing Date occurs
(the "Billing Period Receivables") which are attributable to the period prior to
the Closing Date (together, subject to the immediately succeeding sentence,
herein called the "Customer Accounts Receivable"), shall be considered Current
Assets to the extent actually collected within the two month period following
the Closing Date by or for the benefit of Buyer and shall be included as such in
the Final Adjustments Report. Billing Period Receivables shall be prorated based
on the days in the billing period before and after the Closing Date, the portion
attributable to the period before the Closing Date shall be included in Customer
Accounts Receivable and the portion attributable to the period after the Closing
Date shall not be so included.
In addition to the foregoing, to the extent Buyer
receives payments for other accounts receivable or similar receivables (other
than Customer Accounts Receivable), which payments are attributable to the
period prior to the Closing Date in connection with the calculation of the
Preliminary Adjustments Report and/or the Final Adjustments Report, the amount
of such accounts receivable or similar receivables actually collected (the
"Other Receivables") shall be considered cash equivalents and an adjustment
shall be made to the Purchase Price, and any additional payments shall be paid
by check from Buyer to Seller.
To the extent that the Customer Accounts Receivable
and Other Receivables actually collected by Buyer within the three-month period
following the Closing Date exceed the amount of the Customer Accounts Receivable
and Other Receivables which were collected during the first two-month period
following the Closing and for which an adjustment was made pursuant to the Final
Adjustments Report, a further adjustment shall be made (the "Post-Period
Adjustment") and any additional payment shall be paid by check from Buyer to
Seller. A Post-Period Adjustment Report
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regarding the collections shall be certified by an authorized officer of Buyer
to be true, complete and correct as of the date it is delivered. Any Customer
Accounts Receivable and any Other Receivables not previously assigned which
Buyer does not collect within the three-month period following the Closing Date
shall, promptly after said three-month period, be reassigned to Seller.
Buyer shall not forgive any of said receivables prior
to the end of said three-month period. All Customer Accounts Receivable and
Other Receivables collected by Buyer shall be deemed allocated to receivables in
the order in which they were incurred. At Seller's reasonable request, Buyer's
records with reference to collection of accounts receivable shall be made
available to Seller.
Preliminary Adjustments. A complete and detailed list
(the "Preliminary Adjustments Report") of all such known prorations and
adjustments in the Purchase Price shall be prepared in good faith and on a
reasonable basis by Seller. The parties hereto agree that the Preliminary
Adjustments Report shall consist of an adjustment to the Purchase Price pursuant
hereto as of the end of the last quarter prior to the Closing Date, and that the
amount of the Purchase Price delivered on the Closing Date shall be adjusted in
accordance with such Report. Buyer's representatives shall be permitted to
participate in the preparation of the report, with access to all books, records,
and other documents used in the preparation thereof. Said Preliminary
Adjustments Report shall be delivered by Seller to Buyer at least five days
prior to the Closing, and subject to the provisions below, the party thereby
obligated to pay shall pay the items by increase or decrease of the Purchase
Price. In the event Buyer disagrees with any items on said list, Buyer and
Seller shall in good faith estimate such item, and the average of such two
estimates shall be utilized in making the adjustment of the Purchase Price at
the Closing Date, subject to final adjustment as provided for below. With
respect to the adjustments done pursuant to the Preliminary Adjustments Report
as of the end of the last quarter prior to the Closing Date, the amount of the
increase in the Purchase Price resulting from Customer Accounts Receivable shall
be calculated as of such date based upon (a) 95% of the face value of Customer
Accounts Receivable which, as of such date, are one month (either 30 days or 31
days, depending upon the month in question) or less past due from the first day
of the billing period to which the amount relates; (b) 90% of the face amount of
any Customer Accounts Receivable which, as of such date, are more than one month
but not more than two months past due from the first day of the billing period
to which the amount relates; (c) 60% of the face amount of any amounts
receivable which, as of such date, are more than two months but not more than
three months past due from the first day of the billing period to which the
amount relates; and (d) 0% of the face amount of any Customer Accounts
Receivable which, as of such date, are more than three months past due from the
first day of the billing period to which the amount relates. Other Receivables
which are to be collected following the Closing Date shall also be included in
the Preliminary Adjustments Report.
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Post-Closing Adjustment. Within 60 days after the
Closing Date, Seller and Buyer will prepare a report (the "Final Adjustments
Report"), prepared in good faith and on a reasonable basis, setting forth in
reasonable detail the adjustments described above including any adjustments
based on Seller's and Buyer's actual collection of the Customer Accounts
Receivable and Other Receivables as of the date one day before such Report. The
Final Adjustments Report shall make such changes to the Preliminary Adjustments
Report as are necessary to recalculate as of the Closing Date all of the
adjustments and prorations to the Purchase Price set forth herein (which were
calculated in the Preliminary Adjustments Report generally as of the last day of
the quarter prior to the Closing Date).
Seller and Buyer shall provide each other with
reasonable access to all records which they have in their possession which
pertain to such collections for the period after the Closing Date, which are
necessary for a review of the Post-Period Adjustment Report.
The Purchase Price as determined pursuant to the
Preliminary Adjustments Report shall be compared to the Purchase Price as
determined pursuant to the Final Adjustments Report and, within 10 business days
following acceptance of the Final Adjustments Report by Buyer and Seller, any
adjustment amount to be paid pursuant to such report shall be paid to the proper
party from the Escrow described in Section 2.4.
To the extent the parties are unable to agree on the
Final Adjustments Report within 90 days after the Closing Date, all issues in
the Report which are not agreed upon shall be submitted to the national
accounting firm of Deloitte & Touche LLP together with a written statement of
the issues by Buyer and by Seller and the determination of such accounting firm
shall be final and binding on all parties.
2.4 Holdback. At the Closing, Seller and Buyer shall each
deposit in escrow, pursuant to an escrow agreement in a form substantially
similar to Exhibit B, cash in the amount of Seventy-Five Thousand Dollars
($75,000) (the "Holdback") to secure each party's indemnification for breaches
of representations, warranties and covenants. If no breach of this Agreement has
occurred or is reasonably alleged to have occurred, such escrowed funds, be
released to the party which placed such funds in escrow, effective as of one
hundred eighty (180) days after the Closing Date.
Section 3 Seller's Representations, Warranties, and Covenants
Seller represents, warrants, and covenants to Buyer, as of the
date of this Agreement and as of the Closing, as follows:
3.1 Organization and Qualification. Seller is a joint venture,
duly organized, validly existing and in good standing under the laws of the
State of Alaska.
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Seller has all requisite power and authority to carry on the CATV Business as
currently conducted and to own, lease, use, and operate its Assets as they are
currently owned, leased and used and to conduct its business as it is now
conducted. The copy of Seller's Joint Venture Agreement, as amended, which has
been delivered to Buyer is complete and correct, and such document is in full
force and effect and has not been further amended.
3.2 Authority. Seller has all requisite capacity, power,
right, capitalization, and authority to enter into this Agreement and to perform
its obligations under this Agreement. The execution, delivery, and performance
of this Agreement and all other documents and instruments to be executed and
delivered in connection herewith ("Transaction Documents") by Seller have been
duly authorized by all applicable partnership actions of Seller. No consent of
or authorization from any person or other entity, including any Governmental
Authority, is required to be obtained in connection with the execution,
delivery, and performance of this Agreement and of the Transaction Documents by
Seller, except for the Required Consents described in Schedule 4.
3.3 Enforceability. This Agreement, the Transaction Documents,
and all documents, instruments, and certificates to be delivered under this
Agreement, assuming all such documents, instruments and certificates constitute
legal, valid and binding obligations of Buyer, constitute legal, valid, and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
3.4 Cash Flow. Seller's and McCaw/Rock Seward Cable System's
combined actual cash flow before overhead (identified in Seller's respective
financial statements as "administration expenses") and after elimination of the
inter-company transactions with Alaska Cablevision, Inc. ("ACI") was not less
than Four Hundred Sixty-Six Thousand and no/100 Dollars ($466,000.00) for the
year ended December 31, 1995. Seller's financial statements reviewed by an
independent Certified Public Accountant as and for the year ended December 31,
1995, have been provided to Buyer.
3.5 Assets. Seller has exclusive, good and marketable title to
(or, in the case of Assets that are leased, valid leasehold interests in) the
Assets (other than Real Property, as to which the representations and warranties
in Section 3.16 apply). The Assets are free and clear of all Encumbrances of any
kind or nature, except (a) Permitted Encumbrances, (b) restrictions stated in
the Governmental Permits and (c) Encumbrances disclosed on Schedule 7, which
will be removed and released at or prior to the Closing. Except as set forth on
Schedules 2 or 3, none of the Equipment is leased by Seller from any other
Person. The Assets are all the assets necessary to permit Buyer to conduct the
Business substantially as it is being conducted on the date
REGISTRATION STATEMENT
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of this Agreement and in compliance with all legal requirements and Seller
Contracts and to perform all the Assumed Liabilities (defined in Section 4.1).
Except as set forth in Schedule 5, the Equipment is in good operating condition
and repair, ordinary wear and tear excepted given the age of such equipment and
the use to which it is put and is suitable and adequate for continued use in the
manner in which it is presently used. No Person other than Seller has been
granted or, to Seller's knowledge, has applied for a cable television franchise
in any area currently served by the Seller's CATV Business.
3.6 Governmental Permits. Complete and correct copies of the
Governmental Permits, all of which are listed on Schedule 2 or Schedule 10, have
been delivered by Seller to Buyer. The Governmental Permits are currently in
full force and effect, are not in default, and are valid under all applicable
legal requirements according to their terms. There is no legal action,
governmental proceeding or investigation, pending or threatened, to terminate,
suspend or modify any Governmental Permit and Seller is in compliance with the
material terms and conditions of all the Governmental Permits and with other
applicable requirements of all Governmental Authorities (including the FCC and
the Register of Copyrights) relating to the Governmental Permits, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
3.7 Seller Contracts. All of Seller Contracts are described on
Schedule 2 or Schedule 10. Complete and correct copies of all Seller Contracts
have been provided to Buyer. Each of Seller Contracts is in full force and
effect and constitute the valid, legal, binding and enforceable obligation of
Seller and Seller is not and to Seller's knowledge, each other party thereto is
not in breach or default of any terms or conditions thereunder.
3.8 Records. Seller's books, as made available to Buyer,
contain current, complete, and accurate records of all meetings and actions of
Seller's partners, and, if any, committees of the partners. All material actions
and transactions taken or entered into by Seller or otherwise requiring action
by its partners have been duly authorized or ratified as necessary and are
evidenced in Seller's books. Seller's books and ledgers, as made available to
Buyer, contain complete and accurate records of all issuances and transfers of
its partnership interests. The signatures appearing in such books, and ledgers
are the genuine signatures of the persons purporting to have signed them.
3.9 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Seller (a) does not and will not (with the
giving of notice or passage of time or both) (i) conflict with or result in a
breach or violation by Seller of, or (ii) constitute a default by Seller under,
or (iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of the CATV Instruments or Seller Contracts, any statute,
ordinance, rule, or regulation, or any agreement, instrument,
REGISTRATION STATEMENT
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judgment, or order to which Seller is a party or by which Seller, the CATV
Business, or any of the Assets is bound or may be affected, and (b) does not and
will not (with the giving of notice or passage of time or both) create or impose
any Security Interest on any of the Assets.
3.10 No Finders or Brokers. Seller has not entered into any
contract, arrangement, or understanding with any person or firm which may result
in any obligation of Buyer or Seller to pay any finder's, broker's, or agent's
fees or commissions or other like payments as a result of the transactions
contemplated by this Agreement, except that Seller shall pay all fees and
expenses due to Daniels and Associates.
3.11 Schedules. The Schedules to this Agreement list all
Assets owned, held, used, or useful for the performance of any CATV Instruments,
Seller Contracts and for the lawful conduct of the CATV Business. All Schedules
to this Agreement are true, accurate, and complete.
3.12 Compliance with Laws. Seller is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over the business and affairs of
Seller.
3.13 Financial Statements. Seller has delivered to Buyer
correct and complete copies of Seller's financial statements for each of the two
most recent fiscal years ended prior to the date of this Agreement, which were
reviewed by an independent, Certified Public Accountant, and unaudited interim
quarterly financial statements for periods subsequent to the end of the most
recent fiscal year end within thirty (30) days after the end of each such
quarter (the "Financial Statements"). The Financial Statements are complete and
correct, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered thereby
(except, in the case of interim financial statements, subject to normal
recurring year-end adjustments and the absence of footnotes), and fairly present
in accordance with generally accepted accounting principles the financial
condition and results of operation of Seller as of the dates indicated and for
the periods covered thereby. Except as disclosed by, or reserved against in, its
most recent balance sheet included in the Financial Statements, Seller did not
have as of the date of such balance sheet any liability or obligation, whether
accrued, absolute, fixed, or contingent (including, without limitation,
liabilities for taxes or unusual forward or long-term commitments), which was
material to the business, results of operations, or financial condition of
Seller and which is required to be disclosed on, or reserved against in, a
balance sheet. Seller has received no notice of any fact which form a basis for
any claim by a third party which, if asserted, could result in a liability
affecting Seller not disclosed by or reserved against in the most recent balance
sheet of Seller. From the date of the most recent balance sheet included in the
Financial Statements to and including the date hereof, (i) the CATV Business has
been operated only in the ordinary
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course, (ii) Seller has not sold or disposed of any assets other than in the
ordinary course of business, (iii) there has not occurred any material adverse
change or event in the business, operations, assets, liabilities, financial
condition, or results of operations of Seller compared to the business,
operations, assets, liabilities, financial condition, or results of operations
reflected in the Financial Statements, and (iv) there has not occurred any
theft, damage, destruction, or loss which has had a material adverse effect on
Seller.
3.14 Tax Returns and Other Reports. Seller has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule 8, there are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any relevant
tax return.
3.15 Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
3.16 Real Property. With respect to all Real Property:
3.16.1 The Real Property and the improvements located
thereon and the continuation of business presently being conducted thereon do
not violate any material applicable laws, statutes, regulations, codes, rules,
or orders.
3.16.2 The Real Property has unobstructed access for
purposes of ingress and egress to public roads or streets or private roads over
which Seller has a valid right-of-way. The Real Property is served by utilities
and services necessary for the present use of the Real Property in connection
with the CATV Business.
3.16.3 Seller possesses all rights needed to operate,
maintain, repair, replace, and locate all cable, lines, towers, equipment, or
other facilities owned or used by Seller in the CATV Business on the Real
Property.
3.16.4 None of the improvements on the Real Property
encroaches upon the property of others.
3.16.5 Seller holds good and marketable fee simple
title to the Real Property shown as being owned by Seller on Schedule 6 and the
valid and enforceable right to use and possess such Real Property, subject only
to the Permitted
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Encumbrances. Seller has the valid and enforceable right to use all other Real
Property, subject to the leases, easements, licenses, or rights-of-way described
on Schedule 2.
3.16.6 The Real Property is in full compliance with
all material applicable health, safety, and environmental laws, rules, and
regulations ("environmental laws"). During Seller's ownership or operation of
the Real Property, all activities undertaken on or affecting the Real Property
by Seller or any other person have been in full compliance with all material
environmental laws. During Seller's occupation of the Real Property there have
been no abatement, removal, remedial or other response actions for hazardous
substances (as defined below) at the Real Property.
3.16.6.1 Seller is not aware of any
instance, prior to Seller's ownership or operation, of noncompliance of the Real
Property or any activities thereon with any environmental law. Seller is not
aware of any aspects of the Real Property or any operations thereon which
reasonably might give rise to any civil, criminal, administrative, or other
proceeding or notice thereof under any environmental law (an "environmental
claim").
3.16.6.2 To Seller's knowledge, no
environmental claim has been asserted in the past, currently exists, or is
threatened or contemplated against Seller, or against any other person or
entity, which relates to the Real Property or any operations thereon.
3.16.6.3 To Seller's knowledge, the Real
Property has not in the past, and is not now, subject to any investigation,
assessment, or study by any person or government agency related to potential or
actual enforcement of any environmental law.
3.16.6.4 No hazardous substances have
been or are being released to, from, or under the Real Property or outside the
Real Property by Seller which substances have entered or threaten to enter onto,
into, or under the Real Property. No hazardous substances have been or are
stored, treated, handled, disposed of, created, or otherwise located on, in, or
under the Real Property during the Seller's occupancy.
3.16.6.5 No underground storage tanks,
surface impoundments, solid waste management units, tank systems, waste piles,
land treatment areas, landfills, or incinerators are located or, to Seller's
knowledge, have been located on the Real Property. For purposes of this
paragraph, the foregoing terms shall have the meanings defined in RCRA, 42
U.S.C. section 6901, et seq., or analogous state or local laws. Without limiting
the preceding representation in this paragraph, to Seller's knowledge none of
the Real Property has been used at any time as a gasoline service
REGISTRATION STATEMENT
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<PAGE>
station or any other station or facility for storing, pumping, dispensing, or
producing gasoline or any other petroleum product, byproduct, or waste.
3.16.6.6 There are no "PCB Items," as
that term is defined in 40 C.F.R. section 761.3, located on the Real Property.
3.16.6.7 Any and all permits, licenses,
and other authorizations or approvals required under environmental laws to own
or operate the Real Property have been secured by Seller and are in full force
and effect. A list of all such permits, licenses, approvals, and authorizations
is included on Schedule 2. All bonds and other security devices associated with
any permit, license, authorization, or approval are in place.
3.16.6.8 No building or other structure
on the Real Property contains asbestos.
3.16.6.9 Seller has provided to Buyer
true, complete and correct copies of all Environmental Reports in Seller's
possession or control as of the date of this Agreement relating to the Real
Property or any of it. Seller shall provide all additional Environmental
Reports, including supplements to existing reports, relating to the Real
Property within a three (3) working days of receipt of such reports or
supplements by Seller. For purposes of this Section 3.16.6.9, "Environmental
Reports" shall mean and include any writing containing statements or opinions
about the presence or suspected presence of any Hazardous Substances on, under
or affecting the Real Property or any of it.
3.16.6.10 "Seller's knowledge" as used in
this Section 3 shall refer to matters within the knowledge of Seller's current
partners and general managers, after due investigation of reasonably available
records of Seller concerning the subjects herein discussed.
3.16.6.11 The term "hazardous substances"
means: (i) any "hazardous substance" or "pollutant or contaminant" as defined in
Sections 101(14) and (33) of CERCLA, 42 U.S.C. sections 9601(14) and (33); (ii)
any "hazardous material" as defined in Section 1802(2) of the Hazardous
Materials Transportation Act; (iii) any "oil" or "hazardous substance" as
defined in Sections 311(a)(1) and (14) of the federal Clean Water Act, 33 U.S.C.
sections 1321(a)(1) and (14); (iv) any "pesticide" as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act, at 7 U.S.C. section 136(u); and (v)
any "byproduct," "source" or "special nuclear" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. sections 2014(e), (z) and (aa). Hazardous
substances also includes any chemical, compound, material, mixture, or substance
defined, listed, or classified under any environmental law as dangerous,
hazardous, extremely hazardous, infectious, or toxic. It also includes any
substance regulated under any environmental law due to its polluting or
dangerous properties such as ignitability, corrosivity, reactivity,
REGISTRATION STATEMENT
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<PAGE>
carcinogenicity, toxicity, or reproductive effects. Finally, hazardous
substances specifically includes, but is not limited to, petroleum and petroleum
products, asbestos and asbestos-containing materials, and polychlorinated
biphenyls ("PCBs").
3.17 Employees. Schedule 9 contains a true and complete list
of names, positions, current hourly wages or monthly salary and other
compensation amounts of all of Seller's employees (the "Employees"). Seller has
complied in all respects with all material applicable laws and regulations
relating to the employment of labor, including, without limitation, the Worker
Adjustment and Retraining Notification Act, as amended, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), continuation coverage
requirements of group health plans ("COBRA"), and those relating to wages,
hours, collective bargaining, unemployment insurance, worker's compensation,
equal employment opportunity, age and disability discrimination, immigration
control, and the payment and withholding of taxes. Seller has no employment
agreements, either written or oral, with any person, and all Employees are
terminable at will. Seller is not a party to any contract with any labor
organization and has not agreed to recognize any union or other collective
bargaining unit. No union or other collective bargaining unit has been certified
as representing any of Seller's employees, and Seller has not received any
requests from any party for recognition as a representative of employees for
collective bargaining purposes.
3.18 Employee Benefits.
3.18.1 Except for those plans described on Schedule 9
hereto (the "Employee Plans"), with respect to the Employees, neither Seller,
nor any of its Affiliates maintain, is a party to, contributes to or is
obligated to contribute to, and the Employees do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) any employee pension benefit plan, as
defined in Section 3(2) of ERISA,
including (without limitation) any
multi-employer plan, as defined in
section 3(37) of ERISA;
(ii) any employee welfare benefit plan, as
defined in section 3(1) of ERISA;
(iii) any bonus, deferred compensation,
incentive, restricted stock, stock
purchase, stock option, stock
appreciation right, phantom stock,
debenture, supplemental pension, profit
sharing, royalty pool, commission or
similar plan or arrangement, other than
bonuses on a non-recurring basis which
may be paid to some employees in
connection with this transaction;
REGISTRATION STATEMENT
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<PAGE>
(iv) any plan, program, agreement, policy,
commitment or other arrangement relating
to severance or termination pay, whether
or not published or generally known;
(v) any plan, program, agreement, policy,
commitment or any other arrangement
relating to the provision of any benefit
described in section 3(1) of ERISA to
former employees or their survivors,
other than procedures intended to comply
with COBRA;
(vi) any plan, program, agreement, policy,
commitment or other arrangement relating
to loans or other extensions of credit,
loan guarantees, relocation assistance,
educational assistance, tuition payments
or similar benefits; or
(vii) any plan, program, agreement, policy,
commitment or any other arrangement
relating to employee benefits, executive
compensation or fringe benefits
(including without limitation any foreign
plan described in section 4(b)(4) of
ERISA).
3.18.2 Prior to the date of this Agreement, Seller
has provided to Buyer complete, accurate and current copies of each of the
following:
(i) the text (including amendments) of each
of the Employee Plans, to the extent
reduced to writing;
(ii) a description of all material elements of
each of the Employee Plans, to the extent
not previously reduced to writing;
(iii) with respect to each Employee Plan that
is an employee benefit plan (as defined
in section 3(3) of ERISA), the following:
(A) the most recent summary plan
description, as described in
section 102 of ERISA;
(B) any summary of material
modifications that has been
distributed to participants or
filed with the U.S. Department
of Labor but that has not been
incorporated in an updated
summary plan description
furnished under Subparagraph
(A) above;
REGISTRATION STATEMENT
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<PAGE>
(C) the annual reports, as
described in section 103 of
ERISA, for the most recent
three (3) plan years for which
an annual report has been
prepared (including any
actuarial and financial
statements, opinions and
schedules required by Form 5500
or section 103 of ERISA);
(D) where applicable, the actuarial
reports for the most recent
three (3) reporting periods for
which such a report has been
prepared; and
(E) any trust agreement, investment
management, contract with an
insurance or service provider,
administration agreement or
other contract, agreement or
insurance policy;
(iv) with respect to each Employee Plan that
is an employee pension benefit plan (as
defined in section 3(2) of ERISA) and
that is neither an excess benefit plan
(as defined in section 3(36) of ERISA)
nor a plan exempted under section 201(2)
of ERISA, the following:
(A) the most recent determination
letter concerning the plan's
qualification under section
401(a) of the Code, as issued
by the Internal Revenue
Service; and
(B) any request for a determination
concerning the plan's
qualification under section
401(a) of the Code, as filed
with the Internal Revenue
Service since the date of the
most recent determination
letter; and
(v) any handbook, manual, policy, statement
or similar written guidelines furnished
to employees, excluding any such item
that has been superseded by any
subsequent handbook, manual, policy
statement or similar written guidelines.
3.18.3 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to ERISA and the regulations thereunder, each of such requirements has in all
material respects been fully met on a timely basis.
REGISTRATION STATEMENT
Page II-382
<PAGE>
3.18.4 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to Part 4 of Subtitle B of Title I of ERISA, none of the following now exists or
has existed within the six-year period ending on the date hereof that could
result in liability to Seller:
(i) any act or omission by Seller, its
partners or employees constituting a
material violation of section 402 of
ERISA;
(ii) any act or omission constituting a
violation of section 403 of ERISA;
(iii) any act or omission by Seller, its
partners or employees constituting a
violation of sections 404 or 405 of
ERISA;
(iv) to Seller's knowledge, any act or
omission by any other person constituting
a violation of sections 404 or 405 of
ERISA;
(v) any act or omission by Seller, its
partners or employees that constitutes a
violation of sections 406 and 407 of
ERISA and is not exempted by section 408
of ERISA or that constitutes a violation
of section 4975(d) of the Code; or
(vi) any act or omission by Seller, its
partners or employees constituting a
violation of sections 503, 510 or 511 of
ERISA.
3.18.5 Each Employee Plan that is an employee pension
benefit plan (as defined in section 3(2) of ERISA) and that is neither an excess
benefit plan (as defined in section 3(36) of ERISA) nor a plan exempted under
section 201(2) of ERISA meets all requirements for qualification under section
401(a) of the Code and the regulations thereunder, except to the extent that
such requirements may be satisfied by adopting retroactive amendments under
section 401(b) of the Code and the regulations thereunder. Each such Employee
Plan has been administered substantially in accordance with its terms and the
applicable provisions of ERISA and the Code and the regulations thereunder.
3.18.6 No Employee Plan to which section 412 of the
Code applies has an accumulated funding deficiency (as defined in section 412(a)
of the Code). No amendment to any such Employee Plan is precluded by any waiver,
extension or prior amendment described in section 412(f) of the Code, and no
such waiver has been requested.
REGISTRATION STATEMENT
Page II-383
<PAGE>
3.18.7 Seller has no liability to the Pension Benefit
Guaranty Corporation, to any multi-employer plan (as defined in section
4001(a)(3) of ERISA) or to any trustee under Subtitles D or E of Title IV of
ERISA. No event has occurred which, with the giving of notice under sections
4063 and 4219 of ERISA, would result in such liability.
3.18.8 All contributions, premiums or other payments
due to (or under) any Employee Plan have been fully paid or adequately provided
for on the books and financial statements of Seller. All accruals (including,
where appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
3.18.9 Each Employee Plan complies with, and has been
administered in compliance with, all applicable requirements of (A) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder, (B) Title VII of the Civil Rights Act of 1964, as amended, and the
regulations thereunder and (C) the health care continuation provision of COBRA.
3.18.10 No Employee Plan provides retiree welfare
benefits to former employees of Seller that cannot be canceled at will by Seller
as of the Closing Date without residual liability.
3.18.11 All employee welfare benefit plans provide
coverage for all claims relating to periods prior to the Closing Date whether
such claims are filed prior to or after the Closing Date.
3.19 Litigation and Violations. Except as set forth on
Schedule 8, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Seller's knowledge, threatened
against or affecting Seller which (i) seek to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) might
have a material adverse effect on the financial position or results of
operations of Seller. Seller is not in violation of any term of any judgment,
decree, injunction, or order to which it is subject, which violation could have
a material adverse effect on the financial position or results of operations of
Seller.
3.20 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Seller contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
3.21 Investment Company. Seller is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Seller has not
relied on rule 3a-2
REGISTRATION STATEMENT
Page II-384
<PAGE>
under the Act as a means of excluding it from the definition of an "investment
company" under the Act at any time within the three (3) year period preceding
the Closing Date.
3.22 CATV Instruments and Seller Contracts.nstruments and
Seller Contracts.
3.22.1 The CATV Instruments and Seller Contracts are
currently in full force and effect, are valid under all applicable laws, and are
enforceable according to their terms. Seller is in compliance with and is not in
material violation or default under any of the CATV Instruments or Seller
Contracts. There is no legal action, governmental proceeding, or investigation,
pending or threatened, to modify, revoke, terminate, suspend, cancel, or reform
any of the CATV Instruments or Seller Contracts. Seller is in compliance with
other material applicable requirements of all governing or regulatory
authorities (including the APUC, the FCC and the Register of Copyrights)
relating to the CATV Instruments, including, without limitation, all material
requirements for notification, filing, reporting, posting, and maintenance of
logs and records. Seller holds valid and continuing CATV Instruments, except as
set forth on Schedule 2, Seller Contracts, rights-of-way, rights-of-entry,
permits, and other rights and authorizations necessary to enable it to operate
its CATV Business. The APUC is not currently authorized to restrict Seller's
ability to change any rates charged for CATV services, and Seller has not
received any notice of any franchising authority's intention to assert that the
CATV System is not subject to effective competition. There is no pending
assertion or claim that operations pursuant to any franchise have been
improperly conducted or maintained.
3.22.2 True, complete, and correct copies of the CATV
Instruments and Seller Contracts and any amendments thereto effective as of the
date of this Agreement have been delivered by Seller to Buyer.
3.23 FCC Compliance. Seller is duly authorized under
applicable CATV Instruments and FCC rules, regulations, and orders to distribute
the FM signals and off-air television broadcast signals presently being carried
to the Subscribers of its CATV Business, to utilize all carrier frequencies
generated by its CATV Business, and is licensed to operate all the facilities,
including, without limitation, any business radio and any cable television relay
service ("CARS") system, being operated by its CATV Business. Seller has
provided all notices to Subscribers required by The Communications Act of 1934,
as amended (the "Communications Act") and FCC rules and regulations. The
operation of Seller's CATV Business and of any FCC-licensed facility used in
conjunction with the operation of its CATV Business has been, and is, in
compliance with the Communications Act and FCC rules and regulations, and Seller
has received no notice, and otherwise has no reason to know, of any claimed
default or violation with respect to the foregoing. Seller has obtained all
required FCC clearances for the operation of the CATV System in all necessary
aeronautical frequency bands. To the extent the CATV System uses frequencies in
the aeronautical bands (108-137 and 225-400 MHZ) at power levels at or greater
than 28 dBmV, such frequencies have been offset from standard aeronautical
frequencies as provided in FCC rules and
REGISTRATION STATEMENT
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<PAGE>
regulations, on the channels in the Service Area. During each calendar quarter
for each year since January 12, 1992, at least 75% of the CATV System's plant
has been monitored for leakage, such that 100% of the plant has been so
monitored each calendar year. Each system keeps a log that records the location
of any leak of 20 uV/m or greater, the date the leak was detected, the date the
leak was repaired, and the probable cause of the leak. Seller will continue such
monitoring, repair, and record keeping activities with respect to the CATV
System through the Closing Date. Prior to the Closing, Seller will have taken
the necessary measurements for calculation of the CATV System's cumulative
leakage index (CLI) and filed a CLI report in accordance with applicable FCC
rules and regulations. Where required, Seller has been certified as in
compliance with the FCC's equal employment opportunity rules for each year since
1991 to the extent that the FCC has reviewed such filing's certification. Seller
is in compliance with Subpart K of FCC rules and regulations, including the
network non-duplication, syndicated exclusivity, and sports blackout
requirements. The CATV System has established appropriate record keeping
procedures and is in compliance with the FCC's Children's Television Rules.
Seller has duly and timely filed all required reports with the FCC. Seller has
delivered to Buyer copies of all current reports and filings, and all reports
and filings for the past two (2) years, made or filed with the FCC by Seller
pursuant to FCC rules and regulations. Seller shall make available to Buyer all
other past reports and filings made or filed by Seller pursuant to FCC rules and
regulations.
3.24 APUC Compliance. Seller is duly authorized to operate its
CATV Business under APUC certificates. Seller holds the APUC certificate set
forth in Schedule 2. The APUC certificate is in full force and effect, without
any materially adverse modification, amendment, revocation, suspension,
termination, cancellation, reformation or condition. To the best of Seller's and
Seller's Partners' knowledge, after due inquiry, there is no APUC proceeding or
any APUC investigation pending or threatened, for the purpose of modifying,
revoking, terminating, suspending, canceling or reforming any of the
certificates. Seller operates its Cable System in accordance with all material
APUC rules, regulations and orders.
3.25 Patents, Trademarks, and Copyrights. Seller has timely
and accurately made all requisite filings and payments with the Register of
Copyrights and is otherwise in compliance with all applicable rules and
regulations of the Copyright Office. Seller has delivered to Buyer copies of all
current reports and filings, and all reports and filings for the past two (2)
years, made or filed by Seller pursuant to Copyright rules and regulations.
Seller shall make available to Buyer all other past reports and filings made or
filed by Seller pursuant to Copyright rules and regulations. Seller does not
possess any patent, patent right, trademark, or copyright and is not a party to
any license or royalty agreement with respect to any patent, trademark, or
copyright except for licenses respecting program material and obligations under
the Copyright Act of 1976 applicable to CATV systems generally. The Assets are
free of the rightful claim of any third party by way of copyright infringement
or the like.
REGISTRATION STATEMENT
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<PAGE>
3.26 No Other Assets or Liabilities. Seller has no assets of
any kind other than the Assets, CATV Instruments, and Seller Contracts described
on the Schedules and Seller has no liabilities, obligations, or commitments of
any kind other than obligations under the CATV Instruments and Seller Contracts
described on the Schedules and liabilities disclosed on the Financial
Statements, except liabilities, obligations and commitments incurred in the
normal course of business since the date of the Financial Statements.
3.27 Required Consents. As further set forth in Section 6.8,
Seller and Buyer will have as of the Closing Date obtained the Required
Consents, unless Buyer agrees in writing that any Required Consent need not be
obtained until after the Closing Date. A true and complete list of all Required
Consents is set forth on Schedule 4.
3.28 Overbuilds. No area presently served by Seller's CATV
business is presently subject to or, to Seller's best knowledge, threatened to
be subject to an overbuild situation. Seller is currently the only cable
television operator providing or, to Seller's best knowledge, intending to
provide cable television service in the Service Areas. No person or entity other
than Seller has been granted or to Seller's knowledge, has applied for APUC
Certificates or a CATV franchise agreement in any of the communities (or any of
the unincorporated areas) presently served by Seller's CATV Business.
3.29 Effect of Certificates. All certificates of Seller
delivered under this Agreement shall be deemed to be additional representations
and warranties of Seller.
3.30 Subscriber Numbers. As to Seller and the McCaw/Rock
Seward Cable System Joint Venture and Alaska Cablevision, Inc., as of the
Closing Date, the CATV Business will have no fewer than Nine Thousand Seven
Hundred Fifty (9,750) subscribers and no fewer than Four Thousand, Three Hundred
Ninety (4,390) Pay TV Units, none of which were more than sixty-two (62) days
delinquent in payment for service.
3.31 No Insolvency. As of even date and as of the Closing
Date, Company is not and shall not be insolvent.
3.32 Compliance with Law
3.32.1 The ownership, leasing and use of the Assets
as they are currently owned, leased and used and the conduct of the CATV
Business as it is currently conducted do not violate any federal, state or local
laws and ordinances, which violation, individually or in the aggregate, would
have a material adverse effect on a System, the CATV Business or Seller. Seller
has received no notice claiming a violation by Seller or the CATV Business of
any legal requirement applicable to Seller or the
REGISTRATION STATEMENT
Page II-387
<PAGE>
Business as it is currently conducted and to Seller's best knowledge, there is
no basis for any claim that such a violation exists.
3.32.2 Seller has complied, and the CATV Business is
in compliance, in all material respects, with the specifications set forth in
Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the
Copyright Act of 1976 and the rules and regulations of the U.S. Copyright
Office, the Register of Copyrights and the Copyright Royalty Tribunal, the
Communications Act of 1934, the rules and regulations of the FCC, including
provisions of any thereof pertaining to signal leakage, to utility pole make
ready and to grounding and bonding of cable television systems (in each case as
the same is currently in effect), and all other applicable material legal
requirements relating to the construction, maintenance, ownership and operation
of the Assets, the Systems and the Business.
3.32.3 Notwithstanding the foregoing, Seller has used
its best efforts to comply in all material respects with the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 and the FCC
rules and regulations promulgated thereunder (the "1992 Cable Act") as such laws
relate to the operation of the Business. Except as provided in Schedule 8,
Seller has complied in all material respects with the must carry and
retransmission consent provisions of the 1992 Cable Act. Seller has delivered to
Buyer complete and correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215,
1220, 1225, 1235 and 1240 filed with respect to the System and copies of all
other FCC Forms filed by Seller and correspondence with any Governmental
Authority relating to rate regulation generally or specific rates charged to
subscribers with respect to the Systems, including copies of any complaints
filed with the FCC with respect to any rates charged to Subscribers of the
Systems, and any other documentation supporting an exemption from the rate
regulation provisions of the 1992 Cable Act claimed by Seller with respect to
any of the Systems (collectively, "Rate Regulation Documents"). Seller has
received no notice from any Governmental Authority with respect to an intention
to enforce customer service standards pursuant to the 1992 Cable Act and Seller
has not agreed with any Governmental Authority to establish customer service
standards that exceed the standards in the 1992 Cable Act. In addition, Seller
has also delivered to Buyer documentation for each of the Systems in which the
franchising authority has not certified to regulate rates as of the date of this
Agreement showing a determination of allowable rates using a benchmark
methodology. Seller has not made any election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding (a "Cost of Service
Election") with respect to any of the Systems.
3.33 Disclosure. No representation or warranty by Seller in
this Agreement or in any Schedule or Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Seller pursuant
to this Agreement, contains or
REGISTRATION STATEMENT
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<PAGE>
will contain any untrue statement of material fact, or omits or will omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the circumstances in
which made. Without limiting the generality of the foregoing, the information
set forth in the Schedules concerning the CATV Business is accurate and complete
in all material respects.
3.34 Parent Entity. Rock Associates, Inc. is the sole ultimate
parent entity of Seller, as the term "ultimate parent entity" is defined in 16
C.F.R. section 801.1(a)(3).
Section 4 Assumed Liabilities and Excluded Assets.
4.1 Assignment and Assumption. Seller will assign, and Buyer
will assume and perform, the Assumed Liabilities, which are defined as: (a)
Seller's obligation to subscribers of the Business for (i) subscriber deposits
held by Seller as of the Closing Date and which are refundable, (ii) subscriber
advance payments held by Seller as of the Closing Date for services to be
rendered by a System after the Closing Date and (iii) the delivery of cable
television service to subscribers of the CATV Business after the Closing Date;
and (b) obligations accruing and relating to periods after the Closing Date
under Governmental Permits listed on Schedule 2 (to the extent that such
Governmental Permits are transferrable) and Seller Contracts listed on Schedule
3. Except as set forth in Section 2.3, Buyer will not assume or have any
responsibility for any liabilities or obligations of Seller other than the
Assumed Liabilities. In no event will Buyer assume or have any responsibility
for any liabilities or obligations associated with the Excluded Assets.
4.2 Excluded Assets. The Excluded Assets, which will be
retained by Seller, will consist of the following: (a) upon Buyer's request,
programming contracts (except for those set forth on Schedule 3); (b) insurance
policies and rights and claims thereunder (except as otherwise provided in
Section 6.19); (c) bonds, letters of credit, surety instruments and other
similar items; (d) cash and cash equivalents; (e) Seller's trademarks, trade
names, service marks, service names, logos and similar proprietary rights
(subject to Buyer's rights under Section 6.24); (f) Seller's rights under any
agreement governing or evidencing an obligation of Seller for borrowed money;
(g) Seller's rights under any contract, license, authorization, agreement or
commitment other than those creating or evidencing Assumed Liabilities; and (h)
the assets described on Schedule 10.
Section 5 Buyer's Representations, Warranties, and Covenants
Buyer represents, warrants, and covenants to Seller as
follows:
5.1 Organization and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Alaska; has
all requisite power, right, and authority to execute, deliver, and perform this
Agreement; and has taken all
REGISTRATION STATEMENT
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<PAGE>
action required by law, its Articles of Incorporation and Bylaws, and otherwise
to authorize the execution, delivery, and performance of this Agreement.
5.2 Capitalization. The authorized capital stock of Buyer
consists of 50,000,000 shares of Class A common stock, of which 19,696,207
shares are issued and outstanding; 10,000,000 shares of Class B common stock, of
which 4,175,434 are issued and outstanding, and 1,000,000 shares of preferred
stock, of which no shares are issued and outstanding, all as of April 15, 1996.
As of the Closing, the GCI Shares will be duly authorized, validly issued, fully
paid and nonassessable and free of any Security Interests. There are no
outstanding or authorized (i) securities of Buyer convertible into or
exchangeable or exercisable for any shares of its capital stock, except that
each share of Class B common stock is convertible into one share of Class A
common stock, or (ii) subscriptions, options, warrants, calls, rights,
commitments, or other agreements or obligations of any kind obligating Buyer to
issue any additional shares of its capital stock or any other securities
convertible into or evidencing the right to acquire or subscribe for any shares
of its capital stock, except pursuant to (a) Buyer's December, 1986 Stock Option
Plan, (b) Buyer's December, 1986 Employee Stock Purchase Plan; (c) that June,
1989, option agreement granted to John Lowber to acquire 100,000 shares of
Buyer's Class A common stock at $0.75 per share; (d) that June, 1989, incentive
agreement with William Behnke to acquire 85,190 shares of Buyer's Class A common
stock for $.001 per share; and (e) those shares proposed to be issued as
follows: (i) the proposed issuance of Two Million (2,000,000) shares of Buyer's
Class A common stock to MCI Telecommunications Corporation ("MCI") for Thirteen
Million and no/100 Dollars ($13,000,000.00); (ii) the acquisition of the ongoing
cable television business and cable television systems of Alaskan Cable Network,
Inc. for not more than Two Million Nine Hundred Twenty Three Thousand Seventy
Seven (2,923,077) shares of Buyer's Class A Common Stock; (iii) the acquisition
of the ongoing cable television business and cable television systems of Prime
Cable of Alaska, L.P. ("Prime"), for not more than Eleven Million Eight Hundred
Thousand (11,800,000) shares of GCI's Class A Common Stock; (iv) any Buyer's
Shares and Notes issued in connection with the acquisition of Alaska
Cablevision, Inc.; and (v) any Share and Note holdbacks in connection with the
transaction described in this Section 5.2.
5.3 Enforceability. This Agreement constitutes the legal,
valid, and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity. There is
no litigation at law, in equity, or in any other proceeding or investigation
pending or threatened against Buyer which might materially impair the ability of
Buyer to perform under this Agreement.
5.4 Records. Buyer's minute books, as made available to
Seller, contain current, complete, and accurate records of all meetings and
actions of Buyer's directors, and, if any, committees of the board of directors.
All material actions and transactions
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taken or entered into by Buyer or otherwise requiring action by its directors
and/or shareholders have been duly authorized or ratified as necessary and are
evidenced in such minute books. Buyer's books and ledgers, as made available to
Seller, contain complete and accurate records of all issuances and transfers of
its stock interests. The signatures appearing in such minute books, and ledgers
are the genuine signatures of the persons purporting to have signed them.
5.5 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 12, the execution, delivery, and
performance of this Agreement by Buyer (a) does not and will not (with the
giving of notice or passage of time or both ) (i) conflict with or result in a
breach or violation by Buyer of, or (ii) constitute a default by Buyer under, or
(iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of its contracts, any statute, ordinance, rule, or
regulation, or any agreement, instrument, judgment, or order to which Buyer is a
party or by which Buyer is bound or may be affected, and (b) does not and will
not (with the giving of notice or passage of time or, both) create or impose any
Security Interest on the GCI Shares.
5.6 Compliance with Laws. Buyer is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over Buyer's business and affairs.
5.7 Financial Statements. Buyer has delivered to Seller
correct and complete copies of Buyer's audited financial statements for each of
the two most recent fiscal years ended prior to the date of this Agreement and
unaudited interim monthly financial statements for periods subsequent to the end
of the most recent fiscal year end (the "Financial Statements"). The Financial
Statements are complete and correct, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except, in the case of interim financial statements,
subject to normal recurring year-end adjustments and the absence of footnotes),
and fairly present in accordance with generally accepted accounting principles
the financial condition and results of Buyer's operations as of the dates
indicated and for the periods covered thereby. Except as disclosed by, or
reserved against in, its most recent balance sheet included in the Financial
Statements, Buyer did not have as of the date of such balance sheet any
liability or obligation, whether accrued, absolute, fixed or contingent
(including, without limitation, liabilities for taxes or unusual forward or
long-term commitments), which was material to Buyer's business, results of
operations or financial condition and which is required to be disclosed on, or
reserved against in, a balance sheet. Buyer has received no notice of any fact
which may form a basis for any claim by a third party which, if asserted, could
result in a liability affecting Buyer not disclosed by or reserved against in
Buyer's most recent balance sheet. From the date of the most recent balance
sheet included in the Financial Statements to and including the date hereof, (i)
Buyer's business has been operated only in the ordinary course, (ii) Buyer has
not sold or disposed of any assets other than in the
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<PAGE>
ordinary course of business, (iii) there has not occurred any material adverse
change or event in Buyer's business, operations, assets, liabilities, financial
condition, or results of operations compared to the business, operations,
assets, liabilities, financial condition, or results of operations reflected in
the Financial Statements, and (iv) there has not occurred any theft, damage,
destruction, or loss which has had a material adverse effect on Buyer.
5.8 Tax Returns and Other Reports. Buyer has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule 13, there are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any relevant
tax return.
5.9 Transfer Taxes. There are no sales, use, transfer, excise,
or license taxes, fees, or charges applicable with respect to the transactions
contemplated by this Agreement.
5.10 Litigation and Violations. Except as set forth on
Schedule 14,there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Buyer's best knowledge, threatened
against or affecting Buyer which (i) seek to restrain or enjoin the consummation
of the transactions contemplated by this Agreement or (ii) might have a material
adverse effect on Buyer's financial position or results of operations. Buyer is
not in violation of any term of any judgment, decree, injunction, or order to
which it is subject, which violation could have a material adverse effect on the
financial position or results of operations of Buyer.
5.11 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Buyer contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
5.12 Investment Company. Buyer is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Buyer has not relied
on rule 3a-2 under the Act as a means of excluding it from the definition of an
"investment company" under the Act at any time within the three (3) year period
preceding the Closing Date.
5.13 No Finders or Brokers. Neither Buyer nor any of its
Affiliates have entered into any contract, arrangement, or understanding with
any person or firm which
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<PAGE>
may result in any obligation of Seller to pay any finder's, broker's, or agent's
fees or commissions or other like payments as a result of the transactions
contemplated by this Agreement.
5.14 No Insolvency. As of even date and as of the Closing
Date, Buyer is not and shall not be insolvent.
Section 6 Conduct Prior to Closing
6.1 Operation in Ordinary Course. Seller shall continue to
operate the CATV Business prior to the Closing Date in the ordinary course as
presently operated under its standard operating practices and generally in
accordance with its 1996 budget, including all required budgeted maintenance
capital expenditures for current maintenance, unless otherwise agreed by Buyer,
including, without limitation, payment of all expenses in a timely manner
consistent with prior business practices without accelerating or delaying any
payments, maintaining business books, records, and files all in accordance with
past practices, consistently applied, and maintaining the Assets (including
maintenance of the inventories of spare equipment and parts listed on Schedule
5), and continuing to implement procedures for disconnection and discontinuance
of service to Subscribers whose accounts are delinquent or past due, in
accordance with current practice and policy as of the date of this Agreement.
Without limiting the generality of the foregoing, Seller agrees that Seller, or
anyone acting on Seller's behalf, shall not, without Buyer's prior written
consent, (i) enter into or modify any material agreement, contract, or
commitment which, if entered into prior to the date of this Agreement, would be
required to be disclosed on any Schedule to this Agreement, (ii) place or permit
to exist any lien, encumbrance, security interest, claim or charge of any kind
against the Assets or the Assets, (iii) enter into or continue any discussions,
negotiations or contracts relating to the sale, assignment, or transfer any
Assets of the Seller or the CATV Business except (a) in the ordinary course of
business and (b) for Seller's payment of dividends to its shareholders in cash,
(iv) commit any act or omit to do any act which would cause a breach of any CATV
Instrument or Seller Contract or permit any amendment to or cancellation of any
CATV Instrument or Seller Contract, (v) commit any violation of any law,
statute, rule, governmental regulation or order, (vi) change the rate charged
for Basic CATV Service or Pay TV or add or delete any program service except in
the ordinary course of business. Seller shall maintain insurance on the CATV
Business and the Assets until the Closing Date consistent with past practice and
policy, and Seller shall bear all risk of loss on or prior to Closing with
respect to the CATV Business and the Assets as a result of any loss, claim,
casualty, or calamity. At Buyer's request and expense, Seller shall also make
its budgeted capital expenditures for rebuilds, upgrades or improvements.
6.2 Agents. Seller agrees that Buyer's designated agent shall
be included in all material business discussions regarding Seller's conduct of
its affairs which are other than in the ordinary or usual course of business.
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6.3 Seller Contracts. All Seller Contracts are described on
Schedule 3 or Schedule 10. Complete and correct copies of all Seller Contracts
have been provided to Buyer. Each Seller Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of Seller
and Seller is not and to Seller's knowledge, each other party thereto is not in
breach or default of any terms or conditions thereunder.
6.4 No New Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan) to purchase securities prior to the Closing, except (i)
for the proposed issuance of Two Million (2,000,000) shares of Buyer's Class A
common stock to MCI Telecommunications Corporation ("MCI") for Thirteen Million
and no/100 Dollars ($13,000,000.00), (ii) the acquisition of the ongoing cable
television business and cable television systems of Alaskan Cable Network, Inc.,
for not more than Two Million Nine Hundred Twenty Three Thousand Seventy Seven
(2,923,077) shares of Buyer's Class A Common Stock, (iii) the acquisition of the
ongoing cable television business and cable television systems of Prime Cable of
Alaska, L.P. ("Prime"), for not more than Eleven Million Eight Hundred Thousand
(11,800,000) shares of GCI's Class A Common Stock, (iv) the Ten Million and
no/100 Dollars ($10,000,000) in notes which are convertible into GCI's Class A
Common Stock in connection with the planned acquisition of Alaska Cablevision,
Inc., and (v) the note and share holdbacks issued as part of the transactions
described in this Section 6.4. Neither Buyer nor anyone acting on Buyer's behalf
shall enter into or continue any discussions, negotiations or contracts relating
to the sale of all or any portion of its assets or equity, except in the
ordinary course of business.
6.5 Employees. Seller shall use its best efforts to preserve
its relationship with its employees and to pay to those employees all salaries,
commissions, and other compensation to which they are entitled for services
rendered prior to the Closing Date.
6.6 Access to Premises and Records. The parties shall cause
Seller and Buyer to give to the parties and their representatives full access at
reasonable times to (i) all the premises and books and records of the CATV
Business and to all of the Assets and (ii) Buyer's premises, books and records,
and each shall furnish to the parties and their representatives all information
regarding the business and properties of Seller and Buyer as shall from time to
time be reasonably requested. Furthermore, Buyer shall be given the opportunity
to perform a field audit of Seller's accounts with Seller's cooperation prior to
Closing. Buyer agrees that it will exercise this right of access solely for the
purposes of completing its investigation in connection with this Agreement and
that the confidentiality of any data or information acquired by Buyer in
connection with this transaction shall be maintained by Buyer and its
representatives in accordance with Section 17.17. Without limiting Buyer's
rights of access stated above, Seller shall permit Buyer and/or such agents or
experts as Buyer shall designate, full access to the Real
REGISTRATION STATEMENT
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<PAGE>
Property or any of it and all records concerning the Real Property during
reasonable business hours for purposes of such independent investigation Buyer
shall desire to conduct. At Buyer's sole option, such investigation may include
testing of the soil, groundwater, building components, tanks, containers and
equipment on the Real Property as Buyers or Buyer's agents or experts shall deem
necessary to determine or confirm the environmental condition of the Real
Property. Performance of such an inspection or review shall not in any way
modify or otherwise affect Buyer's rights or Seller's obligations under this
Agreement, including but not limited to Seller's representations and warranties
in Section 3.16 above.
6.7 Existing Relationships. Seller shall use its best efforts
to preserve the CATV Business as a going concern and to preserve existing
relationships with the APUC, and its suppliers, customers, and others having
business dealings with Seller. Buyer shall use its best efforts to preserve its
business as a going concern and to preserve its existing relationships with
suppliers, customers and others having business dealings with it.
6.8 Required Consents. Seller and Buyer agree to cooperate and
use their reasonable commercial efforts to obtain all Required Consents in a
form and upon terms and conditions reasonably satisfactory to Buyer. Seller will
afford Buyer the opportunity to review, approve, and revise the form of Required
Consents prior to delivery to any consenting party. Nothing contained herein
shall be deemed to require Buyer to undertake any extraordinary or unreasonable
measures to obtain such Required Consents, including, without limitation, the
initiation or prosecution of legal proceedings, the payment of any fees, or
agreeing to change any terms of any CATV Instruments or Seller Contracts.
6.9 Compliance with CLI Standards. Seller shall notify Buyer
at least ten days prior to the annual CLI compliance and reporting tests, which
tests shall be made no later than June 30, 1996, and representatives of Buyer
and Seller shall jointly inspect the CATV Systems to determine if the CATV
Systems are reasonably in compliance with the CLI standards under applicable FCC
rules and regulations ("CLI Standards") and to the extent the CATV Systems or
any portion thereof are not in compliance with CLI Standards, to determine the
steps to be taken by Seller (including, to the extent required, the replacement
or upgrading of equipment and the institution of maintenance procedures) in
order to cause the CATV Systems to reasonably comply with CLI Standards prior to
the Closing Date ("the Remedial Steps"). If Buyer and Seller fail to agree as to
whether the CATV Systems or any portion thereof reasonably complies with CLI
Standards or as to the Remedial Steps to be taken, Buyer and Seller shall
jointly select a qualified engineering firm to inspect the CATV Systems (the
"Inspector"). Seller shall cooperate fully with any representative of the
Inspector in making such inspection. Once the inspection is completed, the
Inspector shall, as promptly as practical after its engagement, deliver a
written report to Buyer and Seller stating whether or not the CATV Systems are
in compliance and if not, recommend Remedial Steps which will cause the
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<PAGE>
CATV Systems to fully comply with CLI Standards. The Inspector's determination
and report shall be final and binding on Buyer and Seller. Fees and expenses
incurred by the Inspector shall be paid by Buyer if the CATV Systems are found
by the Inspector to comply and by Seller if any substantial portion of the CATV
System is found not to comply with CLI Standards.
6.10 MDU Agreements. Seller represents and warrants that
agreements have been granted to Seller from all MDU property owners serviced by
Seller, and that they have provided access to all such agreements to Buyer which
are listed on Schedule 11.
6.11 Public Announcements. Except as may be required by
applicable law or regulation, neither Buyer nor Seller shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other parties, which consent shall not be unreasonably withheld and shall be
promptly given. Notwithstanding the foregoing, Seller acknowledges and agrees
that Buyer shall make all press releases it deems necessary under the securities
law, rules and regulations.
6.12 Due Diligence. Within 10 days after the date of execution
of this Agreement, the parties agree to deliver fully completed Schedules and
all due diligence materials reasonably requested by any party. Any party shall
have 10 days after receipt to review such completed Schedules and due diligence
materials and to notify the applicable party of any problems or concerns arising
as a result of such review. If Seller and Buyer are unable to resolve any such
problems or concerns by negotiating a mutually satisfactory modification to this
Agreement, the objecting party shall have the right to terminate this Agreement
within 10 days after notifying the other parties of such problems or concerns
and no party shall have any further obligations hereunder.
6.13 Correction of any Noncompliance Prior to Closing.
Notwithstanding any other provision of this Agreement, the parties acknowledge
and agree that further investigation is required to determine whether the
representations and warranties contained in Sections 3.15, 3.16, 3.23, 3.24 and
3.25 are true and correct as of the date of execution of this Agreement. To the
extent that the parties determine that any such representation and warranty is
not true and correct as of the date of execution of this Agreement, the parties
intend that Seller shall take whatever action is necessary to assure that such
representations and warranties are true and correct as of the Closing Date and
the fact that such representations and warranties were not true and correct as
of the date of execution of this Agreement shall not be deemed to be a breach of
this Agreement. With respect to any filings and associated payments required to
be made by Seller in order to make the representations and warranties contained
in Sections 3.23, 3.24, 3.25 and 3.27 true and correct, copies of such filings
indicating the filing date with the FCC, the APUC, or Copyright Office, as
appropriate, shall be delivered to Buyer at least ten (10) days prior to the
Closing Date.
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<PAGE>
6.14 Leased Equipment. Seller shall pay the remaining balances
on any leases for Equipment used in the CATV Business and deliver title to such
Equipment free and clear of all Encumbrances (other than Permitted Encumbrances)
to Buyer at the Closing.
6.15 Estoppel Certificates and Franchise Forms
6.15.1 Seller will use its reasonable efforts to
obtain, at its expense, such estoppel certificates or similar documents from
lessors and other Persons who are parties to Seller Contracts as Buyer may
reasonably request.
6.15.2 Seller will execute and deliver to the
appropriate Governmental Authority, the FCC Forms 394 prepared by Buyer with
respect to each franchise as to which such Form 394 is required within two
Business Days after it receives each such Form 394 from Buyer.
6.16 HSR Notification. To the extent applicable, as soon as
practicable after the execution of this Agreement, but in any event no later
than 45 days after such execution, Seller and Buyer will each complete and file,
or cause to be completed and filed, any notification and report required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"); and each such filing shall request early termination of the
waiting period imposed by the HSR Act. The parties shall use their reasonable
best efforts to respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from any other Governmental
Authority in connection with antitrust matters. Seller and Buyer shall use their
respective reasonable best efforts to overcome any objections which may be
raised by the FTC, the Antitrust Division or any other Governmental Authority
having jurisdiction over antitrust matters. Notwithstanding the foregoing, Buyer
shall not be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of Buyer or
any of its Affiliates, if Buyer determines in good faith that such change would
be materially adverse to the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates having
significant assets, net worth, or revenue. Notwithstanding anything to the
contrary in this Agreement, if Buyer, in its sole opinion, considers a request
from a governmental agency for additional data and information in connection
with the HSR Act to be unduly burdensome, Buyer may terminate this Agreement.
Within 10 days after receipt of a statement therefor, Seller will reimburse
Buyer for one-half of the filing fees payable by Buyer in connection with
Buyer's filing under the HSR Act.
6.17 No Shopping. Neither the Seller, its partners or any
agent or representative of any of them will, during the period commencing on the
date of this
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<PAGE>
Agreement and ending with the earlier to occur of the Closing or the termination
of this Agreement, directly or indirectly (a) solicit or initiate the submission
of proposals or offers from any Person for, or (b) furnish any information to
any Person other than Buyer relating to, any direct or indirect acquisition or
purchase of all or any portion of the Assets.
6.18 Notification of Certain Matters. Seller will promptly
notify Buyer of any fact, event, circumstance or action (a) which, if known on
the date of this Agreement, would have been required to be disclosed to Buyer
pursuant to this Agreement or (b) the existence or occurrence of which would
cause any of Seller's representations or warranties under this Agreement not to
be correct and complete.
6.19 Risk of Loss; Condemnation
6.19.1 Seller will bear the risk of any loss or
damage to the Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If any such loss or
damage is so substantial as to prevent normal operation of any material portion
of a System or the replacement or restoration of the lost or damaged property
within 20 days after the occurrence of the event resulting in such loss or
damage, Seller will immediately notify Buyer of that fact and Buyer, at any time
within 10 days after receipt of such notice, may elect by written notice to
Seller either (i) to waive such defect and proceed toward consummation of the
acquisition of the Assets in accordance with terms of this Agreement or (ii)
terminate this Agreement. If Buyer elects so to terminate this Agreement, Buyer
and Seller will be discharged of any and all obligations hereunder. If Buyer
elects to consummate the transactions contemplated by this Agreement
notwithstanding such loss or damage and does so, there will be no adjustment in
the consideration payable to Seller on account of such loss or damage but all
insurance proceeds payable as a result of the occurrence of the event resulting
in such loss or damage will be delivered by Seller to Buyer, or the rights to
such proceeds will be assigned by Seller to Buyer if not yet paid over to
Seller.
6.19.2 If, prior to the Closing, any part of or
interest in the Assets is taken or condemned as a result of the exercise of the
power of eminent domain, or if a Governmental Authority having such power
informs Seller or Buyer that it intends to condemn all or any part of the Assets
(either such event, a "Taking"), then Buyer may terminate this Agreement. If
Buyer does not elect to terminate this Agreement, then (a) Buyer will have the
sole right, in the name of Seller, if Buyer so elects, to negotiate for, claim,
contest and receive all damages with respect to the Taking, (b) Seller will be
relieved of its obligation to convey to Buyer the Assets or interests that are
the subject of the Taking, (c) at the Closing, Seller will assign to Buyer all
of Seller's rights to all damages payable with respect to such Taking and will
pay to Buyer all damages previously paid to Seller with respect to the Taking
and (d) following the Closing, Seller will give Buyer such further assurances of
such rights and assignment with respect to the taking as Buyer may from time to
time reasonably request.
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6.20 Lien and Judgment Searches. Buyer will obtain at Seller's
expense, (a) the results of a lien search conducted by a professional search
company of records in the offices of the secretaries of state in each state and
county clerks in each county where there exist tangible Assets, and in the state
and county where Seller's principal office are located, including copies of all
financing statements or similar notices or filings (and any continuation
statements) discovered by such search company and (b) the results of a search of
the dockets of the clerk of each federal and state court sitting in the city,
county or other applicable political subdivision where the principal office or
any material assets of Seller may be located, with respect to judgments, orders,
writs or decrees against or affecting Seller or any of the Assets.
6.21 Transfer Taxes. Seller and Buyer will share equally the
payment of any state or local sales, use, transfer, excise, documentary or
license taxes or fees.
6.22 Letter to Programmers. At Buyer's request, Seller will
transmit a letter in the form of Exhibit H to all programmers from which Seller
purchases programming.
6.23 Updated Schedules. Not less than five business days prior
to Closing, Seller will deliver to Buyer revised copies of Schedules 1 through
11 which shall have been updated and marked to show any changes occurring
between the date of this Agreement and the date of delivery; provided, however,
that for purposes of Seller's representations and warranties and covenants in
this Agreement, all references to the Schedules will mean the version of the
Schedules attached to this Agreement on the date of signing, and provided
further that if the effect of any such updates to Schedules is to disclose any
one or more additional properties, privileges, rights, interests or claims as
Assets, Buyer, at or before Closing, will have the right (to be exercised by
written notice to Seller) to cause any one or more of such items to be
designated as and deemed to constitute Excluded Assets for all purposes under
this Agreement.
6.24 Use of Seller's Name. Buyer may continue to operate the
Systems using the Seller's rights to its name and all derivations and
abbreviations of such name and related marks. Within 180 days after the Closing
Date, Buyer will discontinue using and will dispose of all items of stationery,
business cards and literature bearing such names or marks. Notwithstanding the
foregoing, Buyer will not be required to remove or discontinue using any such
name or mark that is affixed to converters or other items in or to be used in
subscriber homes or properties, or as are used in a similar fashion making such
removal or discontinuation impracticable for Buyer.
6.25 Subscriber Billing Services. Seller will provide to
Buyer, access its outside billing system services provider ("Transitional
Billing Services") in connection with the System and Assets acquired by Buyer.
REGISTRATION STATEMENT
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<PAGE>
6.26 Satisfaction of Conditions. Each party will use its best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 15, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect, any of the
Assumed Liabilities.
Section 7 Closing
The Closing shall occur at the offices of Foster Pepper and
Shefelman, 1111 Third Avenue, Suite 3400, Seattle, Washington 98101, at 10:00
a.m. local time, on such date acceptable to Seller and Buyer within five (5)
business days after all conditions to Closing contained in this Agreement have
been met, or at such different place, time, or date as may be agreed by Seller
and Buyer. Until the Closing or earlier termination of this Agreement, the
parties shall cooperate fully by exchanging information upon reasonable request
and in all other reasonable ways to enable all parties to prepare for the
Closing and to determine whether the conditions to the Closing have been
satisfied. Either Buyer or Seller may terminate this Agreement upon written
notice to the others if the Closing hereunder has not occurred by October 31,
1996, or, if the Alaska Public Utilities Commission's consent shall not have
been obtained by such date, then at Buyer's or Seller's option, no later than
December 31, 1996, unless APUC has earlier notified the parties that no consent
will be given to this transaction, in which case the Agreement will be
terminated at that time, and the parties shall thereupon be relieved of any
further obligation hereunder; provided, however, if a party's breach of this
Agreement has prevented the consummation of the transactions contemplated
hereby, such party shall not be entitled to terminate this Agreement under this
Section 7. The Closing Date may be further extended by mutual consent of the
parties.
Section 8 Deliveries by Seller at Closing
At Closing, Seller shall deliver to Buyer:
8.1 the Bills of Sale for the Assets in the form attached as
Exhibit A;
8.2 the Escrow Agreement in the form attached as Exhibit B;
8.3 an Assignment and Assumption of Contracts in the form
attached as Exhibit C;
8.4 one or more Assignments of Leases in the form attached as
Exhibit D and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
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8.5 an affidavit of Seller, under penalty of perjury, that
Seller is not a "foreign person" (as defined in the Foreign Investment in Real
Property Tax Act and applicable regulations) and that Buyer is not required to
withhold any portion of the consideration payable under this Agreement under the
provisions of such Act in the form attached as Exhibit I; and
8.6 motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets;
8.7 incumbency and specimen signature certificates, dated the
Closing Date, from Seller with respect to its partners executing this Agreement
and any other document delivered hereunder by or on behalf of Seller;
8.8 a certificate of Seller, dated the Closing Date, signed by
an authorized partner of Seller certifying that (A) except (1) as a result of
the taking by any person of any action contemplated under this Agreement or (2)
insofar as any representation or warranty relates to any specified earlier date,
all of the representations and warranties of Seller in this Agreement are true
and correct in all material respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and (B) Seller has performed
and complied in all material respects with all of its covenants and agreements
set forth in, and satisfied in all material respects all conditions required to
be satisfied by it pursuant to, this Agreement except as such covenants,
agreements, or conditions shall have been waived by Buyer at or before the
Closing Date;
8.9 a certified copy of resolutions of the boards of directors
for each joint venture partner, authorizing the execution and delivery by Seller
of this Agreement and any other agreements executed by Seller pursuant hereto,
and the performance of the obligations of Seller hereunder and thereunder,
together with a power of attorney authorizing Rock Associates, Inc. (formerly
Rock Investments, Inc.) to execute and deliver all documents and agreements
necessary and appropriate in connection with the closing of the transactions
pursuant to this Agreement;
8.10 an opinion of Seller's counsel, dated the Closing Date,
covering matters customary with respect to the transactions contemplated by this
Agreement, in form and substance satisfactory to Buyer;
8.11 an opinion of special communications, FCC and APUC
counsel to Seller, dated the Closing Date, covering matters customary with
respect to the APUC and FCC aspects of the transactions contemplated by this
Agreement, in the form and substance satisfactory to Buyer;
8.12 releases or terminations, in form and substance
reasonably satisfactory to Buyer, of all Security Interests with respect to the
Assets and all financing
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statements or other instruments with respect thereto except for the Permitted
Encumbrances described in Schedule 7;
8.13 to the extent in the possession of Seller or its agents,
all contracts not terminated pursuant to this Agreement, all unexpired
warranties, any leases of personal property, any business and other licenses and
permits related to Seller or the CATV Business;
8.14 to the extent in the possession of Seller or its agents,
all blueprints, schematics, drawings, maps, system design bill of materials,
engineering and technical data related to the Assets or the CATV Business;
8.15 tax, judgment, and lien searches of the relevant public
records dated no more than fifteen (15) days prior to Closing, or dated as of
such other date acceptable to Buyer and Seller, indicating all Security
Interests against the Assets, the CATV Systems, or the CATV Business; and
8.16 Schedules 1-11 which have been updated to reflect any
material changes from the date of execution of this Agreement to the Closing
Date; provided, however, that if any such change has a material adverse effect
on the condition, financial or otherwise, of Seller or the CATV Business, Buyer
shall have the right to terminate this Agreement with no further obligations to
Seller hereunder.
8.17 Non-Compete Agreement. Contemporaneously with the signing
of this Agreement, Seller is causing Rock Associates, Inc. to provide a
Non-Compete Agreement in the form attached as Exhibit E.
8.18 Guaranty. Contemporaneously with the signing of this
Agreement, Seller is causing its Partners to deliver the Guaranty in the form of
Exhibit G. The liability of Partner under the Guaranty for any indemnity for
breach by Seller of a representation, warranty or covenant shall be limited to
an amount not to exceed the value of the consideration received by Partner in
this transaction and the maximum aggregate liability of each of Seller's
Partners on the amount of consideration received by such Partner in this
transaction.
Drafts of each of the items listed in this Section 8 shall be
delivered by Seller to Buyer within a reasonable time prior to Closing for
Buyer's review and approval.
Section 9 Deliveries by Buyer at Closing
At Closing, Buyer shall deliver to Seller:
9.1 certified check or wire transfer documents evidencing
payment of the One Million Four Hundred Sixty-Six
Thousand One Hundred
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Thirty Two Dollars cash, less the Seventy-Five
Thousand and no/100 Dollars ($75,000) described in
Section 9.2, and as adjusted in accordance with
Section 2.3, constituting the Purchase Price, such
payment to be made in accordance with instructions
received from the Seller at least two business days
prior to the Closing Date;
9.2 cash in the amount of Seventy-Five Thousand Dollars
($75,000) to be placed into escrow in accordance with
Section 2.4;
9.3 a certificate of good standing of Buyer issued by the
Secretary of State of Alaska dated in 1996;
9.4 an incumbency and specimen signature certificate,
dated the Closing Date, with respect to the officers
of Buyer executing this Agreement and any other
document delivered hereunder by or on behalf of
Buyer;
9.5 a certificate of Buyer, dated the Closing Date,
signed by a proper officer of Buyer certifying that
(A) except (1) as a result of the taking by any
person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified earlier date, all
of the representations and warranties of Buyer in
this Agreement are true and correct in all material
respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and
(B) Buyer has performed and complied in all material
respects with all of its covenants and agreements set
forth in, and satisfied in all material respects all
conditions required to be satisfied by it pursuant
to, this Agreement except as such covenants,
agreements or conditions shall have been waived by
Seller at or before the Closing Date;
9.6 a certified copy of resolutions of the board of
directors of Buyer authorizing the execution and
delivery of this Agreement and any other agreements
executed pursuant hereto, and the performance of the
obligations of Buyer hereunder and thereunder; and
9.7 Schedules 12-14, as applicable, which have been
updated to reflect any material changes from the date
of execution of this Agreement to the Closing Date;
provided, however, that if any such change has a
material adverse effect on the condition, financial
or otherwise, of Buyer, Seller shall have the right
to terminate this Agreement with no further
obligations to Buyer hereunder.
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Section 10 Conditions to Obligations of Buyer.
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject, at Buyer's option, to
fulfillment of each of the following conditions as of the Closing Date:
10.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Seller contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Seller, and Seller shall have performed and
complied in all material respects with all of its covenants and agreements set
forth herein and satisfied in all material respects all conditions required to
be satisfied by it pursuant to this Agreement at or before the Closing Date.
10.2 Deliveries Complete. All documents required to have been
delivered by Seller to Buyer and all actions required to have been taken by
Seller, at or prior to the Closing Date, shall have been delivered or taken.
10.2.1 Seller has executed (or caused to be executed)
and delivered to Buyer of the items set forth in Section 8.
10.2.2 Seller has delivered to Buyer: (a) evidence,
in form and substance satisfactory to Buyer, that all of the Required Consents
have been obtained or given and are in full force and effect; and (b) to the
extent obtained, the estoppel certificates or similar documents described in
Section
6.15.
10.2.3 Seller has delivered releases, in form
satisfactory to Buyer, of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances) and a certificate of no taxes due with respect to
Seller and the Assets issued by appropriate state taxing authorities as of a
date no earlier than 10 days prior to the Closing.
10.3 No Adverse Change. No material adverse change in the CATV
Business or the Assets shall have occurred (other than changes which affect the
United States CATV industry considered as a whole). The CATV Business shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects the CATV Business or the Assets, whether
or not covered by insurance; provided, however, that if Seller has repaired at
its expense all damage caused by any loss, casualty, or calamity prior to the
Closing to Buyer's reasonable satisfaction, the condition set forth in this
Section 10.3 shall be deemed satisfied.
REGISTRATION STATEMENT
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<PAGE>
10.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Buyer to realize the benefits of the
transactions contemplated herein.
10.5 Inspection. Within thirty (30) days of this Agreement,
the results and findings of a due diligence inspection of the Assets and CATV
Business by Buyer shall be satisfactory to Buyer in its reasonable discretion,
and the condition of the Assets and CATV Business shall be as represented by
Seller herein and as otherwise disclosed to Buyer prior to the date hereof.
Buyer shall notify Seller within thirty-one (31) days of this Agreement of the
results of such due diligence inspection.
10.6 Cash Flow. As of the Closing Date, McCaw/Rock Seward
Cable System Joint Venture's and ACI's twelve (12) month combined trailing
operating cash flow shall be no less than Three Million Five Hundred Thousand
and no/100 Dollars ($3,500,000.00).
Section 11 Conditions to Obligations of Seller
The obligation of Seller to consummate the transactions
contemplated by this Agreement shall be subject, at Seller's option, to
fulfillment of each of the following conditions as of the Closing Date:
11.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Buyer contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Buyer, and Buyer shall have performed and complied
in all material respects with all of its covenants and agreements set forth
herein, and satisfied in all material respects all conditions required to be
satisfied by it pursuant to this Agreement at or before the Closing Date.
11.2 Deliveries Complete. All documents required to have been
delivered by Buyer to Seller and all actions required to have been taken by
Buyer, at or prior to the Closing Date, shall have been delivered or taken.
11.3 No Adverse Change. No material adverse change in Buyer's
business shall have occurred (other than changes which affect the United States
telephone industry considered as a whole). Buyer's business operations shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially
REGISTRATION STATEMENT
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<PAGE>
and adversely affects Buyer, whether or not covered by insurance; provided,
however, that if Buyer has repaired at its expense all damage caused by any
loss, casualty, or calamity prior to the Closing to Seller's reasonable
satisfaction, the condition set forth in this Section 11.3 shall be deemed
satisfied.
11.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Seller to realize the benefits of the
transactions contemplated herein.
Section 12 Conditions to Both Parties Obligations
12.1 Consents. All Required Consents and Buyer's Required
Consents or waivers thereof shall have been obtained and shall be in full force
and effect as of the Closing Date.
12.2 No Governmental Action. No investigation, action, or
proceeding shall have been commenced by the Department of Justice or the Federal
Trade Commission or any other governmental entity challenging or seeking to
enjoin the consummation of the transactions contemplated by this Agreement and
neither Buyer nor Seller shall have been notified of a present intention by the
Assistant Attorney General in charge of the Antitrust Division of the Department
of Justice, the Director of the Bureau of Competition of the Federal Trade
Commission or any governmental entity (or their respective designees) to
commence, or recommend the commencement of, such an investigation, action, or
proceeding.
12.3 Waiver of Conditions. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
Section 13 Transactions Subsequent to Closing
13.1 Further Actions. At any time and from time to time after
the Closing, each party hereto agrees, at its own expense (except as otherwise
provided herein), to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
13.2 COBRA Benefits. Seller shall comply with all requirements
of COBRA.
Section 14 Agreement Not to Compete
14.1 Agreement. Seller and Seller's Partners shall provide to
Buyer at Closing an executed Non-Compete Agreement in the form attached to this
Agreement
REGISTRATION STATEMENT
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<PAGE>
as Exhibit F, the terms and conditions of which are hereby incorporated by
reference. Such Non-Compete Agreement shall be given in consideration of the
sale of Assets set forth herein and shall not be subject to additional
consideration.
14.2 Breach of Agreement. If this Section 14 is breached or
threatened to be breached, Company expressly consents that, in addition to any
other remedy Buyer may have, Buyer may apply to any court of competent
jurisdiction for injunctive relief in order to prevent the continuation of any
existing breach or the occurrence of any threatened breach.
14.3 Enforceability. If any provision of this Section 14 is
determined to be unreasonable or unenforceable, such provision and the remainder
of this Section 14 shall not be declared invalid but rather shall be modified
and enforced to the maximum extent permitted by law.
Section 15 Survival of Representations and Warranties; Indemnification
15.1 Survival. Except as otherwise provided, the
representations, warranties, and covenants and related indemnity agreements
contained in or made pursuant to this Agreement (including the Exhibits and
Schedules) by Buyer and by Seller shall survive the Closing and shall terminate
on the first anniversary of the Closing Date. Notwithstanding the preceding
provisions of this Section 15.1, the representations, warranties, and covenants
(and related indemnities) in Sections 3.15, 3.17, 3.18, 3.19 and 3.25 shall
survive the Closing for the period of sixty (60) days after the expiration of
the relevant statute of limitations for claims related thereto. The
representations and warranties relating to the ownership of the Assets shall
continue in full force and effect without limitation.
15.2 Indemnity by Seller. Seller and the joint venture
partners agree to indemnify, defend, and hold harmless Buyer and its officers,
directors, Affiliates, employees, attorneys, agents and shareholders (the
"Buyer's Indemnitees") against and in respect of any and all claims, suits,
actions, proceedings (formal and informal), investigations, judgments,
deficiencies, losses, damages, settlements, liabilities and expenses (including,
without limitation, reasonable legal fees and expenses of attorneys chosen by
the Buyer's Indemnitees) (collectively, "Losses"), as and when incurred arising
out of or based upon (1) any breach of any representation, warranty, covenant,
or agreement of Seller contained in this Agreement or in any other agreement
executed and delivered by Seller hereunder or in connection herewith, or (2) the
ownership of the Assets or the conduct of the CATV Business or any other matters
relating to the business of Seller for the period prior to the Closing Date,
including, without limitation, any actions taken by Seller prior to the Closing
Date but which do not become effective until after the Closing Date. No
indemnification shall be required to be made by Seller under this Section as a
result of any breach of any representation, warranty, covenant or agreement of
the Seller until the amount of Buyer's Losses under this Agreement
REGISTRATION STATEMENT
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<PAGE>
exceed, in the aggregate, $10,000. At such time as such aggregate amount of
Buyer's Losses exceeds $10,000, Buyer may seek to recover all of its Losses,
including the first dollar thereof in accordance with the provisions of this
Section, provided, however, that no indemnification shall be required in excess
of the amount of the consideration actually received, in the aggregate, pursuant
to the Agreement. Seller shall not be held liable for any unintentional error in
any representation or warranty or any unintentional inaccuracy or incompleteness
of data, information or material which it otherwise might have been liable for
hereunder if, on or before 10 business days prior to the Closing Date, Seller
shall have provided Buyer with written notices of such error, inaccuracy or
incompleteness and a written statement of the corrections necessary to cure the
same and if, notwithstanding such notice, Buyer shall have elected to close this
transaction.
15.3 Indemnity by Buyer. Buyer agrees to indemnify, defend,
and hold harmless Seller and its partners, managers, Affiliates, employees,
attorneys, agents and shareholders (the "Seller's Indemnitees") against and in
respect of any Losses as and when incurred arising out of or based upon (1) any
breach of any representation, warranty, covenant or agreement of Buyer contained
in this Agreement or in any other agreement executed and delivered by Buyer
hereunder or in connection herewith; or (2) the conduct of the CATV Business or
any other matters relating to the business of Seller for the period on and after
the Closing Date.
15.4 Defense of Claims. No right to indemnification under this
Section 15 shall be available to any of Buyer's Indemnitee or Seller's
Indemnitee (the "Indemnified Party") unless such Indemnified Party shall have
given to the party obliged to provide indemnification of such Indemnified Party
(the "Indemnitor") a notice (a "Claim Notice") describing in reasonable detail
the facts giving rise to any claim for indemnification hereunder promptly after
receipt of knowledge by officers or management personnel of the Indemnified
Party of the facts upon which such claim is based; provided, however, that the
failure of any Indemnified Party to so notify the Indemnitor shall not relieve
the Indemnitor from any indemnification liability it may have except to the
extent that failure to so notify the Indemnitor materially prejudices the
Indemnitor's ability to defend against such claim. Upon receipt by the
Indemnitor of the Claim Notice from an Indemnified Party with respect to any
claim of a third party, such Indemnitor may assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party, and the Indemnified
Party shall cooperate in the defense or prosecution thereof and shall furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested in connection therewith. The Indemnified Party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party unless (i) the
Indemnitor shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses available to it, or to any other Indemnified Party who has
submitted a Claim Notice to the Indemnitor, which are
REGISTRATION STATEMENT
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<PAGE>
different from or additional to those available to the Indemnitor, in either of
which events such fees and expenses shall be borne by the Indemnitor (but in no
event shall the Indemnitor be required to pay the fees and expenses of more than
one counsel employed by more than one Indemnified Party with respect to any
claim) and the Indemnitor shall not have the right to direct the defense of any
such action on behalf of the Indemnified Party. The Indemnified Party shall give
written notice to the Indemnitor of any proposed settlement of any claim, which
settlement the Indemnitor may reject in its reasonable judgment within ten (10)
days of receipt of such notice. The Indemnitor shall have the right, in its sole
discretion, to settle any claim for monetary damages for which indemnification
has been sought and is available hereunder.
15.5 Right to Offset. Seller and Buyer shall have the option
to recoup all or part of its Losses (in lieu of seeking any indemnification
therefor to which it is entitled under this Section 15) by notifying the other
that it is offsetting the amount of the Holdback by the amount of its Losses if
the amount of such Losses is determined before such party releases the
applicable Holdback. The Indemnitee shall notify the Indemnitor of its claim for
Losses to be offset against the applicable Holdback (including the details
forming the basis of such claim) as soon as practically possible after obtaining
knowledge of the basis for its claim for Losses to be so offset. If a party
disagrees with the asserted claim for Losses to be so offset, the parties shall
submit the dispute to arbitration. The amount of such disputed claim shall then
continue to be subject to the Holdback until the dispute is resolved. At the end
of the Holdback period, the Indemnitee shall release to Indemnitor the remaining
balance of the applicable Holdback. An arbitrator named by the accounting firm
of Deloitte & Touche, LLP shall resolve any dispute between the parties with
respect to the Losses offset against the Holdback within thirty (30) days, which
determination shall be binding and conclusive; provided, however, that if the
nature of the disputed claim is not of the type which would normally be
determined by a certified public accountant, the parties shall agree within ten
(10) days on another person to serve as the arbitrator from the list of
arbitrators maintained by the American Arbitration Association and Indemnitor
shall select an arbitrator from the list of arbitrators maintained by the
American Arbitration Association and the two (2) arbitrators so selected shall
select a third arbitrator from the list of arbitrators maintained by the
American Arbitration Association and such panel of three (3) arbitrators shall
resolve the disputed claim for Losses offset against the Holdback within thirty
(30) days. Nothing contained in this Section 15.5 shall be deemed to limit a
party's obligation to indemnity to the extent that the amount to which an
Indemnitee is entitled under Section 15 exceeds the amount of the applicable
Holdback.
15.6 Determination of Indemnified Amounts. The indemnification
obligations of the parties under this Section 15 shall be subject to the
following:
15.6.1 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 15 as
a result of any Loss suffered by the Indemnified Party shall be reduced to the
extent the amount of such Loss
REGISTRATION STATEMENT
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<PAGE>
is actually offset by the receipt by the Indemnified Party of insurance proceeds
pursuant to the terms of the insurance policies, if any, covering such Loss or
by the receipt of any recovery by the Indemnified Party from a third party with
respect to such Loss.
15.6.2 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 15 as
a result of any Loss suffered by the Indemnified Party shall be reduced by the
amount of any tax benefit actually realized by the Indemnified Party with
respect to such Loss, to the extent such benefit actually offsets such Loss,
provided that such reduced amount shall be increased by the amount of any taxes
payable by such Indemnified Party as a result of the Indemnitor's payment of
such Loss.
15.6.3 Amounts payable by the Indemnitor in respect
of any Losses shall be payable by the Indemnitor and shall bear interest at the
rate of ten and one-half percent (10.5%) per annum from the date the Loss for
which indemnification is sought were incurred by the Indemnified Party until the
date of payment of indemnification by the Indemnitor.
Section 16 Termination
16.1 Mutual Consent. This Agreement may be terminated by the
written consent of Buyer and Seller. Upon such termination, no party hereto
shall have any further liability to the other, except as provided in Section
16.2.
16.2 Default by Seller. Buyer shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that
Seller defaults in the performance of any material obligation hereunder or if
any representations or warranties of Seller are materially false, and Seller
fails to correct or satisfy such default or falsity within ten (10) days after
written notice is given to Seller or such longer period as shall be required to
correct or satisfy such default or falsity, provided that Seller promptly and
diligently prosecute the cure or satisfaction. If such notice is given within
ten (10) days of the Closing Date, the Closing shall be delayed for the number
of days to permit the cure of the default but in no event more than thirty (30)
days. In the event that Seller has failed to cure the default within the
required period, Buyer shall be entitled to exercise all of its rights in law or
in equity by reason of the breach by Seller of this Agreement. If Seller shall
breach or threaten to breach any of the provisions of this Agreement, Buyer, in
addition to any other remedies it may have at law or in equity, will be entitled
to a restraining order, injunction or other similar remedy in order to
specifically enforce the provisions of this Agreement. Seller and Buyer
specifically acknowledge that money damages alone would be an inadequate remedy
for the injuries and damage which would be suffered and incurred by Buyer as a
result of a breach by Seller of any provisions of this Agreement. In the event
that Buyer seeks an injunction hereunder, Seller hereby waives any requirement
for the posting of a bond or other security. Notwithstanding anything to the
contrary contained in this Section 16.2, Buyer
REGISTRATION STATEMENT
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<PAGE>
shall have the right to waive any default by Seller and require the transactions
contemplated by this Agreement to be consummated on the Closing Date.
16.3 Default by Buyer. Seller shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that Buyer
defaults in the performance of any material obligation hereunder or if any
representation or warranty of Buyer is materially false, and Buyer fails to
correct or satisfy such default or falsity within ten (10) days after written
notice is given to Buyer or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Buyer promptly and diligently
prosecute the cure or satisfaction. If such notice is given within ten (10) days
of the Closing Date, the Closing shall be delayed for the number of days to
permit the cure of the default but in no event more than thirty (30) days. In
the event Buyer has failed to cure the default within the required period,
Seller shall be entitled to exercise all of its rights in law by reason of
Buyer's breach of this Agreement. If Buyer shall breach or threaten to breach
the provisions of Section 17.17 of this Agreement, Seller, in addition to any
other remedies it may have at law, will be entitled to a restraining order,
injunction or other similar equitable remedy in order to specifically enforce
such provision of this Agreement. Seller and Buyer specifically acknowledge that
money damages alone would be an inadequate remedy for the injuries and damage
which would be suffered and incurred by Seller as a result of a breach by Buyer
of the provisions of Section 17.17 of this Agreement. If Seller seeks an
injunction hereunder, Buyer hereby waives any requirement for the posting of a
bond or other security. Notwithstanding anything to the contrary contained in
this Section 16.3, Seller shall have the right to waive any default by Buyer and
require the transactions contemplated by this Agreement to be consummated on the
Closing Date.
Section 17 Miscellaneous
17.1 Expenses. Except as otherwise expressly provided in this
Agreement, Seller will bear its own expenses, and Buyer will bear its own
expenses incident to the negotiation, preparation and consummation of this
Agreement and all other agreements executed and delivered by it hereunder or in
connection herewith, including all fees and expenses of its or their respective
counsel and accountants, whether or not the transactions contemplated hereby or
thereby are consummated. Seller shall pay the fees necessary in connection with
the transfer of the APUC licenses and any FCC fees necessary in connection with
any approvals which are required to be obtained by Buyer. Seller will pay the
FCC filing fees with respect to the transfer of the IB business radio licenses.
Filing fees with respect to any filing mandated by the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 shall be borne equally by Seller and Buyer.
17.2 Modification. This Agreement (including the Exhibits and
Schedules hereto) sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements among
them concerning such subject
REGISTRATION STATEMENT
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<PAGE>
matter, and may be modified only by a written instrument duly executed by each
party hereto.
17.3 Attorneys' Fees. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other party.
17.4 Right to Specific Performance. Seller and Buyer
acknowledge that the unique nature of the Assets to be purchased by Buyer
pursuant to this Agreement renders money damages an inadequate remedy for the
breach by Seller and Buyer of their obligations under this Agreement, and Seller
and Buyer agree that in the event of such breach, Seller and Buyer will upon
proper action instituted by it, be entitled to a decree of specific performance
of this Agreement.
17.5 Notice. Any notice given pursuant to this Agreement to
any party hereto shall be deemed to have been duly given five (5) business days
after being mailed by registered or certified mail, return receipt requested, or
when received if hand delivered, delivered via overnight messenger service or by
facsimile as follows:
If to Seller: Rock Associates, Inc.
135 Lake Street South, Suite
265
Kirkland, WA 98033
Attention: Sam Evans
Facsimile No.: (206) 828-0226
with a copy to:
Foster Pepper & Shefelman
Suite 3400
1111 Third Avenue
Seattle, Washington 98101
Attention: Robert Diercks
Facsimile No.: (206) 447-9700
If to Buyer: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
Attention: John M. Lowber, CFO
and Senior Vice President
Facsimile No.: (907) 265-5676
REGISTRATION STATEMENT
Page II-412
<PAGE>
or at such other address as either party shall from time to time designate by
written notice, in the manner provided herein, to the other party hereto. All
references to days in this Agreement shall be deemed to refer to calendar days
unless otherwise specified.
17.6 Waiver. Any waiver must be in writing, and any waiver by
any party of a breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
17.7 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of Seller and Buyer and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assignable by any
party without the prior written consent of the others, which consent shall not
be unreasonably withheld. Notwithstanding anything to the contrary contained
herein, Buyer may, without Seller's consent, assign its rights under this
Agreement to any Affiliate of Buyer.
17.8 No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
17.9 Rights Cumulative. All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or more
rights or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
17.10 Further Actions. Seller and Buyer will execute and
deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
17.11 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
effect at the option of the party for whose benefit such provision was made.
17.12 Captions. The Article and Section titles used in this
Agreement are inserted as a matter of convenience and for reference only and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any of the provisions hereof.
REGISTRATION STATEMENT
Page II-413
<PAGE>
17.13 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Alaska without giving effect to
conflict of laws.
17.15 Incorporation by Reference. The Exhibits and Schedules
attached hereto are an integral part of this Agreement and are incorporated
herein by reference.
17.16 Construction. This Agreement has been negotiated by
Buyer and Company and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
17.17 Confidentiality. The parties will hold and cause their
partners, officers, directors, employees, attorneys, investors, accountants,
representatives, agents, consultants, and advisors to hold in strict confidence
the provisions of this Agreement as well as all information (other than such
information as may be publicly available) furnished in connection with the
transactions contemplated by this Agreement, except as otherwise required by
law, and except as to disclosure to the parties' agents, advisors and financial
institutions. Neither party shall issue any press release or otherwise make any
public statement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Seller acknowledge
that Buyer shall issue press releases regarding the general terms and conditions
of the transactions contemplated hereby, as required by the securities
disclosure laws, rules and regulations. Buyer shall have no obligation to obtain
Seller's consent for such press releases, but shall provide Seller with copies
thereof and give reasonable consideration to Seller's suggestions thereon.
REGISTRATION STATEMENT
Page II-414
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
McCAW/ROCK HOMER CABLE SYSTEM
By: Rock Associates, Inc., one
of its Joint Venturers
By: /s/
Name:
Title:
By: McCaw Communications of
Homer, Inc., one of its Joint
Venturers
By: /s/
Name:
Title:
GENERAL COMMUNICATION, INC.
By: /s/
John M. Lowber, Senior Vice
President
REGISTRATION STATEMENT
Page II-415
<PAGE>
EXHIBIT A
Bill of Sale
Pursuant to the terms of that certain Asset Purchase Agreement
between General Communication, Inc., an Alaska corporation, and McCaw/Rock Homer
Cable Systems, a joint venture ("Seller"), dated May , 1996, Seller hereby
sells, transfers and conveys title to the fixtures and equipment and other
personal property listed on the attached Schedules numbered through ,
free and clear of all liens and encumbrances except those listed thereon, to
General Communication, Inc.
Dated , 1996.
McCAW/ROCK HOMER CABLE SYSTEMS
By:Rock Associates, Inc., one
of its joint venturers
By
Name:
Title:
REGISTRATION STATEMENT
Page II-416
<PAGE>
EXHIBIT B
Escrow Agreement
This Escrow Agreement ("Agreement") is dated as of ,
1996 and entered into among National Bank of Alaska ("Escrow Agent") McCaw/Rock
Homer Cable System, a joint venture ("Seller"), and General Communication, Inc.,
an Alaska corporation ("GCI"). Seller and GCI are collectively referred to in
this Agreement as "Transaction Parties." Seller and GCI are parties to Asset
Purchase Agreement dated as of May , 1996 ("Purchase Agreement").
For valuable consideration received, the parties agree as
follows:
1. Escrow Agent. The Transaction Parties appoint and designate
Escrow Agent as escrow agent for the purposes set forth in this Agreement, and
Escrow Agent accepts such appointment on the terms provided in this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish and
maintain an escrow account (which, together with all funds delivered to Escrow
Agent by and on behalf of Seller or GCI and earnings thereon, are referred to
collectively as the "Escrow Fund"). Upon the execution of this Agreement, GCI
shall deliver on behalf of Seller to Escrow Agent cash in the amount of
Seventy-Five Thousand and no/100 Dollars ($75,000) ("Seller's Escrow Cash").
Upon execution hereof, GCI will cause delivery to Escrow Agent of cash in the
amount of Seventy-Five Thousand and no/100 Dollars ($75,000) ("GCI Escrow
Cash"). Escrow Agent will hold and disburse the Escrow Fund in accordance with
this Agreement.
3. Disbursement of Sellers' Escrow Deposit.
(a) Except as otherwise provided in this Section
3(a), Escrow Agent will disburse the Seller's Escrow Cash to Seller on
, 199 [181 days after the Closing Date] ("Escrow Disbursement
Date"). If, prior to the Escrow Disbursement Date, Escrow Agent receives a
certificate signed on behalf of GCI (a "GCI Claim Certificate") in the form of
Exhibit A with completed information concerning the nature and amount of an
indemnification claim by GCI under the Purchase Agreement ("GCI Claim Amount"),
Escrow Agent will retain in the Escrow Fund that amount of cash equal to the
certified GCI Claim Amount for disbursement in accordance with Section 3(a)(i)
or (ii) as applicable ("Retained Seller's Cash"). Escrow Agent will disburse the
remainder of the Seller's Escrow Cash not required to be retained pursuant to
the preceding sentence to Seller on the Escrow Disbursement Date. If a GCI Claim
Certificate is delivered to Escrow Agent prior to the Escrow Disbursement Date,
Escrow Agent will retain the Retained Seller's Cash in the Escrow Fund pursuant
to this Agreement until either:
REGISTRATION STATEMENT
Page II-417
<PAGE>
(i) Escrow Agent receives joint written
instructions signed on behalf of Seller and GCI
specifying the method for disbursing the Retained
Seller's Cash in which case the Escrow Agent shall
promptly disburse the Retained Seller's Cash in
accordance with such instructions; or
(ii) Escrow Agent receives instructions
from Deloitte and Touche, LLP, or an arbitrator with
the American Arbitration Association, pursuant to
Section 15.5 of the Purchase Agreement, or an
official copy of a final, non-appealable order issued
by a court of competent jurisdiction specifying the
method for disbursement of the Retained Seller's Cash
in which case Escrow Agent shall promptly disburse
Retained Seller's Cash in accordance with such
instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the Seller's Escrow Cash in accordance
with any joint written instructions signed by the Transaction Parties.
(c) GCI will deliver a copy of any GCI Claim
Certificate to Seller contemporaneously with or before delivery of the GCI Claim
Certificate to Escrow Agent.
4. Disbursement of the GCI Escrow Deposit.
(a) Except as otherwise provided in this Section
4(a), Escrow Agent will disburse the GCI Escrow Cash to GCI on the Escrow
Disbursement Date. If, prior to the Escrow Disbursement Date, Escrow Agent
receives a certificate signed on behalf of Seller (a "Seller's Claim
Certificate") in the form of Exhibit B with completed information concerning the
nature and amount of an indemnification claim by Seller under the Purchase
Agreement ("Seller's Claim Amount"), Escrow Agent shall retain in the Escrow
Fund that amount of GCI Escrow Cash as is equal to the certified Seller Claim
Amount for disbursement ("Retained GCI Cash"). Escrow Agent will disburse the
remainder of the GCI Escrow Cash not required to be retained pursuant to the
preceding sentence to GCI on the Escrow Disbursement Date. If a Seller's Claim
Certificate is delivered to Escrow Agent prior to the Escrow Disbursement Date,
Escrow Agent will retain the Retained GCI Cash, in the Escrow Fund pursuant to
this Agreement until either:
REGISTRATION STATEMENT
Page II-418
<PAGE>
(i) Escrow Agent receives joint written
instructions signed on behalf of Seller and GCI
specifying the method for disbursing the Retained GCI
Cash, in which case such Cash shall be disbursed
promptly by Escrow Agent in accordance with such
instructions; or
(ii) Escrow Agent receives instructions
from Deloitte and Touche, LLP, or an arbitrator with
the American Arbitration Association, pursuant to
Section 15.5 of the Purchase Agreement, or an
official copy of a final, non-appealable order issued
by a court of competent jurisdiction specifying the
method for disbursement of the Retained GCI Cash, in
which case such Cash shall be disbursed promptly by
Escrow Agent in accordance with such instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the GCI Escrow Cash in accordance with any
joint written instructions signed by Seller and GCI.
(c) Seller will deliver a copy of any Seller's Claim
Certificate to GCI contemporaneously with or before delivery of the Seller's
Claim Certificate to Escrow Agent.
5. Rights, Duties and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or
determine the performance or nonperformance of any provision of any agreement
between the Transaction Parties, including, but not limited to, the Purchase
Agreement, which will not bind Escrow Agent in any manner. Escrow Agent assumes
no responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement, except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement.
(b) Escrow Agent will not be personally liable for
any act it may do or omit to do under this Agreement as such agent while acting
in good faith and in the exercise of its own best judgment, and any act done or
omitted by it in accordance with the written advice of its counsel will be
conclusive evidence of such good faith unless, in any event, the same
constitutes gross negligence or willful misconduct. Escrow Agent will have the
right at any time to consult with its counsel upon any
REGISTRATION STATEMENT
Page II-419
<PAGE>
question arising under this Agreement and will incur no liability for any delay
reasonably required to obtain the advice of counsel.
(c) Other than those notices or demands expressly
provided in this Agreement, Escrow Agent is expressly authorized to disregard
any and all notices or demands given by Seller or GCI, or by any other person,
firm or corporation, excepting only orders or process of court, and Escrow Agent
is expressly authorized to comply with and obey any and all final process,
orders, judgments, or decrees of any court, and to the extent Escrow Agent obeys
or complies with any thereof of any court, it will not be liable to any party to
this Agreement or to any other person, firm or corporation by reason of such
compliance.
(d) In consideration of the acceptance of this Escrow
by Escrow Agent, GCI agrees for it and its successors and assigns, to pay to
Escrow Agent its charges, fees and reasonable expenses as contemplated by this
Agreement. The escrow fees or charges will be Two Thousand and no/100 Dollars
($2,000.00). Such sum is intended as compensation for Escrow Agent's ordinary
services as contemplated by this Agreement. In the event Escrow Agent renders
services not provided for in this Agreement, Escrow Agent will be entitled to
receive from the Transaction Parties reasonable compensation and reasonable
costs, if any, for such extraordinary services.
(e) Escrow Agent will be under no duty or obligation
to ascertain the identity, authority or right of Seller or GCI (or their agents)
to execute or deliver or purport to execute or deliver this Agreement or any
certificates, documents or papers or payments deposited or called for or given
under this Agreement.
(f) Escrow Agent will not be liable for the outlawing
of any rights under any statute of limitations or by reason of laches in respect
of this Agreement or any documents or papers deposited with Escrow Agent.
(g) In the event of any dispute among the parties to
this Agreement as to the facts or as to the validity or meaning of any provision
of this Agreement, or any other fact or matter relating to this Agreement or to
the transactions between Seller and GCI, Escrow Agent is instructed that it will
be under no obligation to act, except in accordance with this Agreement or under
process or order of court or, if there is no such process or order, until it has
filed or caused to be filed an appropriate action interpleading Seller and GCI
and delivering the Escrow Fund (or the portion of the Escrow Fund in dispute) to
such court, and Escrow Agent will sustain no liability for its failure to act
pending such process of court or order or interpleader of action.
6. Modification of Agreement. The provisions of this Agreement
may be supplemented, altered, amended, modified, or revoked by writing only,
signed by GCI and Seller and approved in writing by Escrow Agent, and upon
payment of all fees, costs and expenses incident thereto.
REGISTRATION STATEMENT
Page II-420
<PAGE>
7. Assignment of Agreement. No assignment, transfer,
conveyance or hypothecation of any right, title or interest in and to the
subject matter of this Agreement will be binding upon any party, including
Escrow Agent, unless all fees, costs, and expenses incident thereto have been
paid and then only by the assent thereto by all parties in writing.
8. Miscellaneous.
(a) All notices and communications under this
Agreement will be in writing and will be deemed to be duly given if sent by
registered mail, return receipt requested, personal delivery or telecopier, as
follows:
To Escrow Agent: National Bank of Alaska
Escrow Department
301 W. Northern Lights Boulevard
Anchorage, Alaska 99503
Attention:Michael Walton, Vice President
Telecopy: (907) 265-2139
To GCI at: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503-2781
Attention:John M. Lowber, CFO and
Senior Vice President
Telecopy: (907) 265-5676
With a copy (which will not constitute
notice) to:
Hartig, Rhodes, Norman, Mahoney &
Edwards, P.C.
717 K Street
Anchorage, Alaska 99501-3397
Attention:Bonnie J. Stratton, Esq.
Telecopy: (907) 277-4352
To Seller at: McCaw/Rock Homer Cable System
135 Lake Street South, Suite 265
Kirkland, Washington 98033
Attention:Sam Evans
Telecopy: (206) 828-0226
REGISTRATION STATEMENT
Page II-421
<PAGE>
with a copy to:
Foster Pepper & Shefelman
Suite 3400
1111 Third Avenue
Seattle, Washington 98101
Attention:Robert Diercks
Facsimile:(206)447-9700
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any such notice or communication
given in the manner specified in this Section 8(a) will be deemed to have been
given as of the date received. In the event that Escrow Agent, in its sole
discretion, determines that an emergency exists, Escrow Agent may use such other
means of communication as Escrow Agent deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement GCI and Sellers' Agent are to deliver a jointly signed writing to
Escrow Agent or jointly advise Escrow Agent in writing, such writing may in each
and all cases are signed jointly or in counterparts and such counterparts will
be deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from
its duties or obligations under this Agreement by giving notice in writing of
such resignation to the Transaction Parties at least thirty (30) days in advance
of such resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by the Transaction Parties of
a successor escrow agent, which will be a federally chartered bank having
combined capital and surplus of at least $100,000,000.00; provided, that if any
such appointment of any successor agent is not effectuated within 30 days of
such written notice, Escrow Agent may file an action for interpleader and
deposit all funds with a court of competent jurisdiction, all as provided for in
Section 5(g). Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by GCI, Seller, Escrow Agent
and the successor escrow agent. Any successor escrow agent appointed under the
provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent.
REGISTRATION STATEMENT
Page II-422
<PAGE>
(e) GCI and Seller hereby jointly and severally agree
to indemnify Escrow Agent for, and to hold it harmless against, any loss,
liability or reasonable out-of-pocket expense arising out of or in connection
with this Agreement and carrying out its duties hereunder, including the
reasonable out-of-pocket costs and expenses of defending itself against any
claim of liability, except in those cases where Escrow Agent has been guilty of
gross negligence or willful misconduct (provided, that in no event will the
Transaction Parties be liable for any allocated cost or expense of persons
regularly employed by Escrow Agent). Anything in this Agreement to the contrary
notwithstanding, in no event will Escrow Agent be liable for special, indirect
or consequential loss or damage of any kind whatsoever (including, but not
limited to, lost profits), even if Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(h) This Agreement will be governed by and construed
in accordance with the law of the State of Alaska without regard to its
principles of conflicts of laws and any action brought under this Agreement will
be brought in the courts of the State of Alaska, located in the Third Judicial
District at Anchorage. Each party hereto irrevocably waives any objection on the
grounds of venue, forum non-convenience or any similar grounds and irrevocably
consents to service of process by mail or in any other manner permitted by
applicable law and consents to the jurisdiction of such courts.
(i) Except as otherwise specified herein, each of the
parties will pay all costs and expenses incurred or to be incurred by it in
negotiating and preparing this Escrow Agreement and in closing and carrying out
the transactions contemplated by this Escrow Agreement.
(j) If any legal action or proceeding is brought for
the enforcement of this Escrow Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Escrow Agreement, the successful or prevailing party or parties will be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
The parties have caused this Agreement to be signed
the day and year first above written.
NATIONAL BANK OF ALASKA, N.A.
By
Roderick R. Shipley,
Senior Vice President
REGISTRATION STATEMENT
Page II-423
<PAGE>
GCI:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
TIN:
Seller:
McCAW/ROCK HOMER CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
TIN:
REGISTRATION STATEMENT
Page II-424
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of General Communication, Inc.
("GCI"), certifies as follows:
A. GCI and McCaw/Rock Homer Cable System ("Seller") are
parties to that certain Asset Purchase Agreement dated as of May , 1996
("Purchase Agreement").
B. GCI in good faith believes that Seller has breached certain
representations, warranties, covenants or obligations made by Seller in the
Purchase Agreement or are obligated to indemnify GCI with respect to certain
claims. In particular, GCI in good faith is asserting claims against Seller
based on the following:
[reasonably detailed description of claim and
reference to portion of Purchase Agreement in
question to be inserted by GCI at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of GCI's notice to
Seller relating to the claim pursuant to the Purchase Agreement. GCI intends to
pursue the claim with due diligence. GCI in good faith believes the amount of
its claim described in its notice is $ .
D. GCI is furnishing this Certificate to National Bank of
Alaska which is acting as Escrow Agent pursuant to the terms of an Escrow
Agreement dated , 1996 among GCI, McCaw/Rock Homer Cable System
("Seller") and National Bank of Alaska. GCI has delivered or contemporaneously
is delivering a copy of this Certificate to Seller as well.
This Certificate is signed this day of , 199 .
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
Receipt of this Certificate is acknowledged this day of
, 199 .
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-425
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of McCaw/Rock Homer Cable System
("Seller") certifies as follows:
A. Seller and General Communication, Inc. ("GCI") are parties
to that certain Asset Purchase Agreement dated as of May , 1996 ("Purchase
Agreement").
B. Seller, in good faith, believes that GCI has breached
certain representations, warranties, covenants or obligations made by GCI in the
Asset Purchase Agreement or is obligated to indemnify Seller. In particular,
Seller, in good faith, is asserting claims against GCI based on the following:
[reasonably detailed description of claim and reference to portion of Purchase
Agreement in question to be inserted by Seller at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of Seller's notice
to GCI relating to the claim pursuant to the Purchase Agreement. Seller intends
to pursue the claim with due diligence. Seller, in good faith, believes the
amount of the claim described in its notice is $ .
D. Seller is furnishing this Certificate to National Bank of
Alaska which is acting as Escrow Agent pursuant to the terms of an Escrow
Agreement dated , 1996 among GCI, Seller and National Bank of Alaska.
Seller has delivered or contemporaneously is delivering a copy of this
Certificate to GCI as well.
This Certificate is signed this day of , 19 .
McCAW/ROCK HOMER CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
Receipt of this Certificate is acknowledged this day of
, 1996.
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-426
<PAGE>
EXHIBIT C
Assignment and Assumption Agreement
THIS ASSIGNMENT ("Assignment") is made effective as of
, 1996, by and between McCAW/ROCK HOMER CABLE SYSTEM, a joint venture, 135 Lake
Street South, Kirkland, Washington 98033 ("Assignor") and GENERAL COMMUNICATION,
INC., an Alaska corporation, 2550 Denali Street, Suite 1000, Anchorage, Alaska
99503 ("Assignee").
R E C I T A L S
A. Assignor is a party to that certain contract by and between
Assignor, and ("Contracting Party"), effective as of
, 19 ("Contract"), a true and complete copy of which is
attached hereto as Exhibit A and incorporated herein.
B. Pursuant to Section of the Contract, Assignor has the
right at any time to assign the contract upon the written approval of
Contracting Party.
C. Assignor and Assignee have entered into an Asset Purchase
Agreement dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee
is purchasing all of the assets of Assignor except those expressly excluded in
the Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has
agreed to assign and Assignee has agreed to assume all of Assignor's right,
title and interest in and obligations under the Contract.
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required
approval of Contracting Party as provided in Section 2 below, Assignor hereby
assigns and transfers to Assignee all of Assignor's right, title and interest in
the Contract, and Assignee hereby accepts the assignment and assumes and agrees
to perform, and fully comply with, from the effective date of this Assignment,
as a direct obligation to the Contracting Party, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Contract.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising under the Contract, from and after the
date of approval of this Assignment.
REGISTRATION STATEMENT
Page II-427
<PAGE>
2. Approval by Contracting Party. Assignor agrees to
act promptly and in good faith to obtain the written approval of this Assignment
by the Contracting Party as required by Section of the Contract.
3. Assignor's Warranty. Except as otherwise provided
in the Asset Purchase Agreement, Assignor hereby warrants that as of the
effective date of this Assignment the Contract is in good standing, with no
material claims, lawsuits, liens, or defaults; and with all required monies,
fees, and other payments having been timely made; and that Assignor and
Contracting Party are in substantial compliance with all Contract terms.
4. Successors. This Assignment shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns.
5. Governing Law. This Assignment shall be governed
by the laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed
this Assignment on the date first written below.
ASSIGNOR:
McCAW/ROCK HOMER CABLE SYSTEM
By: Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
ASSIGNEE:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-428
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
The Contracting Party hereby acknowledges and consents
to the above Assignment and agrees to render to Assignee the performance
formerly due the Assignor under the terms of the Contract. The Contracting Party
hereby releases Assignor from all obligations of the Contract from and after the
date hereof and from the date hereof agrees to look solely to Assignee for the
performance of the obligations under the Contract.
-----------------------
By
Name:
Title:
REGISTRATION STATEMENT
Page II-429
<PAGE>
EXHIBIT D
Assignment of Lease
THIS ASSIGNMENT OF LEASE ("Assignment") is made
effective as of , 1996, by and between McCAW/ROCK HOMER CABLE
SYSTEM, a joint venture, 135 Lake Street South, Kirkland, Washington 98033
("Assignor"), and GENERAL COMMUNICATION, INC., an Alaska corporation, 2550
Denali Street, Suite 1000, Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is the lessee under that certain Lease by and
between Assignor and ("Lessor"), dated
effective as of , 19 , ("Lease"), a true and complete copy of which
is attached hereto as Exhibit A and incorporated herein; and which Lease is made
of record by a Memorandum of Lease dated , 19 , and recorded in
the Recording District on , 19 ,
in Book , at Page , a true and complete copy of which memorandum is
attached hereto as Exhibit B and incorporated herein.
B. Pursuant to Section of the Lease, Assignor has the
right at any time to assign the Lease upon the written approval of Lessor.
C. Assignor and Assignee have entered into an Asset Purchase
Agreement dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee
is purchasing all of the assets of Assignor except those expressly excluded in
the Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has
agreed to assign and Assignee has agreed to assume all of Assignor's right,
title and interest in and obligations under the Lease.
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required
approval of Lessor as provided in Section 2 below, Assignor hereby assigns,
conveys and transfers to Assignee all of Assignor's right, title and interest in
the Lease, and Assignee hereby accepts the assignment and assumes and agrees to
perform, and fully comply with, from the effective date of this Assignment, as a
direct obligation to the Lessor under the Lease, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Lease.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising from and after the date of the approval
of the Assignment.
REGISTRATION STATEMENT
Page II-430
<PAGE>
2. Approval by Lessor. Assignor agrees to act
promptly and in good faith to obtain the written approval of this Assignment by
the Lessee as required by Section of the Lease.
3. Assignor's Warranty. Except as otherwise provided
in the Asset Purchase Agreement, Assignor hereby warrants that as of the
effective date of this Assignment the Lease is in good standing, with no
material claims, lawsuits, liens, or defaults; and with all required rents,
fees, and other payments having been timely made, and that Assignor and Lessor
are in substantial compliance with all Lease terms.
4. Successors. This Assignment shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns.
5. Recording. The parties, in conjunction with the
Lessor, agree to execute a Notice of Assignment of Lease suitable for recording
purposes, the form of which is attached hereto as Attachment 1.
6. Governing Law. This Assignment shall be governed
by the laws of the State of Alaska. Venue for any action hereunder shall be in
Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed
this Assignment on the date first written below.
ASSIGNOR:
McCAW/ROCK HOMER CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-431
<PAGE>
ACKNOWLEDGMENTS
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Homer Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by , of
General Communication, Inc., an Alaska corporation, on behalf of said
corporation.
Notary Public in and for the State of Alaska
My commission expires:
REGISTRATION STATEMENT
Page II-432
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
Lessor in the above-referenced Lease,
hereby acknowledges and consents to the above assignment and agrees to render to
Assignee the performance due under the terms of said Lease. Lessor hereby
releases Assignor from all obligations of the Lease from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of Lessee's obligations under the Lease.
LESSOR:
McCAW/ROCK HOMER CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Homer Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
REGISTRATION STATEMENT
Page II-433
<PAGE>
RECORD THIS INSTRUMENT
IN THE
RECORDING DISTRICT.
ATTACHMENT 1 TO EXHIBIT "D"
Notice of Assignment of Lease
This Notice of Assignment of Lease ("Notice") is made by and
among McCaw/Rock Homer Cable System, a joint venture, 135 Lake Street South,
Kirkland, Washington 98033 ("Assignor"), and General Communication, Inc. an
Alaska corporation, 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503, and
is made effective this day of , 199 .
1. Under an Assignment of Lease dated , 199 ,
Assignor has assigned and Assignee has accepted all of Assignor's right, title
and interest in the Lease, a memorandum of which was recorded in the
recording district on , in Book , Page .
2. The subject property description is as set out on the
attached Schedule A.
McCAW/ROCK HOMER CABLE SYSTEM
By: Rock Associates, Inc., one
of its joint venturers
DATED: By:
Name:
Title:
GENERAL COMMUNICATION, INC.
DATED: By:
Name:
Title:
REGISTRATION STATEMENT
Page II-434
<PAGE>
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Homer Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by , of
General Communication, Inc., an Alaska corporation, on behalf of said
corporation.
Notary Public in and for the State of Alaska
My commission expires:
AFTER RECORDING, RETURN TO:
Hartig, Rhodes, Norman,
Mahoney & Edwards, P.C.
717 K Street
Anchorage, Alaska 99501
Attn.: Bonnie J. Stratton, Esq.
(907) 276-1592
REGISTRATION STATEMENT
Page II-435
<PAGE>
EXHIBIT E
Non-Compete Agreement
, 1996
Gentlemen:
Reference is made to that certain Asset Purchase Agreement
dated as of May , 1996, (the "Agreement") among McCaw/Rock Homer Cable
System, a joint venture ("Seller") and General Communication, Inc. ("Buyer").
This letter is being delivered to you pursuant to Section 14 of the Agreement.
Capitalized terms used herein, unless otherwise defined herein, shall have the
meanings ascribed to them in the Agreement. The undersigned partner of Seller,
to induce Buyer to perform its obligations under and to consummate the
transactions described in the Agreement, is providing this Non-Compete
Agreement.
The undersigned agrees that as of the date hereof, through the
Closing Date, and for a period of five (5) years thereafter, it will not, and it
will cause its key employees for so long as such employees are employed by it,
not to, own, manage, operate, join, control, or be connected with (as an
employee, consultant, partner, officer, director, shareholder or investor, other
than through ownership of up to a five percent (5%) equity interest in a
publicly traded entity), any business competing with Seller in the provision of
CATV services related to distribution, by means of cable, microwave, fiber
optic, satellite receivers, or broadcasts, both terrestrial and spatial, of
data, audio, and video signals, to businesses, residences, multi-family
dwellings, hotels, motels, trailers, and other users, within the Service Area.
If the terms or provisions of this Non-Compete Agreement are
breached or threatened to be breached, the undersigned, on its own behalf and on
behalf of its Affiliates, employees, officers, and directors, expressly consent
that, in addition to any other remedy Buyer may have, Buyer may apply to any
court of competent jurisdiction for injunctive relief in order to prevent the
continuation of any existing breach or the occurrence of any threatened breach.
If any provision of this Non-Compete Agreement is determined
to be unreasonable or unenforceable, such provision and the remainder of this
Non-Compete
REGISTRATION STATEMENT
Page II-436
<PAGE>
Agreement shall not be declared invalid, but rather shall be modified and
enforced to the maximum extent permitted by law.
Very truly yours,
ROCK ASSOCIATES, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-437
<PAGE>
EXHIBIT F
Guaranty
FOR VALUE RECEIVED, and in order to induce GENERAL
COMMUNICATION, INC., a Alaska corporation ("Buyer"), to enter into that certain
Asset Purchase Agreement ("Agreement"), dated as of May , 1996, between Buyer
and McCAW/ROCK HOMER CABLE SYSTEM, a joint venture ("Seller"), and to induce
Buyer to perform its obligations under and to consummate the transactions
described in the Agreement the undersigned ("Guarantor"), agrees as follows:
1. Definitions. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
2. Representations and Warranties of Guarantor. Guarantor
represents and warrants to Buyer that this Guaranty is Guarantor's legal, valid,
and binding obligation, enforceable against Guarantor in accordance with its
terms.
3. Guaranty. Guarantor, severally, and not jointly, hereby
absolutely, irrevocably and unconditionally, subject to the provisions herein,
guarantees the full and prompt payment when due of any and all monies which may
become due and payable at any time (1) as a result of breaches of Seller's
representations, warranties and covenants under the Agreement, or (2) under or
pursuant to indemnification provisions therein ("Obligations"). Guarantor
further agrees that the following terms and conditions shall apply to this
Guaranty:
(a) This Guaranty is in all respects continuing,
absolute and unconditional.
(b) This Guaranty is a guaranty of payment when due,
and not of collection.
(c) Buyer may, from time to time, at Buyer's sole
discretion and without notice to Guarantor, take any or all of the following
actions:
(i) Obtain or accept a security interest
in any property of Seller to secure payment of any or all of the Obligations;
(ii) Obtain the primary or secondary
obligation of any third party in addition to Guarantor with respect to any or
all of the Obligations;
(iii) Release, compromise or extend any
of the Obligations or any obligation of any nature of any other obligor with
respect to any of the Obligations;
REGISTRATION STATEMENT
Page II-438
<PAGE>
(iv) Release, compromise or extend any
obligation of Guarantor hereunder; and
(v) Release any security interest in, or
surrender, release, or permit any substitution or exchange for, all or any part
of any property securing any of the Obligations or any obligation hereunder, or
release, compromise, extend, alter, or modify any obligation of any nature of
any obligor with respect to any such property.
(d) As between Buyer and Guarantor, Buyer may apply
any amounts it receives from any source for any Obligation (arising by whatever
means) toward the payment of any Obligation then due and payable, in such order
of application as Buyer may from time to time elect. Notwithstanding any
performance or payments made by or for the account of Guarantor pursuant to this
Guaranty, Guarantor will not be subrogated to any rights of Buyer until Buyer
shall have received full performance and payment of all of the Obligations and
Guarantor's performance of all obligations hereunder. Without limiting the
generality of the foregoing, Guarantor agrees and acknowledges that if Buyer is
required at any time to return all or any part of any payment applied by Buyer
to the payment of the Obligations or any costs or expenses covered by this
Guaranty, whether by virtue of Seller's insolvency, bankruptcy, or
reorganization or otherwise, the Obligations to which the returned payment was
applied shall be deemed to have continued in existence and this Guaranty shall
continue to be effective or to be reinstated, as the case may be, as to such
Obligations, as though such payment had not been received and Buyer had not made
such application.
(e) Guarantor hereby expressly waives:
(i) Notice of Buyer's acceptance of this
Guaranty;
(ii) Presentment, demand, notice of
dishonor, protest, and all other notices whatsoever; and
(iii) All diligence in collection of or
realization upon any payments on, or assurance of performance of, any of the
Obligations or any obligation hereunder, or in collection on, realization upon,
or protection of any security for, or guaranty of, any of the Obligations or any
obligation hereunder.
(f) Provided that, notwithstanding anything set forth
above, the guaranty of Guarantor and Guarantor's obligations hereunder shall be
limited to an amount: (a) which does not exceed such Guarantor's pro rata
portion of such liability or liabilities based upon a percentage determined by
dividing the value of the consideration actually received by such Guarantor
pursuant to the Agreement by the aggregate value of all the consideration
actually received by all Guarantors pursuant to the Agreement (including value
received by any Guarantor released or waived pursuant to the above
REGISTRATION STATEMENT
Page II-439
<PAGE>
provisions), and (b) which does not exceed, in the aggregate, the amount of
consideration received by such Guarantor pursuant to the Agreement.
4. Notices. All notices and communications under this Guaranty
shall be in writing and shall be deemed to have been duly given when delivered
by messenger, by overnight delivery service, or by facsimile (receipt
confirmed), or mailed by first class certified mail, return receipt requested;
if to Guarantor addressed to , ,
Attention: ; and if to Buyer, addressed to Buyer's address set
forth in the Agreement; or in each case to such other address respectively as
the party shall have specified by notice to the other.
5. Integration, Assignment, Modification, Payment of Expenses
and Construction. This Guaranty constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any prior
written or oral agreements between Guarantor and Buyer. Guarantor may not assign
this Guaranty without Buyer's prior written consent. Subject to the foregoing,
this Guaranty will inure to Buyer's benefit, and be binding upon Guarantor, and
their respective successors and assigns. This Guaranty may be amended or
modified only by a writing signed by Guarantor and Buyer. Buyer and Guarantor
shall each pay its own costs and expenses in connection with the negotiation and
execution of this Guaranty. Guarantor agrees to pay all of Buyer's expenses
(including, without limitation, costs and expenses of litigation and reasonable
attorneys' fees) in enforcing or endeavoring to realize upon this Guaranty or in
endeavoring to collect any amount payable under this Guaranty which is not paid
when due. The unenforceability or invalidity of any provision of this Guaranty
shall not affect the validity of the remainder of this Guaranty.
6. Waiver. The failure of Buyer to insist upon strict
performance of any of the terms, conditions, agreements, or covenants in this
Guaranty in any one or more instances shall not be deemed to be a waiver by
Buyer of its rights to enforce thereafter any of such terms, conditions,
agreements, or covenants. Any waiver by Buyer of any of the terms, conditions,
agreements, or covenants in this Guaranty must be in writing signed by Buyer.
7. Applicable Law. This Guaranty will be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Alaska, without regard to the conflicts of laws rules of such state. Venue for
any action shall be at Anchorage, Alaska.
8. Section Headings. The section headings used in this
Guaranty are for the convenience of Buyer and Guarantor only and shall not
affect the construction or interpretation of the provisions of this Guaranty.
REGISTRATION STATEMENT
Page II-440
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed as of , 1996.
------------------------------
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-441
<PAGE>
EXHIBIT G
Letter to Programmers
[DATE]
To: Programmer from
Dear :
The purpose of this letter is to inform you of the
impending sale of systems now owned by McCaw/Rock Homer Cable System ("Seller")
to General Communication, Inc. ("GCI"). GCI will not assume the Seller's
programming contract currently in place to serve the systems described in the
Asset Purchase Agreement dated May , 1996, between GCI and Seller. This is
not a notice deleting your programming from these systems; GCI or its agent will
contact you about continuation of coverage of your service.
Very truly yours,
REGISTRATION STATEMENT
Page II-442
<PAGE>
EXHIBIT H
Affidavit
STATE OF )
) ss.
COUNTY OF )
This Affidavit is delivered pursuant to the Asset Purchase
Agreement dated as of May , 1996, between McCaw/Rock Homer Cable System, a
joint venture ("Seller") and General Communication, Inc., an Alaska corporation
("Buyer"). Section 1445 of the United States Internal Revenue Code of 1986, as
amended ("IRC"), provides that a transferee of a United States real property
interest must withhold tax if the transferor is a foreign person. The
undersigned, being the duly elected of Seller and being duly sworn,
certifies and agrees on behalf of Seller as follows:
1. Seller is not a foreign person, foreign corporation,
foreign partnership, foreign trust, or foreign estate (as those terms are
defined in the IRC and the regulations promulgated thereunder).
2. Seller's U.S. taxpayer identification number is .
3. Seller understands that this certification may be disclosed
to the Internal Revenue Service.
4. Seller hereby agrees to indemnify and hold harmless Buyer
and Buyer's partners and agents of, from and against any and all loss,
liability, interest, penalties, costs, damages, claims or causes of action which
may arise or be incurred by Buyer or Buyer's agents by reason of any failure of
any representation or warranty made in this Affidavit to be true and correct in
all respects, including but not limited to any liability for failure to withhold
any amount required under IRC section 1445.
Dated this day of , 1996.
SELLER:
McCAW/ROCK HOMER CABLE SYSTEM
By: Rock Associates, Inc., one of its
joint venturers
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-443
<PAGE>
STATE OF )
) ss.
COUNTY OF )
SUBSCRIBED AND SWORN to before me this day of
, 1996 by , on behalf of Rock Associates,
Inc. as a joint venture partner of McCaw/Rock Homer Cable System, a joint
venture.
Notary Public in and for the State of
My commission expires:
REGISTRATION STATEMENT
Page II-444
EXHIBIT 2.7
ASSET PURCHASE AGREEMENT
dated as of
May , 1996
between
GENERAL COMMUNICATION, INC.
or its wholly-owned subsidiary
an Alaska corporation
("Buyer")
and
McCAW/ROCK SEWARD CABLE SYSTEM,
a joint venture
("Seller")
REGISTRATION STATEMENT
Page II-445
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions...................................................................................452
1.1 Affiliate............................................................................452
---------
1.2 APUC.................................................................................452
----
1.3 APUC Certificate.....................................................................452
----------------
1.4 Assets...............................................................................452
------
1.5 Basic CATV Services..................................................................452
-------------------
1.6 Basic Subscriber.....................................................................453
----------------
1.7 CATV.................................................................................453
----
1.8 CATV Business........................................................................453
-------------
1.9 CATV Instruments.....................................................................453
----------------
1.10 CATV System..........................................................................453
-----------
1.11 Closing and Closing Date.............................................................453
------------------------
1.12 COBRA................................................................................453
-----
1.13 Current Assets.......................................................................453
--------------
1.14 Employees............................................................................453
---------
1.15 Employee Plans.......................................................................454
--------------
1.16 Encumbrance..........................................................................454
-----------
1.17 Equipment............................................................................454
---------
1.18 Equivalent Basic Subscribers or EBS's................................................454
-------------------------------------
1.19 ERISA................................................................................455
-----
1.20 Excluded Assets......................................................................455
---------------
1.21 FCC..................................................................................455
---
1.22 Financial Statements.................................................................455
--------------------
1.23 Governmental Authority...............................................................455
----------------------
1.24 Intangibles..........................................................................455
-----------
1.25 MDU Agreements.......................................................................455
--------------
1.26 MDU Complex..........................................................................455
-----------
1.27 Pay TV...............................................................................455
------
1.28 Pay TV Units.........................................................................455
------------
1.29 Permitted Encumbrances...............................................................455
----------------------
1.30 Person...............................................................................456
------
1.31 Purchase Price.......................................................................456
--------------
1.32 Real Property........................................................................456
-------------
1.33 Required Consents....................................................................456
-----------------
1.34 Security Interest....................................................................457
-----------------
1.35 Seller Contracts.....................................................................457
----------------
1.36 Service Area.........................................................................457
------------
1.37 Subscribers..........................................................................457
-----------
1.38 System...............................................................................457
------
REGISTRATION STATEMENT
Page II-446
<PAGE>
Section 2. Sale of Assets................................................................................457
2.1 Sale of Assets.......................................................................457
--------------
2.2 Purchase Price.......................................................................457
--------------
2.3 Purchase Price Adjustment............................................................457
-------------------------
2.4 Holdback.............................................................................460
--------
Section 3. Seller's Representations, Warranties, and Covenants...........................................460
3.1 Organization and Qualification.......................................................460
------------------------------
3.2 Authority............................................................................461
---------
3.3 Enforceability.......................................................................461
--------------
3.4 Cash Flow............................................................................461
---------
3.5 Assets...............................................................................461
------
3.6 Governmental Permits.................................................................462
--------------------
3.7 Seller Contracts.....................................................................462
----------------
3.8 Records..............................................................................462
-------
3.9 No Breach or Violation...............................................................462
----------------------
3.10 No Finders or Brokers................................................................463
---------------------
3.11 Schedules............................................................................463
---------
3.12 Compliance with Laws.................................................................463
--------------------
3.13 Financial Statements.................................................................463
--------------------
3.14 Tax Returns and Other Reports........................................................464
-----------------------------
3.15 Transfer Taxes.......................................................................464
--------------
3.16 Real Property........................................................................464
-------------
3.17 Employees............................................................................466
---------
3.18 Employee Benefits....................................................................467
-----------------
3.19 Litigation and Violations............................................................471
-------------------------
3.20 Disclosure...........................................................................471
----------
3.21 Investment Company...................................................................471
------------------
3.22 CATV Instruments and Seller Contracts................................................471
-------------------------------------
3.23 FCC Compliance.......................................................................472
--------------
3.24 APUC Compliance......................................................................473
---------------
3.25 Patents, Trademarks, and Copyrights..................................................473
-----------------------------------
3.26 No Other Assets or Liabilities.......................................................473
------------------------------
3.27 Required Consents....................................................................474
-----------------
3.28 Overbuilds...........................................................................474
----------
3.29 Effect of Certificates...............................................................474
----------------------
3.30 Subscriber Numbers...................................................................474
------------------
3.31 No Insolvency........................................................................474
-------------
3.32 Compliance with Law..................................................................474
-------------------
3.33 Disclosure...........................................................................475
----------
3.34 Parent Entity........................................................................475
-------------
Section 4. Assumed Liabilities and Excluded Assets.......................................................476
4.1 Assignment and Assumption............................................................476
-------------------------
REGISTRATION STATEMENT
Page II-447
<PAGE>
4.2 Excluded Assets......................................................................476
---------------
Section 5. Buyer's Representations, Warranties, and Covenants............................................476
5.1 Organization and Authority...........................................................476
--------------------------
5.2 Capitalization.......................................................................476
--------------
5.3 Enforceability.......................................................................477
--------------
5.4 Records..............................................................................477
-------
5.5 No Breach or Violation...............................................................477
----------------------
5.6 Compliance with Laws.................................................................478
--------------------
5.7 Financial Statements.................................................................478
--------------------
5.8 Tax Returns and Other Reports........................................................478
-----------------------------
5.9 Transfer Taxes.......................................................................479
--------------
5.10 Litigation and Violations............................................................479
-------------------------
5.11 Disclosure...........................................................................479
----------
5.12 Investment Company...................................................................479
------------------
5.13 No Finders or Brokers................................................................479
---------------------
5.14 No Insolvency........................................................................479
-------------
Section 6. Conduct Prior to Closing......................................................................480
6.1 Operation in Ordinary Course.........................................................480
----------------------------
6.2 Agents...............................................................................480
------
6.3 Seller Contracts.....................................................................480
----------------
6.4 No New Buyer Securities..............................................................481
-----------------------
6.5 Employees............................................................................481
---------
6.6 Access to Premises and Records.......................................................481
------------------------------
6.7 Existing Relationships...............................................................482
----------------------
6.8 Required Consents....................................................................482
-----------------
6.9 Compliance with CLI Standards........................................................482
-----------------------------
6.10 MDU Agreements.......................................................................483
--------------
6.11 Public Announcements.................................................................483
--------------------
6.12 Due Diligence........................................................................483
-------------
6.13 Correction of any Noncompliance Prior to Closing.....................................483
------------------------------------------------
6.14 Leased Equipment.....................................................................483
----------------
6.15 Estoppel Certificates and Franchise Forms............................................484
-----------------------------------------
6.16 HSR Notification.....................................................................484
----------------
6.17 No Shopping..........................................................................484
-----------
6.18 Notification of Certain Matters......................................................485
-------------------------------
6.19 Risk of Loss; Condemnation...........................................................485
--------------------------
6.20 Lien and Judgment Searches...........................................................485
--------------------------
6.21 Transfer Taxes.......................................................................486
--------------
6.22 Letter to Programmers................................................................486
---------------------
6.23 Updated Schedules....................................................................486
-----------------
6.24 Use of Seller's Name.................................................................486
--------------------
6.25 Subscriber Billing Services..........................................................486
---------------------------
REGISTRATION STATEMENT
Page II-448
<PAGE>
6.26 Satisfaction of Conditions...........................................................486
--------------------------
Section 7. Closing.......................................................................................487
Section 8. Deliveries by Seller at Closing...............................................................487
Section 9. Deliveries by Buyer at Closing................................................................489
Section 10. Conditions to Obligations of Buyer............................................................491
10.1 Accuracy of Representations and Compliance with Conditions...........................491
----------------------------------------------------------
10.2 Deliveries Complete..................................................................491
-------------------
10.3 No Adverse Change....................................................................491
-----------------
10.4 Restraint of Proceedings.............................................................492
------------------------
10.5 Inspection...........................................................................492
----------
10.6 Cash Flow............................................................................492
---------
Section 11. Conditions to Obligations of Seller...........................................................492
11.1 Accuracy of Representations and Compliance with Conditions...........................492
----------------------------------------------------------
11.2 Deliveries Complete..................................................................492
-------------------
11.3 No Adverse Change....................................................................492
-----------------
11.4 Restraint of Proceedings.............................................................493
------------------------
Section 12. Conditions to Both Parties Obligations........................................................493
12.1 Consents.............................................................................493
--------
12.2 No Governmental Action...............................................................493
----------------------
Section 13. Transactions Subsequent to Closing............................................................493
13.1 Further Actions......................................................................493
---------------
13.2 COBRA Benefits.......................................................................493
--------------
Section 14. Agreement Not to Compete......................................................................493
14.1 Agreement............................................................................493
---------
14.2 Breach of Agreement..................................................................494
-------------------
14.3 Enforceability.......................................................................494
--------------
Section 15. Survival of Representations and Warranties; Indemnification.......................................494
15.1 Survival.............................................................................494
--------
15.2 Indemnity by Seller..................................................................494
-------------------
15.3 Indemnity by Buyer...................................................................495
------------------
15.4 Defense of Claims....................................................................495
-----------------
15.5 Right to Offset......................................................................496
---------------
REGISTRATION STATEMENT
Page II-449
<PAGE>
15.6 Determination of Indemnified Amounts.................................................496
------------------------------------
Section 16. Termination...................................................................................497
16.1 Mutual Consent.......................................................................497
--------------
16.2 Default by Seller....................................................................497
-----------------
16.3 Default by Buyer.....................................................................498
----------------
Section 17. Miscellaneous.................................................................................498
17.1 Expenses.............................................................................498
--------
17.2 Modification.........................................................................498
------------
17.3 Attorneys' Fees......................................................................499
---------------
17.4 Right to Specific Performance........................................................499
-----------------------------
17.5 Notice...............................................................................499
------
17.6 Waiver...............................................................................500
------
17.7 Binding Effect; Assignment...........................................................500
--------------------------
17.8 No Third Party Beneficiaries.........................................................500
----------------------------
17.9 Rights Cumulative....................................................................500
-----------------
17.10 Further Actions......................................................................500
---------------
17.11 Severability.........................................................................500
------------
17.12 Captions.............................................................................500
--------
17.13 Counterparts.........................................................................501
------------
17.14 Governing Law........................................................................501
-------------
17.15 Incorporation by Reference...........................................................501
--------------------------
17.16 Construction.........................................................................501
------------
17.17 Confidentiality......................................................................501
---------------
</TABLE>
EXHIBITS
A - Bill of Sale
B - Escrow Agreement
C - Assignment and Assumption Agreement
D - Assignment of Lease
E - Non-Compete Agreement
F - Guaranty
G - Letter to Programmers
H - FIRPTA Affidavit
I - Opinion of Seller's Counsel
J - Opinion of Seller's FCC and APUC Counsel
SCHEDULES
1 - The CATV Business (including Rate Schedule)
2 - CATV Instruments
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3 - Company Contracts
4 - Required Consents
5 - Equipment and Vehicles Owned
6 - Real Property Owned
7 - Security Interests to Be Discharged Prior to Closing and
Permitted Security Interests
8 - Proceedings and Judgments
9 - Employee Matters
10 - Excluded Assets
11 - MDU Agreements
12 - Buyer's Required Consents
13 - Buyer's Tax Matters
14 - Buyer's Proceedings and Judgments
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of May
, 1996, among General Communication, Inc., an Alaska corporation, or its
wholly-owned subsidiary, ("Buyer"), and McCaw/Rock Seward Cable System, a joint
venture ("Seller"). This Agreement states the terms upon which Seller agrees to
sell to Buyer, and Buyer agrees to purchase from Seller, all of Seller's Assets
(as defined below).
WHEREAS, Seller is engaged in the business of providing cable
television services to subscribers in and around the Service Area (defined
below); and
WHEREAS, Buyer desires to purchase and Seller desires to sell
all of Seller's Assets used or useful in connection with the CATV Business
(defined below);
In consideration of the terms, conditions, and agreements
contained in this Agreement, the parties agree as follows:
Section 1 Definitions
1.1 Affiliate. "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with a person or entity;
"control" means the ownership, directly or indirectly, of equity securities or
other ownership interests in a person or entity by another person or entity,
which represent more than 50% of the voting power or equity ownership in such
person or entity.
1.2 APUC. "APUC" shall mean the Alaska Public Utilities
Commission.
1.3 APUC Certificate. "APUC Certificate" shall mean the
applicable certificate of public convenience and necessity issued by APUC, being
Certificate No. 367 for the Service Area legally described herein.
1.4 Assets. "Assets" shall include all properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description, that are owned, held, used, or useful in the CATV
Business located in and around the Service Area in which Seller has any right,
title or interest, including but not limited to the CATV Instruments, the
Intangibles, Seller Contracts, the Equipment, and the Real Property, but
excluding any Excluded Assets set forth on Schedule 10.
1.5 Basic CATV Services. "Basic CATV Services" shall mean CATV
programming sold to Subscribers as a package and delivered to such Subscribers
by coaxial cable, including broadcast and satellite service programming for
which a Subscriber pays a fixed monthly fee to Seller, but not including Pay TV.
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1.6 Basic Subscriber. "Basic Subscriber" shall mean any person
who pays Seller the full monthly price (but including a subscriber who receives
a senior citizen discount, but not including a subscriber who receives any other
discount) for Basic CATV Services in accordance with standard rates charged by
Seller as set forth on Schedule 1, who was not solicited since March 14, 1996,
to purchase such services by any promotions, offers of discounts, or
extraordinary marketing techniques which promotions, discounts, or marketing
techniques were inconsistent with Seller's previous business practices, and who
has paid in full without discount (except for senior citizen discounts) at least
one monthly payment in the ordinary course of business for CATV services and who
is not pending disconnection for any reason (other than non-payment of a
delinquent bill in an amount less than Ten and 01/100 Dollars ($10.01), and who
is not delinquent in payment for an amount in excess of Ten and no/100 Dollars
($10.00) for such CATV services. For this purpose, a Subscriber shall be
delinquent if any part of his or her account is more than sixty-two (62) days
past due from the invoice date.
1.7 CATV. "CATV" shall mean cable television.
1.8 CATV Business. "CATV Business" shall refer to all of the
Assets and business of the CATV Systems as presently conducted by Seller in and
around the Service Area as described on Schedule 1 to this Agreement.
1.9 CATV Instruments. "CATV Instruments" shall refer to all
intangible CATV channel distribution rights owned, used, or held for use by
Seller, all franchise agreements, pole attachment rights, leases, licenses,
easements, crossing permits and service agreements, as described on Schedule 2
to this Agreement.
1.10 CATV System. "CATV System" shall refer to a complete CATV
reception and distribution system of Seller which is part of Seller's CATV
Business and consisting of one or more headends, equipment, Subscriber drops and
associated electronic equipment, which is, or is capable of being, without
modification, operated as an independent system without interconnections to
other systems. Any systems which are interconnected or which are served in total
or in part by a common headend shall be considered a single CATV System.
1.11 Closing and Closing Date. "Closing" shall refer to the
consummation of the transactions contemplated by this Agreement, to take place
at a meeting held at the place and on the date ("Closing Date") specified in
Section 7 of this Agreement.
1.12 COBRA. "COBRA" shall be as defined in Section 3.17.
1.13 Current Assets. "Current Assets" shall be as defined in
Section 2.3(ii).
1.14 Employees. "Employees" shall be as defined in Section
3.17.
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1.15 Employee Plans. "Employee Plans" shall be as defined in
Section 3.18.
1.16 Encumbrance. Any mortgage, lien, security interest,
security agreement, conditional sale or other title retention agreement,
limitation, pledge, option, charge, assessment, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer or any
exception to or defect in title or other ownership interest (including
reservations, rights-of-way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.17 Equipment. "Equipment" shall refer to all tangible
personalty, electronic devices, trunk and distribution coaxial and optical fiber
cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and
pole hardware, Subscriber's devices (including, without limitation, converters,
encoders, transformers behind television sets and fittings), "headend"
(origination, earth stations, transmission and distribution system) hardware,
test equipment, vehicles, and other personal property and facilities owned,
leased, used, or held for use in the CATV Business, as described on Schedule 5
to this Agreement.
1.18 Equivalent Basic Subscribers or EBS's. "Equivalent Basic
Subscribers" or "EBS's" shall mean at a specified date a number representing the
sum of the equivalent of Basic Subscribers of each franchise area in the CATV
Systems derived by dividing (a) the total monthly billings for sales by Seller
of Basic CATV Services for the most recent month ended prior to such specified
date to single family households which pay less than the full non-discounted
(other than senior citizen discounts) monthly price for Basic CATV Services and
to bulk accounts (provided that in no event shall such billings include more
than a single month's charges for any such single family household or single
bulk account), by (b) the full non-discounted monthly price charged by Seller to
single family households for Basic CATV Services in accordance with standard
rates charged by Seller at the Closing Date in such franchise area; provided,
however, that in no event shall such standard rates charged by Seller at the
Closing Date be less than those set forth on Schedule 1. For purposes of the
foregoing, there shall be excluded (a) all billings to any discounted single
family household or bulk account for which a payment of more than ten dollars is
more than sixty-two (62) days past due from the invoice date (whether for Basic
CATV Services or Pay TV or otherwise); (b) all billings to any discounted single
family household or bulk account which has not paid at least one month's payment
for Basic CATV Services, including payment of all installation charges owed and
due; (c) that portion of the billings to each discounted (other than senior
citizen discounts) single family household or bulk account which represents an
installation or other non-recurring charge, a charge for any outlet or
connection other than the first outlet or first connection in any single family
household or, with respect to a bulk account, in any residential unit (e.g.
individual apartment or rental unit), a charge for any tiered service (whether
or not included within Pay TV), or a pass-through charge for copyright fees,
sales taxes, etc.; (d) all billings to
REGISTRATION STATEMENT
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any discounted single family household or bulk account which is pending
disconnection for any reason; and (e) all billings to any discounted single
family household or bulk account which was solicited since March 14, 1996, by
any promotions, offers of discounts, or extraordinary marketing techniques which
promotions, discounts, or marketing techniques were inconsistent with Seller's
previous business practices.
1.19 ERISA. "ERISA" shall be as defined in Section 3.17.
1.20 Excluded Assets. "Excluded Assets" shall refer to those
Assets which will not be owned by Seller on the Closing Date as listed on
Schedule 10.
1.21 FCC. "FCC" shall mean the Federal Communications
Commission.
1.22 Financial Statements. "Financial Statements" shall be as
defined in Section 3.13.
1.23 Governmental Authority. (a) The United States of America,
(b) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (c) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof, or (d) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.24 Intangibles. "Intangibles" shall mean all general
intangibles including, but not limited to, Subscriber lists, accounts
receivable, claims (excluding any claims relating to Excluded Assets), patents,
copyrights, and goodwill, if any.
1.25 MDU Agreements. "MDU Agreements" shall mean the fully
executed agreements required by Section 6.10 hereof.
1.26 MDU Complex. "MDU Complex" shall mean any apartment,
condominium, or townhome complex or mobile home park and any other multiple unit
dwelling project subject to common ownership which currently receives cable
television service from the CATV Business.
1.27 Pay TV. "Pay TV" shall mean premium programming services
selected by and sold to Subscribers for monthly fees in addition to the fee for
Basic CATV Services.
1.28 Pay TV Units. "Pay TV Units" shall mean each Pay TV
service subscribed for by all Basic Subscribers.
1.29 Permitted Encumbrances. "Permitted Encumbrances" shall
mean: (i) liens for taxes, assessments and governmental charges not yet due and
payable, or
REGISTRATION STATEMENT
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<PAGE>
the validity of which are being contested diligently and in good faith, and
installments of special assessments not yet due and payable; (ii) statutory
liens arising in connection with the ordinary course of business not yet
delinquent or the validity of which are being contested diligently and in good
faith; (iii) zoning laws and ordinances and similar governmental regulations;
(iv) rights reserved to any municipality or government, statutory or public
authority to regulate the affected property; and (v) as to Real Property
interests, any liens, encumbrances, easements, rights-of-way, servitudes,
permits, leases, other minor title defects, conditions, covenants and
restrictions, and minor imperfections or irregularities in title which are
reflected in the public records. The foregoing notwithstanding, "Permitted
Encumbrances" shall not include any item of which Seller has warranted the
absence of elsewhere in this Agreement and furthermore shall not prevent or
inhibit in any way the conduct of Seller's CATV Business. No implication is made
from the foregoing or any reference to Permitted Encumbrances in this Agreement
or in any documents or instruments delivered in connection herewith that Buyer
shall be or shall become liable or responsible for any liens, taxes,
assessments, charges, or statutory liens described in (i) or (ii) above accruing
or arising for the period prior to the Closing Date or which are imposed or
assessed against Seller for the period prior to the Closing Date; and Seller
shall remain fully liable and responsible therefor and shall indemnify and hold
Buyer harmless from and against any thereof pursuant to Section 16.
1.30 Person. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.31 Purchase Price. The "Purchase Price" for Seller's Assets
shall be as defined in Section 2.2.
1.32 Real Property. "Real Property" shall mean all realty,
including appurtenances, improvements, and fixtures located thereon and any
other interests in real property owned by Seller and used or held for use in the
CATV Business, including, without limitation, fee interests in Seller's offices
and headend sites, leasehold interests, easements, wire crossing permits and
rights of entry described on Schedule 6 to this Agreement.
1.33 Required Consents. "Required Consents" shall mean all
governmental franchises, approvals, licenses, consents, and any and all other
authorizations or approvals and consents, necessary and required for Seller to
transfer and convey, and Buyer to purchase, the Assets, and for Buyer to conduct
Seller's CATV Business at the places and in the manner in which such CATV
Business is presently conducted and will be conducted on the Closing Date. All
of Company's Required Consents are listed on Schedule 4 and all of Buyer's
Required Consents are listed on Schedule 12 to this Agreement.
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1.34 Security Interest. "Security Interest" shall mean any
mortgage, lien, security interest, security agreement, limitation, pledge,
option, charge, assessment, restrictive agreement, restriction, encumbrance,
adverse interest, claim, restraint on transfer, or claim against title with
respect to any of the Assets.
1.35 Seller Contracts. "Seller Contracts" shall refer to all
contracts and agreements pertaining to the lawful ownership, operation, and
maintenance of the CATV Business or used in the CATV Business, other than CATV
Instruments, as described on Schedule 3 to this Agreement.
1.36 Service Area. "Service Area" shall mean the area in which
Seller operates the CATV Business, specifically in and around Seward, Alaska,
pursuant to applicable APUC Certificate No. 367.
1.37 Subscribers. "Subscribers" shall mean all Basic
Subscribers and EBS's.
1.38 System. A complete cable television reception and
distribution system operated in the conduct of the Business, consisting of one
or more headends, subscriber drops and associated electronic and other
equipment, and which is, or is capable of being, without modification, operated
as an independent system without interconnections to other systems. Any systems
which are interconnected or which are served in total or in part by a common
headend will be considered a single System.
Section 2 Sale of Assets.
2.1 Sale of Assets. At the Closing, upon the terms and
conditions set forth in this Agreement, Seller agrees to sell, convey, transfer,
assign, and deliver to Buyer, and Buyer agrees to purchase from Seller, all of
the Seller's right, title and interest in, to and under the Assets. Except as
otherwise provided, all the Assets are intended to be transferred to Buyer,
whether or not described in the Schedules.
2.2 Purchase Price. Buyer will deliver to Seller at the
Closing Two Million Eight Hundred Eighty-Three Thousand Eight Hundred
Sixty-Eight Dollars ($2,883,868) in cash less a holdback of Seventy-five
Thousand Dollars ($75,000.00) and as adjusted by Section 2.3. Such payment in
cash constitutes the "Purchase Price."
2.3 Purchase Price Adjustment. The Purchase Price payable in
cash shall be:
decreased by:
(i) the Assumed Liabilities as
described in Section 4.1 (a)(i)
and (ii) which, as of the
Closing Date, are
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<PAGE>
liabilities as accrued and/or
which in accordance with GAAP
should have been accrued as
liabilities as of the Closing
Date;
and increased by:
(ii) current assets other than cash
and cash equivalents ("Current
Assets") of Seller at the
Closing Date, such as prepaid
expenses of Seller which relate
to goods and services that are
to be received by Buyer after
the Closing Date and in respect
of which Buyer will receive a
benefit, and accounts
receivable.
Receivables Adjustment. Seller's subscriber accounts
receivable which relate to the billing periods prior to the billing period in
which the Closing Date occurs, and in the event the Closing Date does not occur
on the last day of a billing period, the amount of the subscriber accounts
receivable which relate to the billing period in which the Closing Date occurs
(the "Billing Period Receivables") which are attributable to the period prior to
the Closing Date (together, subject to the immediately succeeding sentence,
herein called the "Customer Accounts Receivable"), shall be considered Current
Assets to the extent actually collected within the two month period following
the Closing Date by or for the benefit of Buyer and shall be included as such in
the Final Adjustments Report. Billing Period Receivables shall be prorated based
on the days in the billing period before and after the Closing Date, the portion
attributable to the period before the Closing Date shall be included in Customer
Accounts Receivable and the portion attributable to the period after the Closing
Date shall not be so included.
In addition to the foregoing, to the extent Buyer
receives payments for other accounts receivable or similar receivables (other
than Customer Accounts Receivable), which payments are attributable to the
period prior to the Closing Date in connection with the calculation of the
Preliminary Adjustments Report and/or the Final Adjustments Report, the amount
of such accounts receivable or similar receivables actually collected (the
"Other Receivables") shall be considered cash equivalents and an adjustment
shall be made to the Purchase Price, and any additional payments shall be paid
by check from Buyer to Seller.
To the extent that the Customer Accounts Receivable
and Other Receivables actually collected by Buyer within the three-month period
following the Closing Date exceed the amount of the Customer Accounts Receivable
and Other Receivables which were collected during the first two-month period
following the Closing and for which an adjustment was made pursuant to the Final
Adjustments Report, a further adjustment shall be made (the "Post-Period
Adjustment") and any additional payment shall be paid by check from Buyer to
Seller. A Post-Period Adjustment Report
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<PAGE>
regarding the collections shall be certified by an authorized officer of Buyer
to be true, complete and correct as of the date it is delivered. Any Customer
Accounts Receivable and any Other Receivables not previously assigned which
Buyer does not collect within the three-month period following the Closing Date
shall, promptly after said three-month period, be reassigned to Seller.
Buyer shall not forgive any of said receivables prior
to the end of said three-month period. All Customer Accounts Receivable and
Other Receivables collected by Buyer shall be deemed allocated to receivables in
the order in which they were incurred. At Seller's reasonable request, Buyer's
records with reference to collection of accounts receivable shall be made
available to Seller.
Preliminary Adjustments. A complete and detailed list
(the "Preliminary Adjustments Report") of all such known prorations and
adjustments in the Purchase Price shall be prepared in good faith and on a
reasonable basis by Seller. The parties hereto agree that the Preliminary
Adjustments Report shall consist of an adjustment to the Purchase Price pursuant
hereto as of the end of the last quarter prior to the Closing Date, and that the
amount of the Purchase Price delivered on the Closing Date shall be adjusted in
accordance with such Report. Buyer's representatives shall be permitted to
participate in the preparation of the report, with access to all books, records,
and other documents used in the preparation thereof. Said Preliminary
Adjustments Report shall be delivered by Seller to Buyer at least five days
prior to the Closing, and subject to the provisions below, the party thereby
obligated to pay shall pay the items by increase or decrease of the Purchase
Price. In the event Buyer disagrees with any items on said list, Buyer and
Seller shall in good faith estimate such item, and the average of such two
estimates shall be utilized in making the adjustment of the Purchase Price at
the Closing Date, subject to final adjustment as provided for below. With
respect to the adjustments done pursuant to the Preliminary Adjustments Report
as of the end of the last quarter prior to the Closing Date, the amount of the
increase in the Purchase Price resulting from Customer Accounts Receivable shall
be calculated as of such date based upon (a) 95% of the face value of Customer
Accounts Receivable which, as of such date, are one month (either 30 days or 31
days, depending upon the month in question) or less past due from the first day
of the billing period to which the amount relates; (b) 90% of the face amount of
any Customer Accounts Receivable which, as of such date, are more than one month
but not more than two months past due from the first day of the billing period
to which the amount relates; (c) 60% of the face amount of any amounts
receivable which, as of such date, are more than two months but not more than
three months past due from the first day of the billing period to which the
amount relates; and (d) 0% of the face amount of any Customer Accounts
Receivable which, as of such date, are more than three months past due from the
first day of the billing period to which the amount relates. Other Receivables
which are to be collected following the Closing Date shall also be included in
the Preliminary Adjustments Report.
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Post-Closing Adjustment. Within 60 days after the
Closing Date, Seller and Buyer will prepare a report (the "Final Adjustments
Report"), prepared in good faith and on a reasonable basis, setting forth in
reasonable detail the adjustments described above including any adjustments
based on Seller's and Buyer's actual collection of the Customer Accounts
Receivable and Other Receivables as of the date one day before such Report. The
Final Adjustments Report shall make such changes to the Preliminary Adjustments
Report as are necessary to recalculate as of the Closing Date all of the
adjustments and prorations to the Purchase Price set forth herein (which were
calculated in the Preliminary Adjustments Report generally as of the last day of
the quarter prior to the Closing Date).
Seller and Buyer shall provide each other with
reasonable access to all records which they have in their possession which
pertain to such collections for the period after the Closing Date, which are
necessary for a review of the Post-Period Adjustment Report.
The Purchase Price as determined pursuant to the
Preliminary Adjustments Report shall be compared to the Purchase Price as
determined pursuant to the Final Adjustments Report and, within 10 business days
following acceptance of the Final Adjustments Report by Buyer and Seller, any
adjustment amount to be paid pursuant to such report shall be paid to the proper
party from the Escrow described in Section 2.4.
To the extent the parties are unable to agree on the
Final Adjustments Report within 90 days after the Closing Date, all issues in
the Report which are not agreed upon shall be submitted to the national
accounting firm of Deloitte & Touche, LLP together with a written statement of
the issues by Buyer and by Seller and the determination of such accounting firm
shall be final and binding on all parties.
2.4 Holdback. At the Closing, Seller and Buyer shall each
deposit in escrow, pursuant to an escrow agreement in a form substantially
similar to Exhibit B, cash in the amount of Seventy-Five Thousand Dollars
($75,000) (the "Holdback") to secure each party's indemnification for breaches
of representations, warranties and covenants. If no breach of this Agreement has
occurred or is reasonably alleged to have occurred, such escrowed funds shall be
released to the party which placed such funds in escrow, effective as of one
hundred eighty (180) days after the Closing Date.
Section 3 Seller's Representations, Warranties, and Covenants
Seller represents, warrants, and covenants to Buyer, as of the
date of this Agreement and as of the Closing, as follows:
3.1 Organization and Qualification. Seller is a joint venture,
duly organized, validly existing and in good standing under the laws of the
State of Alaska.
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Seller has all requisite power and authority to carry on the CATV Business as
currently conducted and to own, lease, use, and operate its Assets as they are
currently owned, leased and used and to conduct its business as it is now
conducted. The copy of Seller's Joint Venture Agreement, as amended, which has
been delivered to Buyer is complete and correct, and such document is in full
force and effect and has not been further amended.
3.2 Authority. Seller has all requisite capacity, power,
right, capitalization, and authority to enter into this Agreement and to perform
its obligations under this Agreement. The execution, delivery, and performance
of this Agreement and all other documents and instruments to be executed and
delivered in connection herewith ("Transaction Documents") by Seller have been
duly authorized by all applicable partnership actions of Seller. No consent of
or authorization from any person or other entity, including any Governmental
Authority, is required to be obtained in connection with the execution,
delivery, and performance of this Agreement and of the Transaction Documents by
Seller, except for the Required Consents described in Schedule 4.
3.3 Enforceability. This Agreement, the Transaction Documents,
and all documents, instruments, and certificates to be delivered under this
Agreement, assuming all such documents, instruments and certificates constitute
legal, valid and binding obligations of Buyer, constitute legal, valid, and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
3.4 Cash Flow. Seller's and McCaw/Rock Homer Cable System's
combined actual cash flow before overhead (identified in Seller's respective
financial statements as "administration expenses") and after elimination of the
inter-company transactions with Alaska Cablevision, Inc. ("ACI") was not less
than Four Hundred Sixty-Six Thousand and no/100 Dollars ($466,000.00) for the
year ended December 31, 1995. Seller's financial statements reviewed by an
independent Certified Public Accountant as and for the year ended December 31,
1995, have been provided to Buyer.
3.5 Assets. Seller has exclusive, good and marketable title to
(or, in the case of Assets that are leased, valid leasehold interests in) the
Assets (other than Real Property, as to which the representations and warranties
in Section 3.16 apply). The Assets are free and clear of all Encumbrances of any
kind or nature, except (a) Permitted Encumbrances, (b) restrictions stated in
the Governmental Permits and (c) Encumbrances disclosed on Schedule 7, which
will be removed and released at or prior to the Closing. Except as set forth on
Schedules 2 or 3, none of the Equipment is leased by Seller from any other
Person. The Assets are all the assets necessary to permit Buyer to conduct the
Business substantially as it is being conducted on the date
REGISTRATION STATEMENT
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of this Agreement and in compliance with all legal requirements and Seller
Contracts and to perform all the Assumed Liabilities (defined in Section 4.1).
Except as set forth in Schedule 5, the Equipment is in good operating condition
and repair, ordinary wear and tear excepted given the age of such equipment and
the use to which it is put and is suitable and adequate for continued use in the
manner in which it is presently used. No Person other than Seller has been
granted or, to Seller's knowledge, has applied for a cable television franchise
in any area currently served by the Seller's CATV Business.
3.6 Governmental Permits. Complete and correct copies of the
Governmental Permits, all of which are listed on Schedule 2 or Schedule 10, have
been delivered by Seller to Buyer. The Governmental Permits are currently in
full force and effect, are not in default, and are valid under all applicable
legal requirements according to their terms. There is no legal action,
governmental proceeding or investigation, pending or threatened, to terminate,
suspend or modify any Governmental Permit and Seller is in compliance with the
material terms and conditions of all the Governmental Permits and with other
applicable requirements of all Governmental Authorities (including the FCC and
the Register of Copyrights) relating to the Governmental Permits, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
3.7 Seller Contracts. All of Seller Contracts are described on
Schedule 2 or Schedule 10. Complete and correct copies of all Seller Contracts
have been provided to Buyer. Each of Seller Contracts is in full force and
effect and constitutes the valid, legal, binding and enforceable obligation of
Seller and Seller is not and to Seller's knowledge, each other party thereto is
not in breach or default of any terms or conditions thereunder.
3.8 Records. Seller's books, as made available to Buyer,
contain current, complete, and accurate records of all meetings and actions of
Seller's partners, and, if any, committees of the partners. All material actions
and transactions taken or entered into by Seller or otherwise requiring action
by its partners have been duly authorized or ratified as necessary and are
evidenced in Seller's books. Seller's books and ledgers, as made available to
Buyer, contain complete and accurate records of all issuances and transfers of
its partnership interests. The signatures appearing in such books, and ledgers
are the genuine signatures of the persons purporting to have signed them.
3.9 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 4, the execution, delivery, and
performance of this Agreement by Seller (a) does not and will not (with the
giving of notice or passage of time or both) (i) conflict with or result in a
breach or violation by Seller of, or (ii) constitute a default by Seller under,
or (iii) create any right of termination, cancellation, or acceleration by any
party pursuant to, any of the CATV Instruments or Seller Contracts, any statute,
ordinance, rule, or regulation, or any agreement, instrument,
REGISTRATION STATEMENT
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judgment, or order to which Seller is a party or by which Seller, the CATV
Business, or any of the Assets is bound or may be affected, and (b) does not and
will not (with the giving of notice or passage of time or both) create or impose
any Security Interest on any of the Assets.
3.10 No Finders or Brokers. Seller has not entered into any
contract, arrangement, or understanding with any person or firm which may result
in any obligation of Buyer or Seller to pay any finder's, broker's, or agent's
fees or commissions or other like payments as a result of the transactions
contemplated by this Agreement, except that Seller shall pay all fees and
expenses due to Daniels and Associates.
3.11 Schedules. The Schedules to this Agreement list all
Assets owned, held, used, or useful for the performance of any CATV Instruments,
Seller Contracts and for the lawful conduct of the CATV Business. All Schedules
to this Agreement are true, accurate, and complete.
3.12 Compliance with Laws. Seller is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over the business and affairs of
Seller.
3.13 Financial Statements. Seller has delivered to Buyer
correct and complete copies of Seller's financial statements for each of the two
most recent fiscal years ended prior to the date of this Agreement, which were
reviewed by an independent, Certified Public Accountant, and unaudited interim
quarterly financial statements for periods subsequent to the end of the most
recent fiscal year end within thirty (30) days after the end of each such
quarter (the "Financial Statements"). The Financial Statements are complete and
correct, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered thereby
(except, in the case of interim financial statements, subject to normal
recurring year-end adjustments and the absence of footnotes), and fairly present
in accordance with generally accepted accounting principles the financial
condition and results of operation of Seller as of the dates indicated and for
the periods covered thereby. Except as disclosed by, or reserved against in, its
most recent balance sheet included in the Financial Statements, Seller did not
have as of the date of such balance sheet any liability or obligation, whether
accrued, absolute, fixed, or contingent (including, without limitation,
liabilities for taxes or unusual forward or long-term commitments), which was
material to the business, results of operations, or financial condition of
Seller and which is required to be disclosed on, or reserved against in, a
balance sheet. Seller has received no notice of any fact which would form a
basis for any claim by a third party which, if asserted, could result in a
liability affecting Seller not disclosed by or reserved against in the most
recent balance sheet of Seller. From the date of the most recent balance sheet
included in the Financial Statements to and including the date hereof, (i) the
CATV Business has been operated only in the ordinary course, (ii) Seller has not
sold or disposed of any assets other than in the ordinary
REGISTRATION STATEMENT
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<PAGE>
course of business, (iii) there has not occurred any material adverse change or
event in the business, operations, assets, liabilities, financial condition, or
results of operations of Seller compared to the business, operations, assets,
liabilities, financial condition, or results of operations reflected in the
Financial Statements, and (iv) there has not occurred any theft, damage,
destruction, or loss which has had a material adverse effect on Seller.
3.14 Tax Returns and Other Reports. Seller has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property, excise, payroll, and other tax returns and other reports
(whether or not relating to taxes) required to be filed by law with the
appropriate governmental authority, and, to the extent applicable, has paid or
made provision for payment of all taxes, fees, and assessments of whatever
nature including penalties and interest, if any, which are due with respect to
any aspect of its business or any of its properties. Except as set forth on
Schedule 8, there are no tax audits pending and no outstanding agreements or
waivers extending the statutory period of limitations applicable to any relevant
tax return.
3.15 Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
3.16 Real Property. With respect to all Real Property:
3.16.1 The Real Property and the
improvements located thereon and the continuation of business presently being
conducted thereon do not violate any material applicable laws, statutes,
regulations, codes, rules, or orders.
3.16.2 The Real Property has unobstructed
access for purposes of ingress and egress to public roads or streets or private
roads over which Seller has a valid right-of-way. The Real Property is served by
utilities and services necessary for the present use of the Real Property in
connection with the CATV
Business.
3.16.3 Seller possesses all rights needed to operate,
maintain, repair, replace, and locate all cable, lines, towers, equipment, or
other facilities owned or used by Seller in the CATV Business on the Real
Property.
3.16.4 None of the improvements on the Real Property
encroaches upon the property of others.
3.16.5 Seller holds good and marketable fee simple
title to the Real Property shown as being owned by Seller on Schedule 6 and the
valid and enforceable right to use and possess such Real Property, subject only
to the Permitted Encumbrances. Seller has the valid and enforceable right to use
all other Real Property, subject to the leases, easements, licenses, or
rights-of-way described on Schedule 2.
REGISTRATION STATEMENT
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<PAGE>
3.16.6 The Real Property is in full compliance with
all material applicable health, safety, and environmental laws, rules, and
regulations ("environmental laws"). During Seller's ownership or operation of
the Real Property, all activities undertaken on or affecting the Real Property
by Seller or any other person have been in full compliance with all material
environmental laws. During Seller's occupation of the Real Property there have
been no abatement, removal, remedial or other response actions for hazardous
substances (as defined below) at the Real Property.
3.16.6.1 Seller is not aware of any
instance, prior to Seller's ownership or operation, of noncompliance of the Real
Property or any activities thereon with any environmental law. Seller is not
aware of any aspects of the Real Property or any operations thereon which
reasonably might give rise to any civil, criminal, administrative, or other
proceeding or notice thereof under any environmental law (an "environmental
claim").
3.16.6.2 To Seller's knowledge, no
environmental claim has been asserted in the past, currently exists, or is
threatened or contemplated against Seller, or against any other person or
entity, which relates to the Real Property or any operations thereon.
3.16.6.3 To Seller's knowledge, the Real
Property has not in the past, and is not now, subject to any investigation,
assessment, or study by any person or government agency related to potential or
actual enforcement of any environmental law.
3.16.6.4 No hazardous substances have
been or are being released to, from, or under the Real Property or outside the
Real Property by Seller which substances have entered or threaten to enter onto,
into, or under the Real Property. No hazardous substances have been or are
stored, treated, handled, disposed of, created, or otherwise located on, in, or
under the Real Property during the Seller's occupancy.
3.16.6.5 No underground storage tanks,
surface impoundments, solid waste management units, tank systems, waste piles,
land treatment areas, landfills, or incinerators are located or, to Seller's
knowledge, have been located on the Real Property. For purposes of this
paragraph, the foregoing terms shall have the meanings defined in RCRA, 42
U.S.C. section 6901, et seq., or analogous state or local laws. Without limiting
the preceding representation in this paragraph, to Seller's knowledge none of
the Real Property has been used at any time as a gasoline service station or any
other station or facility for storing, pumping, dispensing, or producing
gasoline or any other petroleum product, byproduct, or waste.
3.16.6.6 There are no "PCB Items," as
that term is defined in 40 C.F.R. section 761.3, located on the Real Property.
REGISTRATION STATEMENT
Page II-465
<PAGE>
3.16.6.7 Any and all permits, licenses,
and other authorizations or approvals required under environmental laws to own
or operate the Real Property have been secured by Seller and are in full force
and effect. A list of all such permits, licenses, approvals, and authorizations
is included on Schedule 2. All bonds and other security devices associated with
any permit, license, authorization, or approval are in place.
3.16.6.8 No building or other structure
on the Real Property contains asbestos.
3.16.6.9 Seller has provided to Buyer
true, complete and correct copies of all Environmental Reports in Seller's
possession or control as of the date of this Agreement relating to the Real
Property or any of it. Seller shall provide all additional Environmental
Reports, including supplements to existing reports, relating to the Real
Property within a three (3) working days of receipt of such reports or
supplements by Seller. For purposes of this Section 3.16.6.9, "Environmental
Reports" shall mean and include any writing containing statements or opinions
about the presence or suspected presence of any Hazardous Substances on, under
or affecting the Real Property or any of it.
3.16.6.10 "Seller's knowledge" as used in
this Section 3 shall refer to matters within the knowledge of Seller's current
partners and general managers, after due investigation of reasonably available
records of Seller concerning the subjects herein discussed.
3.16.6.11 The term "hazardous substances"
means: (i) any "hazardous substance" or "pollutant or contaminant" as defined in
Sections 101(14) and (33) of CERCLA, 42 U.S.C. sections 9601(14) and (33); (ii)
any "hazardous material" as defined in Section 1802(2) of the Hazardous
Materials Transportation Act; (iii) any "oil" or "hazardous substance" as
defined in Sections 311(a)(1) and (14) of the federal Clean Water Act, 33 U.S.C.
sections 1321(a)(1) and (14); (iv) any "pesticide" as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act, at 7 U.S.C. section 136(u); and (v)
any "byproduct," "source" or "special nuclear" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. sections 2014(e), (z) and (aa). Hazardous
substances also includes any chemical, compound, material, mixture, or substance
defined, listed, or classified under any environmental law as dangerous,
hazardous, extremely hazardous, infectious, or toxic. It also includes any
substance regulated under any environmental law due to its polluting or
dangerous properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, or reproductive effects. Finally, hazardous
substances specifically includes, but is not limited to, petroleum and petroleum
products, asbestos and asbestos-containing materials, and polychlorinated
biphenyls ("PCBs").
3.17 Employees. Schedule 9 contains a true and complete list
of names, positions, current hourly wages or monthly salary and other
compensation amounts of
REGISTRATION STATEMENT
Page II-466
<PAGE>
all of Seller's employees (the "Employees"). Seller has complied in all respects
with all material applicable laws and regulations relating to the employment of
labor, including, without limitation, the Worker Adjustment and Retraining
Notification Act, as amended, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), continuation coverage requirements of group health
plans ("COBRA"), and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control, and the payment and
withholding of taxes. Seller has no employment agreements, either written or
oral, with any person, and all Employees are terminable at will. Seller is not a
party to any contract with any labor organization and has not agreed to
recognize any union or other collective bargaining unit. No union or other
collective bargaining unit has been certified as representing any of Seller's
employees, and Seller has not received any requests from any party for
recognition as a representative of employees for collective bargaining purposes.
3.18 Employee Benefits.
3.18.1 Except for those plans described on Schedule 9
hereto (the "Employee Plans"), with respect to the Employees, neither Seller,
nor any of its Affiliates maintain, is a party to, contributes to or is
obligated to contribute to, and the Employees do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) any employee pension benefit plan, as
defined in Section 3(2) of ERISA,
including (without limitation) any
multi-employer plan, as defined in
section 3(37) of ERISA;
(ii) any employee welfare benefit plan, as
defined in section 3(1) of ERISA;
(iii) any bonus, deferred compensation,
incentive, restricted stock, stock
purchase, stock option, stock
appreciation right, phantom stock,
debenture, supplemental pension, profit
sharing, royalty pool, commission or
similar plan or arrangement, other than
bonuses on a non-recurring basis which
may be paid to some employees in
connection with this transaction;
(iv) any plan, program, agreement, policy,
commitment or other arrangement relating
to severance or termination pay, whether
or not published or generally known;
(v) any plan, program, agreement, policy,
commitment or any other arrangement
relating to the provision of any benefit
REGISTRATION STATEMENT
Page II-467
<PAGE>
described in section 3(1) of ERISA to
former employees or their survivors,
other than procedures intended to comply
with COBRA;
(vi) any plan, program, agreement, policy,
commitment or other arrangement relating
to loans or other extensions of credit,
loan guarantees, relocation assistance,
educational assistance, tuition payments
or similar benefits; or
(vii) any plan, program, agreement, policy,
commitment or any other arrangement
relating to employee benefits, executive
compensation or fringe benefits
(including without limitation any foreign
plan described in section 4(b)(4) of
ERISA).
3.18.2 Prior to the date of this Agreement, Seller
has provided to Buyer complete, accurate and current copies of each of the
following:
(i) the text (including amendments) of each
of the Employee Plans, to the extent
reduced to writing;
(ii) a description of all material elements of
each of the Employee Plans, to the extent
not previously reduced to writing;
(iii) with respect to each Employee Plan that
is an employee benefit plan (as defined
in section 3(3) of ERISA), the following:
(A) the most recent summary plan
description, as described in
section 102 of ERISA;
(B) any summary of material
modifications that has been
distributed to participants or
filed with the U.S. Department
of Labor but that has not been
incorporated in an updated
summary plan description
furnished under Subparagraph
(A) above;
(C) the annual reports, as
described in section 103 of
ERISA, for the most recent
three (3) plan years for which
an annual report has been
prepared (including any
actuarial and financial
statements, opinions and
schedules required by Form 5500
or section 103 of ERISA);
REGISTRATION STATEMENT
Page II-468
<PAGE>
(D) where applicable, the actuarial
reports for the most recent
three (3) reporting periods for
which such a report has been
prepared; and
(E) any trust agreement, investment
management, contract with an
insurance or service provider,
administration agreement or
other contract, agreement or
insurance policy;
(iv) with respect to each Employee Plan that
is an employee pension benefit plan (as
defined in section 3(2) of ERISA) and
that is neither an excess benefit plan
(as defined in section 3(36) of ERISA)
nor a plan exempted under section 201(2)
of ERISA, the following:
(A) the most recent determination
letter concerning the plan's
qualification under section
401(a) of the Code, as issued
by the Internal Revenue
Service; and
(B) any request for a determination
concerning the plan's
qualification under section
401(a) of the Code, as filed
with the Internal Revenue
Service since the date of the
most recent determination
letter; and
(v) any handbook, manual, policy, statement
or similar written guidelines furnished
to employees, excluding any such item
that has been superseded by any
subsequent handbook, manual, policy
statement or similar written guidelines.
3.18.3 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to ERISA and the regulations thereunder, each of such requirements has in all
material respects been fully met on a timely basis.
3.18.4 With respect to each Employee Plan that is an
employee benefit plan (as defined in section 3(3) of ERISA) and that is subject
to Part 4 of Subtitle B of Title I of ERISA, none of the following now exists or
has existed within the six-year period ending on the date hereof that could
result in liability to Seller:
(i) any act or omission by Seller, its
partners or employees constituting a
material violation of section 402 of
ERISA;
REGISTRATION STATEMENT
Page II-469
<PAGE>
(ii) any act or omission constituting a
violation of section 403 of ERISA;
(iii) any act or omission by Seller, its
partners or employees constituting a
violation of sections 404 or 405 of
ERISA;
(iv) to Seller's knowledge, any act or
omission by any other person constituting
a violation of sections 404 or 405 of
ERISA;
(v) any act or omission by Seller, its
partners or employees that constitutes a
violation of sections 406 and 407 of
ERISA and is not exempted by section 408
of ERISA or that constitutes a violation
of section 4975(d) of the Code; or
(vi) any act or omission by Seller, its
partners or employees constituting a
violation of sections 503, 510 or 511 of
ERISA.
3.18.5 Each Employee Plan that is an employee pension
benefit plan (as defined in section 3(2) of ERISA) and that is neither an excess
benefit plan (as defined in section 3(36) of ERISA) nor a plan exempted under
section 201(2) of ERISA meets all requirements for qualification under section
401(a) of the Code and the regulations thereunder, except to the extent that
such requirements may be satisfied by adopting retroactive amendments under
section 401(b) of the Code and the regulations thereunder. Each such Employee
Plan has been administered substantially in accordance with its terms and the
applicable provisions of ERISA and the Code and the regulations thereunder.
3.18.6 No Employee Plan to which section 412 of the
Code applies has an accumulated funding deficiency (as defined in section 412(a)
of the Code). No amendment to any such Employee Plan is precluded by any waiver,
extension or prior amendment described in section 412(f) of the Code, and no
such waiver has been requested.
3.18.7 Seller has no liability to the Pension Benefit
Guaranty Corporation, to any multi-employer plan (as defined in section
4001(a)(3) of ERISA) or to any trustee under Subtitles D or E of Title IV of
ERISA. No event has occurred which, with the giving of notice under sections
4063 and 4219 of ERISA, would result in such liability.
3.18.8 All contributions, premiums or other payments
due to (or under) any Employee Plan have been fully paid or adequately provided
for on the books
REGISTRATION STATEMENT
Page II-470
<PAGE>
and financial statements of Seller. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance with
prior practices.
3.18.9 Each Employee Plan complies with, and has been
administered in compliance with, all applicable requirements of (A) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder, (B) Title VII of the Civil Rights Act of 1964, as amended, and the
regulations thereunder and (C) the health care continuation provision of COBRA.
3.18.10 No Employee Plan provides retiree welfare
benefits to former employees of Seller that cannot be canceled at will by Seller
as of the Closing Date without residual liability.
3.18.11 All employee welfare benefit plans provide
coverage for all claims relating to periods prior to the Closing Date whether
such claims are filed prior to or after the Closing Date.
3.19 Litigation and Violations. Except as set forth on
Schedule 8, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Seller's knowledge, threatened
against or affecting Seller which (i) seek to restrain or enjoin the
consummation of the transactions contemplated by this Agreement or (ii) might
have a material adverse effect on the financial position or results of
operations of Seller. Seller is not in violation of any term of any judgment,
decree, injunction, or order to which it is subject, which violation could have
a material adverse effect on the financial position or results of operations of
Seller.
3.20 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Seller contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
3.21 Investment Company. Seller is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Seller has not
relied on rule 3a-2 under the Act as a means of excluding it from the definition
of an "investment company" under the Act at any time within the three (3) year
period preceding the Closing Date.
3.22 CATV Instruments and Seller Contracts.nstruments and
Seller Contracts.
3.22.1 The CATV Instruments and Seller Contracts are
currently in full force and effect, are valid under all applicable laws, and are
enforceable according to their terms. Seller is in compliance with and is not in
material violation or default
REGISTRATION STATEMENT
Page II-471
<PAGE>
under any of the CATV Instruments or Seller Contracts. There is no legal action,
governmental proceeding, or investigation, pending or threatened, to modify,
revoke, terminate, suspend, cancel, or reform any of the CATV Instruments or
Seller Contracts. Seller is in compliance with other material applicable
requirements of all governing or regulatory authorities (including the APUC, the
FCC and the Register of Copyrights) relating to the CATV Instruments, including,
without limitation, all material requirements for notification, filing,
reporting, posting, and maintenance of logs and records. Seller holds valid and
continuing CATV Instruments, except as set forth on Schedule 2, Seller
Contracts, rights-of-way, rights-of-entry, permits, and other rights and
authorizations necessary to enable it to operate its CATV Business. The APUC is
not currently authorized to restrict Seller's ability to change any rates
charged for CATV services, and Seller has not received any notice of any
franchising authority's intention to assert that the CATV System is not subject
to effective competition. There is no pending assertion or claim that operations
pursuant to any franchise have been improperly conducted or maintained.
3.22.2 True, complete, and correct copies of the CATV
Instruments and Seller Contracts and any amendments thereto effective as of the
date of this Agreement have been delivered by Seller to Buyer.
3.23 FCC Compliance. Seller is duly authorized under
applicable CATV Instruments and FCC rules, regulations, and orders to distribute
the FM signals and off-air television broadcast signals presently being carried
to the Subscribers of its CATV Business, to utilize all carrier frequencies
generated by its CATV Business, and is licensed to operate all the facilities,
including, without limitation, any business radio and any cable television relay
service ("CARS") system, being operated by its CATV Business. Seller has
provided all notices to Subscribers required by The Communications Act of 1934,
as amended (the "Communications Act") and FCC rules and regulations. The
operation of Seller's CATV Business and of any FCC-licensed facility used in
conjunction with the operation of its CATV Business has been, and is, in
compliance with the Communications Act and FCC rules and regulations, and Seller
has received no notice, and otherwise has no reason to know, of any claimed
default or violation with respect to the foregoing. Seller has obtained all
required FCC clearances for the operation of the CATV System in all necessary
aeronautical frequency bands. To the extent the CATV System uses frequencies in
the aeronautical bands (108-137 and 225-400 MHZ) at power levels at or greater
than 28 dBmV, such frequencies have been offset from standard aeronautical
frequencies as provided in FCC rules and regulations, on the channels in the
Service Area. During each calendar quarter for each year since January 12, 1992,
at least 75% of the CATV System's plant has been monitored for leakage, such
that 100% of the plant has been so monitored each calendar year. Each system
keeps a log that records the location of any leak of 20 uV/m or greater, the
date the leak was detected, the date the leak was repaired, and the probable
cause of the leak. Seller will continue such monitoring, repair, and record
keeping activities with respect to the CATV System through the Closing Date.
Prior to the
REGISTRATION STATEMENT
Page II-472
<PAGE>
Closing, Seller will have taken the necessary measurements for calculation of
the CATV System's cumulative leakage index (CLI) and filed a CLI report in
accordance with applicable FCC rules and regulations. Where required, Seller has
been certified as in compliance with the FCC's equal employment opportunity
rules for each year since 1991 to the extent that the FCC has reviewed such
filing's certification. Seller is in compliance with Subpart K of FCC rules and
regulations, including the network non-duplication, syndicated exclusivity, and
sports blackout requirements. The CATV System has established appropriate record
keeping procedures and is in compliance with the FCC's Children's Television
Rules. Seller has duly and timely filed all required reports with the FCC.
Seller has delivered to Buyer copies of all current reports and filings, and all
reports and filings for the past two (2) years, made or filed with the FCC by
Seller pursuant to FCC rules and regulations. Seller shall make available to
Buyer all other past reports and filings made or filed by Seller pursuant to FCC
rules and regulations.
3.24 APUC Compliance. Seller is duly authorized to operate its
CATV Business under APUC certificates. Seller holds the APUC certificate set
forth in Schedule 2. The APUC certificate is in full force and effect, without
any materially adverse modification, amendment, revocation, suspension,
termination, cancellation, reformation or condition. To the best of Seller's and
Seller's Partners' knowledge, after due inquiry, there is no APUC proceeding or
any APUC investigation pending or threatened, for the purpose of modifying,
revoking, terminating, suspending, canceling or reforming any of the
certificates. Seller operates its Cable System in accordance with all material
APUC rules, regulations and orders.
3.25 Patents, Trademarks, and Copyrights. Seller has timely
and accurately made all requisite filings and payments with the Register of
Copyrights and is otherwise in compliance with all applicable rules and
regulations of the Copyright Office. Seller has delivered to Buyer copies of all
current reports and filings, and all reports and filings for the past two (2)
years, made or filed by Seller pursuant to Copyright rules and regulations.
Seller shall make available to Buyer all other past reports and filings made or
filed by Seller pursuant to Copyright rules and regulations. Seller does not
possess any patent, patent right, trademark, or copyright and is not a party to
any license or royalty agreement with respect to any patent, trademark, or
copyright except for licenses respecting program material and obligations under
the Copyright Act of 1976 applicable to CATV systems generally. The Assets are
free of the rightful claim of any third party by way of copyright infringement
or the like.
3.26 No Other Assets or Liabilities. Seller has no assets of
any kind other than the Assets, CATV Instruments, and Seller Contracts described
on the Schedules and Seller has no liabilities, obligations, or commitments of
any kind other than obligations under the CATV Instruments and Seller Contracts
described on the Schedules and liabilities disclosed on the Financial
Statements, except liabilities, obligations and commitments incurred in the
normal course of business since the date of the Financial Statements.
REGISTRATION STATEMENT
Page II-473
<PAGE>
3.27 Required Consents. As further set forth in Section 6.8,
Seller and Buyer will have as of the Closing Date obtained the Required
Consents, unless Buyer agrees in writing that any Required Consent need not be
obtained until after the Closing Date. A true and complete list of all Required
Consents is set forth on Schedule 4.
3.28 Overbuilds. No area presently served by Seller's CATV
business is presently subject to or, to Seller's best knowledge, threatened to
be subject to an overbuild situation. Seller is currently the only cable
television operator providing or, to Seller's best knowledge, intending to
provide cable television service in the Service Areas. No person or entity other
than Seller has been granted or to Seller's knowledge, has applied for APUC
Certificates or a CATV franchise agreement in any of the communities (or any of
the unincorporated areas) presently served by Seller's CATV Business.
3.29 Effect of Certificates. All certificates of Seller
delivered under this Agreement shall be deemed to be additional representations
and warranties of Seller.
3.30 Subscriber Numbers. As to Seller and the McCaw/Rock Homer
Cable System Joint Venture and Alaska Cablevision, Inc., as of the Closing Date,
the CATV Business will have no fewer than Nine Thousand Seven Hundred Fifty
(9,750) subscribers and no fewer than Four Thousand, Three Hundred Ninety
(4,390) Pay TV Units, none of which were more than sixty-two (62) days
delinquent in payment for service.
3.31 No Insolvency. As of even date and as of the Closing
Date, Company is not and shall not be insolvent.
3.32 Compliance with Law
3.32.1 The ownership, leasing and use of the Assets
as they are currently owned, leased and used and the conduct of the CATV
Business as it is currently conducted do not violate any federal, state or local
laws and ordinances, which violation, individually or in the aggregate, would
have a material adverse effect on a System, the CATV Business or Seller. Seller
has received no notice claiming a violation by Seller or the CATV Business of
any legal requirement applicable to Seller or the CATV Business as it is
currently conducted and to Seller's best knowledge, there is no basis for any
claim that such a violation exists.
3.32.2 Seller has complied, and the CATV Business is
in compliance, in all material respects, with the specifications set forth in
Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the
Copyright Act of 1976 and the rules and regulations of the U.S. Copyright
Office, the Register of Copyrights and the Copyright Royalty Tribunal, the
Communications Act of 1934, the rules and regulations of the FCC, including
provisions of any thereof pertaining to signal leakage, to utility pole
REGISTRATION STATEMENT
Page II-474
<PAGE>
make ready and to grounding and bonding of cable television systems (in each
case as the same is currently in effect), and all other applicable material
legal requirements relating to the construction, maintenance, ownership and
operation of the Assets, the Systems and the Business.
3.32.3 Notwithstanding the foregoing, Seller has used
its best efforts to comply in all material respects with the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 and the FCC
rules and regulations promulgated thereunder (the "1992 Cable Act") as such laws
relate to the operation of the Business. Except as provided in Schedule 8,
Seller has complied in all material respects with the must carry and
retransmission consent provisions of the 1992 Cable Act. Seller has delivered to
Buyer complete and correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215,
1220, 1225, 1235 and 1240 filed with respect to the System and copies of all
other FCC Forms filed by Seller and correspondence with any Governmental
Authority relating to rate regulation generally or specific rates charged to
subscribers with respect to the Systems, including copies of any complaints
filed with the FCC with respect to any rates charged to Subscribers of the
Systems, and any other documentation supporting an exemption from the rate
regulation provisions of the 1992 Cable Act claimed by Seller with respect to
any of the Systems (collectively, "Rate Regulation Documents"). Seller has
received no notice from any Governmental Authority with respect to an intention
to enforce customer service standards pursuant to the 1992 Cable Act and Seller
has not agreed with any Governmental Authority to establish customer service
standards that exceed the standards in the 1992 Cable Act. In addition, Seller
has also delivered to Buyer documentation for each of the Systems in which the
franchising authority has not certified to regulate rates as of the date of this
Agreement showing a determination of allowable rates using a benchmark
methodology. Seller has not made any election with respect to any cost of
service proceeding conducted in accordance with Part 76.922 of Title 47 of the
Code of Federal Regulations or any similar proceeding (a "Cost of Service
Election") with respect to any of the Systems.
3.33 Disclosure. No representation or warranty by Seller in
this Agreement or in any Schedule or Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Seller pursuant
to this Agreement, contains or will contain any untrue statement of material
fact, or omits or will omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances in which made. Without limiting the generality of the
foregoing, the information set forth in the Schedules concerning the CATV
Business is accurate and complete in all material respects.
3.34 Parent Entity. AT&T Corporation is the sole ultimate
parent entity of Seller, as the term "ultimate parent entity" is defined in 16
C.F.R. section 801.1(a)(3).
REGISTRATION STATEMENT
Page II-475
<PAGE>
Section 4 Assumed Liabilities and Excluded Assets
4.1 Assignment and Assumption. Seller will assign, and Buyer
will assume and perform, the Assumed Liabilities, which are defined as: (a)
Seller's obligation to subscribers of the Business for (i) subscriber deposits
held by Seller as of the Closing Date and which are refundable, (ii) subscriber
advance payments held by Seller as of the Closing Date for services to be
rendered by a System after the Closing Date and (iii) the delivery of cable
television service to subscribers of the CATV Business after the Closing Date;
and (b) obligations accruing and relating to periods after the Closing Date
under Governmental Permits listed on Schedule 2 (to the extent that such
Governmental Permits are transferrable) and Seller Contracts listed on Schedule
3. Except as set forth in Section 2.3, Buyer will not assume or have any
responsibility for any liabilities or obligations of Seller other than the
Assumed Liabilities. In no event will Buyer assume or have any responsibility
for any liabilities or obligations associated with the Excluded Assets.
4.2 Excluded Assets. The Excluded Assets, which will be
retained by Seller, will consist of the following: (a) upon Buyer's request,
programming contracts (except for those set forth on Schedule 3); (b) insurance
policies and rights and claims thereunder (except as otherwise provided in
Section 6.19); (c) bonds, letters of credit, surety instruments and other
similar items; (d) cash and cash equivalents; (e) Seller's trademarks, trade
names, service marks, service names, logos and similar proprietary rights
(subject to Buyer's rights under Section 6.24); (f) Seller's rights under any
agreement governing or evidencing an obligation of Seller for borrowed money;
(g) Seller's rights under any contract, license, authorization, agreement or
commitment other than those creating or evidencing Assumed Liabilities; and (h)
the assets described on Schedule 10.
Section 5 Buyer's Representations, Warranties, and Covenants
Buyer represents, warrants, and covenants to Seller as
follows:
5.1 Organization and Authority. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Alaska; has
all requisite power, right, and authority to execute, deliver, and perform this
Agreement; and has taken all action required by law, its Articles of
Incorporation and Bylaws, and otherwise to authorize the execution, delivery,
and performance of this Agreement.
5.2 Capitalization. The authorized capital stock of Buyer
consists of 50,000,000 shares of Class A common stock, of which 19,696,207
shares are issued and outstanding; 10,000,000 shares of Class B common stock, of
which 4,175,434 are issued and outstanding, and 1,000,000 shares of preferred
stock, of which no shares are issued and outstanding, all as of April 15, 1996.
As of the Closing, the GCI Shares will be duly authorized, validly issued, fully
paid and nonassessable and free of any Security
REGISTRATION STATEMENT
Page II-476
<PAGE>
Interests. There are no outstanding or authorized (i) securities of Buyer
convertible into or exchangeable or exercisable for any shares of its capital
stock, except that each share of Class B common stock is convertible into one
share of Class A common stock, or (ii) subscriptions, options, warrants, calls,
rights, commitments, or other agreements or obligations of any kind obligating
Buyer to issue any additional shares of its capital stock or any other
securities convertible into or evidencing the right to acquire or subscribe for
any shares of its capital stock, except pursuant to (a) Buyer's December, 1986
Stock Option Plan, (b) Buyer's December, 1986 Employee Stock Purchase Plan; (c)
that June, 1989, option agreement granted to John Lowber to acquire 100,000
shares of Buyer's Class A common stock at $0.75 per share; (d) that June, 1989,
incentive agreement with William Behnke to acquire 85,190 shares of Buyer's
Class A common stock for $.001 per share; and (e) those shares proposed to be
issued as follows: (i) the proposed issuance of Two Million (2,000,000) shares
of Buyer's Class A common stock to MCI Telecommunications Corporation ("MCI")
for Thirteen Million and no/100 Dollars ($13,000,000.00); (ii) the acquisition
of the ongoing cable television business and cable television systems of Alaskan
Cable Network, Inc. for not more than Two Million Nine Hundred Twenty Three
Thousand Seventy Seven (2,923,077) shares of Buyer's Class A Common Stock; (iii)
the acquisition of the ongoing cable television business and cable television
systems of Prime Cable of Alaska, L.P. ("Prime"), for not more than Eleven
Million Eight Hundred Thousand (11,800,000) shares of GCI's Class A Common
Stock; (iv) any Buyer's Shares and Notes issued in connection with the
acquisition of Alaska Cablevision, Inc.; and (v) any Share and Note holdbacks in
connection with the transactions described in this Section 5.2.
5.3 Enforceability. This Agreement constitutes the legal,
valid, and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting generally the
enforcement of creditors' rights and by general principles of equity. There is
no litigation at law, in equity, or in any other proceeding or investigation
pending or threatened against Buyer which might materially impair the ability of
Buyer to perform under this Agreement.
5.4 Records. Buyer's minute books, as made available to
Seller, contain current, complete, and accurate records of all meetings and
actions of Buyer's directors, and, if any, committees of the board of directors.
All material actions and transactions taken or entered into by Buyer or
otherwise requiring action by its directors and/or shareholders have been duly
authorized or ratified as necessary and are evidenced in such minute books.
Buyer's books and ledgers, as made available to Seller, contain complete and
accurate records of all issuances and transfers of its stock interests. The
signatures appearing in such minute books, and ledgers are the genuine
signatures of the persons purporting to have signed them.
5.5 No Breach or Violation. Subject only to obtaining the
consents and approvals set forth on Schedule 12, the execution, delivery, and
performance of this
REGISTRATION STATEMENT
Page II-477
<PAGE>
Agreement by Buyer (a) does not and will not (with the giving of notice or
passage of time or both ) (i) conflict with or result in a breach or violation
by Buyer of, or (ii) constitute a default by Buyer under, or (iii) create any
right of termination, cancellation, or acceleration by any party pursuant to,
any of its contracts, any statute, ordinance, rule, or regulation, or any
agreement, instrument, judgment, or order to which Buyer is a party or by which
Buyer is bound or may be affected, and (b) does not and will not (with the
giving of notice or passage of time or, both) create or impose any Security
Interest on the GCI Shares.
5.6 Compliance with Laws. Buyer is in compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the
Governmental Authorities having jurisdiction over Buyer's business and affairs.
5.7 Financial Statements. Buyer has delivered to Seller
correct and complete copies of Buyer's audited financial statements for each of
the two most recent fiscal years ended prior to the date of this Agreement and
unaudited interim monthly financial statements for periods subsequent to the end
of the most recent fiscal year end (the "Financial Statements"). The Financial
Statements are complete and correct, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except, in the case of interim financial statements,
subject to normal recurring year-end adjustments and the absence of footnotes),
and fairly present in accordance with generally accepted accounting principles
the financial condition and results of Buyer's operations as of the dates
indicated and for the periods covered thereby. Except as disclosed by, or
reserved against in, its most recent balance sheet included in the Financial
Statements, Buyer did not have as of the date of such balance sheet any
liability or obligation, whether accrued, absolute, fixed or contingent
(including, without limitation, liabilities for taxes or unusual forward or
long-term commitments), which was material to Buyer's business, results of
operations or financial condition and which is required to be disclosed on, or
reserved against in, a balance sheet. Buyer has received no notice of any fact
which may form a basis for any claim by a third party which, if asserted, could
result in a liability affecting Buyer not disclosed by or reserved against in
Buyer's most recent balance sheet. From the date of the most recent balance
sheet included in the Financial Statements to and including the date hereof, (i)
Buyer's business has been operated only in the ordinary course, (ii) Buyer has
not sold or disposed of any assets other than in the ordinary course of
business, (iii) there has not occurred any material adverse change or event in
Buyer's business, operations, assets, liabilities, financial condition, or
results of operations compared to the business, operations, assets, liabilities,
financial condition, or results of operations reflected in the Financial
Statements, and (iv) there has not occurred any theft, damage, destruction, or
loss which has had a material adverse effect on Buyer.
5.8 Tax Returns and Other Reports. Buyer has duly and timely
filed in proper form all federal, state, local, and foreign, income, franchise,
sales, use, property,
REGISTRATION STATEMENT
Page II-478
<PAGE>
excise, payroll, and other tax returns and other reports (whether or not
relating to taxes) required to be filed by law with the appropriate governmental
authority, and, to the extent applicable, has paid or made provision for payment
of all taxes, fees, and assessments of whatever nature including penalties and
interest, if any, which are due with respect to any aspect of its business or
any of its properties. Except as set forth on Schedule 13, there are no tax
audits pending and no outstanding agreements or waivers extending the statutory
period of limitations applicable to any relevant tax return.
5.9 Transfer Taxes. There are no sales, use, transfer, excise,
or license taxes, fees, or charges applicable with respect to the transactions
contemplated by this Agreement.
5.10 Litigation and Violations. Except as set forth on
Schedule 14, there are no suits, claims, grievances, actions, proceedings, or
governmental investigations pending or, to Buyer's best knowledge, threatened
against or affecting Buyer which (i) seek to restrain or enjoin the consummation
of the transactions contemplated by this Agreement or (ii) might have a material
adverse effect on Buyer's financial position or results of operations. Buyer is
not in violation of any term of any judgment, decree, injunction, or order to
which it is subject, which violation could have a material adverse effect on the
financial position or results of operations of Buyer.
5.11 Disclosure. No written statement in this Agreement or in
any agreement or other document delivered pursuant to this Agreement by or on
behalf of Buyer contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
5.12 Investment Company. Buyer is not an "investment company"
or a company "controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended (the "Act"), and Buyer has not relied
on rule 3a-2 under the Act as a means of excluding it from the definition of an
"investment company" under the Act at any time within the three (3) year period
preceding the Closing Date.
5.13 No Finders or Brokers. Neither Buyer nor any of its
Affiliates have entered into any contract, arrangement, or understanding with
any person or firm which may result in any obligation of Seller to pay any
finder's, broker's, or agent's fees or commissions or other like payments as a
result of the transactions contemplated by this Agreement.
5.14 No Insolvency. As of even date and as of the Closing
Date, Buyer is not and shall not be insolvent.
REGISTRATION STATEMENT
Page II-479
<PAGE>
Section 6 Conduct Prior to Closing
6.1 Operation in Ordinary Course. Seller shall continue to
operate the CATV Business prior to the Closing Date in the ordinary course as
presently operated under its standard operating practices and generally in
accordance with its 1996 budget, including all required budgeted maintenance
capital expenditures for current maintenance, unless otherwise agreed by Buyer,
including, without limitation, payment of all expenses in a timely manner
consistent with prior business practices without accelerating or delaying any
payments, maintaining business books, records, and files all in accordance with
past practices, consistently applied, and maintaining the Assets (including
maintenance of the inventories of spare equipment and parts listed on Schedule
5), and continuing to implement procedures for disconnection and discontinuance
of service to Subscribers whose accounts are delinquent or past due, in
accordance with current practice and policy as of the date of this Agreement.
Without limiting the generality of the foregoing, Seller agrees that Seller, or
anyone acting on Seller's behalf, shall not, without Buyer's prior written
consent, (i) enter into or modify any material agreement, contract, or
commitment which, if entered into prior to the date of this Agreement, would be
required to be disclosed on any Schedule to this Agreement, (ii) place or permit
to exist any lien, encumbrance, security interest, claim or charge of any kind
against the Assets or the Assets, (iii) enter into or continue any discussions,
negotiations or contracts relating to the sale, assignment, or transfer any
Assets of the Seller or the CATV Business except (a) in the ordinary course of
business and (b) for Seller's payment of dividends to its shareholders in cash,
(iv) commit any act or omit to do any act which would cause a breach of any CATV
Instrument or Seller Contract or permit any amendment to or cancellation of any
CATV Instrument or Seller Contract, (v) commit any violation of any law,
statute, rule, governmental regulation or order, (vi) change the rate charged
for Basic CATV Service or Pay TV or add or delete any program service except in
the ordinary course of business. Seller shall maintain insurance on the CATV
Business and the Assets until the Closing Date consistent with past practice and
policy, and Seller shall bear all risk of loss on or prior to Closing with
respect to the CATV Business and the Assets as a result of any loss, claim,
casualty, or calamity. At Buyer's request and expense, Seller shall also make
its budgeted capital expenditures for rebuilds, upgrades or improvements.
6.2 Agents. Seller agrees that Buyer's designated agent shall
be included in all material business discussions regarding Seller's conduct of
its affairs which are other than in the ordinary or usual course of business.
6.3 Seller Contracts. All Seller Contracts are described on
Schedule 3 or Schedule 10. Complete and correct copies of all Seller Contracts
have been provided to Buyer. Each Seller Contract is in full force and effect
and constitutes the valid, legal, binding and enforceable obligation of Seller
and Seller is not and to Seller's knowledge, each other party thereto is not in
breach or default of any terms or conditions thereunder.
REGISTRATION STATEMENT
Page II-480
<PAGE>
6.4 No New Buyer Securities. Buyer shall not issue or enter
into any agreement to issue any additional securities, warrants or options
(other than stock options issued in the ordinary course of business pursuant to
its stock option plan) to purchase securities prior to the Closing, except (i)
for the proposed issuance of Two Million (2,000,000) shares of Buyer's Class A
common stock to MCI Telecommunications Corporation ("MCI") for Thirteen Million
and no/100 Dollars ($13,000,000.00), (ii) the acquisition of the ongoing cable
television business and cable television systems of Alaskan Cable Network, Inc.,
for not more than Two Million Nine Hundred Twenty Three Thousand Seventy Seven
(2,923,077) shares of Buyer's Class A Common Stock, (iii) the acquisition of the
ongoing cable television business and cable television systems of Prime Cable of
Alaska, L.P. ("Prime"), for not more than Eleven Million Eight Hundred Thousand
(11,800,000) shares of GCI's Class A Common Stock, (iv) the Ten Million and
no/100 Dollars ($10,000,000) in Notes which are convertible into GCI Class A
Common Stock in connection with the planned acquisition of Alaska Cablevision,
Inc., and (v) the note and share holdbacks issued as part of the transactions
described in this 6.4. Neither Buyer nor anyone acting on Buyer's behalf shall
enter into or continue any discussions, negotiations or contracts relating to
the sale of all or any portion of its assets or equity, except in the ordinary
course of business.
6.5 Employees. Seller shall use its best efforts to preserve
its relationship with its employees and to pay to those employees all salaries,
commissions, and other compensation to which they are entitled for services
rendered prior to the Closing Date.
6.6 Access to Premises and Records. The parties shall cause
Seller and Buyer to give to the parties and their representatives full access at
reasonable times to (i) all the premises and books and records of the CATV
Business and to all of the Assets and (ii) Buyer's premises, books and records,
and each shall furnish to the parties and their representatives all information
regarding the business and properties of Seller and Buyer as shall from time to
time be reasonably requested. Furthermore, Buyer shall be given the opportunity
to perform a field audit of Seller's accounts with Seller's cooperation prior to
Closing. Buyer agrees that it will exercise this right of access solely for the
purposes of completing its investigation in connection with this Agreement and
that the confidentiality of any data or information acquired by Buyer in
connection with this transaction shall be maintained by Buyer and its
representatives in accordance with Section 17.17. Without limiting Buyer's
rights of access stated above, Seller shall permit Buyer and/or such agents or
experts as Buyer shall designate, full access to the Real Property or any of it
and all records concerning the Real Property during reasonable business hours
for purposes of such independent investigation Buyer shall desire to conduct. At
Buyer's sole option, such investigation may include testing of the soil,
groundwater, building components, tanks, containers and equipment on the Real
Property as Buyers or Buyer's agents or experts shall deem necessary to
determine or confirm the environmental condition of the Real Property.
Performance of such an inspection or review shall not in any way modify or
otherwise affect Buyer's rights or
REGISTRATION STATEMENT
Page II-481
<PAGE>
Seller's obligations under this Agreement, including but not limited to Seller's
representations and warranties in Section 3.16 above.
6.7 Existing Relationships. Seller shall use its best efforts
to preserve the CATV Business as a going concern and to preserve existing
relationships with the APUC, and its suppliers, customers, and others having
business dealings with Seller. Buyer shall use its best efforts to preserve its
business as a going concern and to preserve its existing relationships with
suppliers, customers and others having business dealings with it.
6.8 Required Consents. Seller and Buyer agree to cooperate and
use their reasonable commercial efforts to obtain all Required Consents in a
form and upon terms and conditions reasonably satisfactory to Buyer. Seller will
afford Buyer the opportunity to review, approve, and revise the form of Required
Consents prior to delivery to any consenting party. Nothing contained herein
shall be deemed to require Buyer to undertake any extraordinary or unreasonable
measures to obtain such Required Consents, including, without limitation, the
initiation or prosecution of legal proceedings, the payment of any fees, or
agreeing to change any terms of any CATV Instruments or Seller Contracts.
6.9 Compliance with CLI Standards. Seller shall notify Buyer
at least ten days prior to the annual CLI compliance and reporting tests, which
tests shall be made no later than June 30, 1996, and representatives of Buyer
and Seller shall jointly inspect the CATV Systems to determine if the CATV
Systems are reasonably in compliance with the CLI standards under applicable FCC
rules and regulations ("CLI Standards") and to the extent the CATV Systems or
any portion thereof are not in compliance with CLI Standards, to determine the
steps to be taken by Seller (including, to the extent required, the replacement
or upgrading of equipment and the institution of maintenance procedures) in
order to cause the CATV Systems to reasonably comply with CLI Standards prior to
the Closing Date ("the Remedial Steps"). If Buyer and Seller fail to agree as to
whether the CATV Systems or any portion thereof reasonably complies with CLI
Standards or as to the Remedial Steps to be taken, Buyer and Seller shall
jointly select a qualified engineering firm to inspect the CATV Systems (the
"Inspector"). Seller shall cooperate fully with any representative of the
Inspector in making such inspection. Once the inspection is completed, the
Inspector shall, as promptly as practical after its engagement, deliver a
written report to Buyer and Seller stating whether or not the CATV Systems are
in compliance and if not, recommend Remedial Steps which will cause the CATV
Systems to fully comply with CLI Standards. The Inspector's determination and
report shall be final and binding on Buyer and Seller. Fees and expenses
incurred by the Inspector shall be paid by Buyer if the CATV Systems are found
by the Inspector to comply and by Seller if any substantial portion of the CATV
System is found not to comply with CLI Standards.
REGISTRATION STATEMENT
Page II-482
<PAGE>
6.10 MDU Agreements. Seller represents and warrants that
agreements have been granted to Seller from all MDU property owners serviced by
Seller, and that they have provided access to all such agreements to Buyer which
are listed on Schedule 11.
6.11 Public Announcements. Except as may be required by
applicable law or regulation, neither Buyer nor Seller shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other parties, which consent shall not be unreasonably withheld and shall be
promptly given. Notwithstanding the foregoing, Seller acknowledges and agrees
that Buyer shall make all press releases it deems necessary under the securities
law, rules and regulations.
6.12 Due Diligence. Within 10 days after the date of execution
of this Agreement, the parties agree to deliver fully completed Schedules and
all due diligence materials reasonably requested by any party. Any party shall
have 10 days after receipt to review such completed Schedules and due diligence
materials and to notify the applicable party of any problems or concerns arising
as a result of such review. If Seller and Buyer are unable to resolve any such
problems or concerns by negotiating a mutually satisfactory modification to this
Agreement, the objecting party shall have the right to terminate this Agreement
within 10 days after notifying the other parties of such problems or concerns
and no party shall have any further obligations hereunder.
6.13 Correction of any Noncompliance Prior to Closing.
Notwithstanding any other provision of this Agreement, the parties acknowledge
and agree that further investigation is required to determine whether the
representations and warranties contained in Sections 3.15, 3.16, 3.23, 3.24 and
3.25 are true and correct as of the date of execution of this Agreement. To the
extent that the parties determine that any such representation and warranty is
not true and correct as of the date of execution of this Agreement, the parties
intend that Seller shall take whatever action is necessary to assure that such
representations and warranties are true and correct as of the Closing Date and
the fact that such representations and warranties were not true and correct as
of the date of execution of this Agreement shall not be deemed to be a breach of
this Agreement. With respect to any filings and associated payments required to
be made by Seller in order to make the representations and warranties contained
in Sections 3.23, 3.24, 3.25 and 3.27 true and correct, copies of such filings
indicating the filing date with the FCC, the APUC, or Copyright Office, as
appropriate, shall be delivered to Buyer at least ten (10) days prior to the
Closing Date.
6.14 Leased Equipment. Seller shall pay the remaining balances
on any leases for Equipment used in the CATV Business and deliver title to such
Equipment free and clear of all Encumbrances (other than Permitted Encumbrances)
to Buyer at the Closing.
REGISTRATION STATEMENT
Page II-483
<PAGE>
6.15 Estoppel Certificates and Franchise Forms.
6.15.1 Seller will use its reasonable efforts to
obtain, at its expense, such estoppel certificates or similar documents from
lessors and other Persons who are parties to Seller Contracts as Buyer may
reasonably request.
6.15.2 Seller will execute and deliver to the
appropriate Governmental Authority, the FCC Forms 394 prepared by Buyer with
respect to each franchise as to which such Form 394 is required within two
Business Days after it receives each such Form 394 from Buyer.
6.16 HSR Notification. To the extent applicable, as soon as
practicable after the execution of this Agreement, but in any event no later
than 45 days after such execution, Seller and Buyer will each complete and file,
or cause to be completed and filed, any notification and report required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"); and each such filing shall request early termination of the
waiting period imposed by the HSR Act. The parties shall use their reasonable
best efforts to respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as reasonably
practicable to all inquiries and requests received from any other Governmental
Authority in connection with antitrust matters. Seller and Buyer shall use their
respective reasonable best efforts to overcome any objections which may be
raised by the FTC, the Antitrust Division or any other Governmental Authority
having jurisdiction over antitrust matters. Notwithstanding the foregoing, Buyer
shall not be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of Buyer or
any of its Affiliates, if Buyer determines in good faith that such change would
be materially adverse to the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates having
significant assets, net worth, or revenue. Notwithstanding anything to the
contrary in this Agreement, if Buyer, in its sole opinion, considers a request
from a governmental agency for additional data and information in connection
with the HSR Act to be unduly burdensome, Buyer may terminate this Agreement.
Within 10 days after receipt of a statement therefor, Seller will reimburse
Buyer for one-half of the filing fees payable by Buyer in connection with
Buyer's filing under the HSR Act.
6.17 No Shopping. Neither the Seller, its partners or any
agent or representative of any of them will, during the period commencing on the
date of this Agreement and ending with the earlier to occur of the Closing or
the termination of this Agreement, directly or indirectly (a) solicit or
initiate the submission of proposals or offers from any Person for, or (b)
furnish any information to any Person other than Buyer relating to, any direct
or indirect acquisition or purchase of all or any portion of the Assets.
REGISTRATION STATEMENT
Page II-484
<PAGE>
6.18 Notification of Certain Matters. Seller will promptly
notify Buyer of any fact, event, circumstance or action (a) which, if known on
the date of this Agreement, would have been required to be disclosed to Buyer
pursuant to this Agreement or (b) the existence or occurrence of which would
cause any of Seller's representations or warranties under this Agreement not to
be correct and complete.
6.19 Risk of Loss; Condemnation
6.19.1 Seller will bear the risk of any loss or
damage to the Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) at all times prior to the Closing. If any such loss or
damage is so substantial as to prevent normal operation of any material portion
of a System or the replacement or restoration of the lost or damaged property
within 20 days after the occurrence of the event resulting in such loss or
damage, Seller will immediately notify Buyer of that fact and Buyer, at any time
within 10 days after receipt of such notice, may elect by written notice to
Seller either (i) to waive such defect and proceed toward consummation of the
acquisition of the Assets in accordance with terms of this Agreement or (ii)
terminate this Agreement. If Buyer elects so to terminate this Agreement, Buyer
and Seller will be discharged of any and all obligations hereunder. If Buyer
elects to consummate the transactions contemplated by this Agreement
notwithstanding such loss or damage and does so, there will be no adjustment in
the consideration payable to Seller on account of such loss or damage but all
insurance proceeds payable as a result of the occurrence of the event resulting
in such loss or damage will be delivered by Seller to Buyer, or the rights to
such proceeds will be assigned by Seller to Buyer if not yet paid over to
Seller.
6.19.2 If, prior to the Closing, any part of or
interest in the Assets is taken or condemned as a result of the exercise of the
power of eminent domain, or if a Governmental Authority having such power
informs Seller or Buyer that it intends to condemn all or any part of the Assets
(either such event, a "Taking"), then Buyer may terminate this Agreement. If
Buyer does not elect to terminate this Agreement, then (a) Buyer will have the
sole right, in the name of Seller, if Buyer so elects, to negotiate for, claim,
contest and receive all damages with respect to the Taking, (b) Seller will be
relieved of its obligation to convey to Buyer the Assets or interests that are
the subject of the Taking, (c) at the Closing, Seller will assign to Buyer all
of Seller's rights to all damages payable with respect to such Taking and will
pay to Buyer all damages previously paid to Seller with respect to the Taking
and (d) following the Closing, Seller will give Buyer such further assurances of
such rights and assignment with respect to the taking as Buyer may from time to
time reasonably request.
6.20 Lien and Judgment Searches. Buyer will obtain at Seller's
expense, (a) the results of a lien search conducted by a professional search
company of records in the offices of the secretaries of state in each state and
county clerks in each county where there exist tangible Assets, and in the state
and county where Seller's principal office are located, including copies of all
financing statements or similar notices or filings
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(and any continuation statements) discovered by such search company and (b) the
results of a search of the dockets of the clerk of each federal and state court
sitting in the city, county or other applicable political subdivision where the
principal office or any material assets of Seller may be located, with respect
to judgments, orders, writs or decrees against or affecting Seller or any of the
Assets.
6.21 Transfer Taxes. Seller and Buyer will share equally the
payment of any state or local sales, use, transfer, excise, documentary or
license taxes or fees.
6.22 Letter to Programmers. At Buyer's request, Seller will
transmit a letter in the form of Exhibit G to all programmers from which Seller
purchases programming.
6.23 Updated Schedules. Not less than five business days prior
to Closing, Seller will deliver to Buyer revised copies of Schedules 1 through
11 which shall have been updated and marked to show any changes occurring
between the date of this Agreement and the date of delivery; provided, however,
that for purposes of Seller's representations and warranties and covenants in
this Agreement, all references to the Schedules will mean the version of the
Schedules attached to this Agreement on the date of signing, and provided
further that if the effect of any such updates to Schedules is to disclose any
one or more additional properties, privileges, rights, interests or claims as
Assets, Buyer, at or before Closing, will have the right (to be exercised by
written notice to Seller) to cause any one or more of such items to be
designated as and deemed to constitute Excluded Assets for all purposes under
this Agreement.
6.24 Use of Seller's Name. Buyer may continue to operate the
Systems using the Seller's rights to its name and all derivations and
abbreviations of such name and related marks. Within 180 days after the Closing
Date, Buyer will discontinue using and will dispose of all items of stationery,
business cards and literature bearing such names or marks. Notwithstanding the
foregoing, Buyer will not be required to remove or discontinue using any such
name or mark that is affixed to converters or other items in or to be used in
subscriber homes or properties, or as are used in a similar fashion making such
removal or discontinuation impracticable for Buyer.
6.25 Subscriber Billing Services. Seller will provide to Buyer
access its outside billing system services provider ("Transitional Billing
Services") in connection with the System and Assets acquired by Buyer.
6.26 Satisfaction of Conditions. Each party will use its best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 15, provided that Buyer will not be
required to agree to any increase in the
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amount payable with respect to, or any modification that makes more burdensome
in any material respect, any of the Assumed Liabilities.
Section 7 Closing
The Closing shall occur at the offices of Foster Pepper and
Shefelman, 1111 Third Avenue, Suite 3400, Seattle, Washington 98101, at 10:00
a.m. local time, on such date acceptable to Seller and Buyer within five (5)
business days after all conditions to Closing contained in this Agreement have
been met, or at such different place, time, or date as may be agreed by Seller
and Buyer. Until the Closing or earlier termination of this Agreement, the
parties shall cooperate fully by exchanging information upon reasonable request
and in all other reasonable ways to enable all parties to prepare for the
Closing and to determine whether the conditions to the Closing have been
satisfied. Either Buyer or Seller may terminate this Agreement upon written
notice to the others if the Closing hereunder has not occurred by October 31,
1996, or, if the Alaska Public Utilities Commission's consent shall not have
been obtained by such date, then at Buyer's or Seller's option, no later than
December 31, 1996, unless APUC has earlier notified the parties that no consent
will be given to this transaction, in which case the Agreement will be
terminated at that time, and the parties shall thereupon be relieved of any
further obligation hereunder; provided, however, if a party's breach of this
Agreement has prevented the consummation of the transactions contemplated
hereby, such party shall not be entitled to terminate this Agreement under this
Section 7. The Closing Date may be further extended by mutual consent of the
parties.
Section 8 Deliveries by Seller at Closing
At Closing, Seller shall deliver to Buyer:
8.1 the Bills of Sale for the Assets in the form attached as
Exhibit A;
8.2 the Escrow Agreement in the form attached as Exhibit B;
8.3 an Assignment and Assumption of Contracts in the form
attached as Exhibit C;
8.4 one or more Assignments of Leases in the form attached as
Exhibit D and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
8.5 an affidavit of Seller, under penalty of perjury, that
Seller is not a "foreign person" (as defined in the Foreign Investment in Real
Property Tax Act and applicable regulations) and that Buyer is not required to
withhold any portion of the consideration payable under this Agreement under the
provisions of such Act in the form attached as Exhibit H;
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8.6 motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets;
8.7 incumbency and specimen signature certificates, dated the
Closing Date, from Seller with respect to its partners executing this Agreement
and any other document delivered hereunder by or on behalf of Seller;
8.8 a certificate of Seller, dated the Closing Date, signed by
an authorized partner of Seller certifying that (A) except (1) as a result of
the taking by any person of any action contemplated under this Agreement or (2)
insofar as any representation or warranty relates to any specified earlier date,
all of the representations and warranties of Seller in this Agreement are true
and correct in all material respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and (B) Seller has performed
and complied in all material respects with all of its covenants and agreements
set forth in, and satisfied in all material respects all conditions required to
be satisfied by it pursuant to, this Agreement except as such covenants,
agreements, or conditions shall have been waived by Buyer at or before the
Closing Date;
8.9 a certified copy of resolutions of the boards of directors
for each joint venture partner, authorizing the execution and delivery by Seller
of this Agreement and any other agreements executed by Seller pursuant hereto,
and the performance of the obligations of Seller hereunder and thereunder,
together with a power of attorney authorizing Rock Associates, Inc. (formerly
Rock Investments, Inc.) to execute and deliver all documents and agreements
necessary and appropriate in connection with the closing of the transactions
pursuant to this Agreement;
8.10 an opinion of Seller's counsel, dated the Closing Date,
covering matters customary with respect to the transactions contemplated by this
Agreement, in form and substance satisfactory to Buyer;
8.11 an opinion of special communications, FCC and APUC
counsel to Seller, dated the Closing Date, covering matters customary with
respect to the APUC and FCC aspects of the transactions contemplated by this
Agreement, in the form and substance satisfactory to Buyer;
8.12 releases or terminations, in form and substance
reasonably satisfactory to Buyer, of all Security Interests with respect to the
Assets and all financing statements or other instruments with respect thereto
except for the Permitted Encumbrances described in Schedule 7;
8.13 to the extent in the possession of Seller or its agents,
all contracts not terminated pursuant to this Agreement, all unexpired
warranties, any leases of
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personal property, any business and other licenses and permits related to Seller
or the CATV Business;
8.14 to the extent in the possession of Seller or its agents,
all blueprints, schematics, drawings, maps, system design bill of materials,
engineering and technical data related to the Assets or the CATV Business;
8.15 tax, judgment, and lien searches of the relevant public
records dated no more than fifteen (15) days prior to Closing, or dated as of
such other date acceptable to Buyer and Seller, indicating all Security
Interests against the Assets, the Assets, the CATV Systems, or the CATV
Business; and
8.16 Schedules 1-11 which have been updated to reflect any
material changes from the date of execution of this Agreement to the Closing
Date; provided, however, that if any such change has a material adverse effect
on the condition, financial or otherwise, of Seller or the CATV Business, Buyer
shall have the right to terminate this Agreement with no further obligations to
Seller hereunder.
8.17 Non-Compete Agreement. Contemporaneously with the signing
of this Agreement, Seller is causing Rock Associates, Inc. to provide a
Non-Compete Agreement in the form attached as Exhibit E.
8.18 Guaranty. Contemporaneously with the signing of this
Agreement, Seller is causing its Partners to deliver the Guaranty in the form of
Exhibit F. The liability of Partner under the Guaranty for any indemnity for
breach by Seller of a representation, warranty or covenant shall be limited to
an amount not to exceed the value of the consideration received by Partner in
this transaction and the maximum aggregate liability of each of Seller's
Partners on the amount of consideration received by such Partner in this
transaction.
Drafts of each of the items listed in this Section 8 shall be
delivered by Seller to Buyer within a reasonable time prior to Closing for
Buyer's review and approval.
Section 9 Deliveries by Buyer at Closing
At Closing, Buyer shall deliver to Seller:
9.1 certified check or wire transfer documents evidencing
payment of the Two Million Eight Hundred Eighty-Three
Thousand Eight Hundred Sixty-Eight Dollars cash, less
the Seventy-Five Thousand and no/100 Dollars
($75,000) described in Section 9.2, and as adjusted
in accordance with Section 2.3, constituting the
Purchase Price, such payment to be made in accordance
with instructions
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received from the Seller at least two business days
prior to the Closing Date;
9.2 cash in the amount of Seventy-Five Thousand Dollars
($75,000) to be placed into escrow in accordance with
Section 2.4;
9.3 a certificate of good standing of Buyer issued by the
Secretary of State of Alaska dated in 1996;
9.4 an incumbency and specimen signature certificate,
dated the Closing Date, with respect to the officers
of Buyer executing this Agreement and any other
document delivered hereunder by or on behalf of
Buyer;
9.5 a certificate of Buyer, dated the Closing Date,
signed by a proper officer of Buyer certifying that
(A) except (1) as a result of the taking by any
person of any action contemplated under this
Agreement or (2) insofar as any representation or
warranty relates to any specified earlier date, all
of the representations and warranties of Buyer in
this Agreement are true and correct in all material
respects on the Closing Date with the same force and
effect as if made on and as of the Closing Date, and
(B) Buyer has performed and complied in all material
respects with all of its covenants and agreements set
forth in, and satisfied in all material respects all
conditions required to be satisfied by it pursuant
to, this Agreement except as such covenants,
agreements or conditions shall have been waived by
Seller at or before the Closing Date;
9.6 a certified copy of resolutions of the board of
directors of Buyer authorizing the execution and
delivery of this Agreement and any other agreements
executed pursuant hereto, and the performance of the
obligations of Buyer hereunder and thereunder; and
9.7 Schedules 12-14, as applicable, which have been
updated to reflect any material changes from the date
of execution of this Agreement to the Closing Date;
provided, however, that if any such change has a
material adverse effect on the condition, financial
or otherwise, of Buyer, Seller shall have the right
to terminate this Agreement with no further
obligations to Buyer hereunder.
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Section 10 Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject, at Buyer's option, to
fulfillment of each of the following conditions as of the Closing Date:
10.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Seller contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Seller, and Seller shall have performed and
complied in all material respects with all of its covenants and agreements set
forth herein and satisfied in all material respects all conditions required to
be satisfied by it pursuant to this Agreement at or before the Closing Date.
10.2 Deliveries Complete. All documents required to have been
delivered by Seller to Buyer and all actions required to have been taken by
Seller, at or prior to the Closing Date, shall have been delivered or taken.
10.2.1 Seller has executed (or caused to be executed)
and delivered to Buyer of the items set forth in Section 8.
10.2.2 Seller has delivered to Buyer: (a) evidence,
in form and substance satisfactory to Buyer, that all of the Required Consents
have been obtained or given and are in full force and effect; and (b) to the
extent obtained, the estoppel certificates or similar documents described in
Section 6.15.
10.2.3 Seller has delivered releases, in form
satisfactory to Buyer, of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances) and a certificate of no taxes due with respect to
Seller and the Assets issued by appropriate state taxing authorities as of a
date no earlier than 10 days prior to the Closing.
10.3 No Adverse Change. No material adverse change in the CATV
Business or the Assets shall have occurred (other than changes which affect the
United States CATV industry considered as a whole). The CATV Business shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially and adversely affects the CATV Business or the Assets, whether
or not covered by insurance; provided, however, that if Seller has repaired at
its expense all damage caused by any loss, casualty, or calamity prior to the
Closing to Buyer's reasonable satisfaction, the condition set forth in this
Section 10.3 shall be deemed satisfied.
REGISTRATION STATEMENT
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10.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Buyer to realize the benefits of the
transactions contemplated herein.
10.5 Inspection. Within thirty (30) days of this Agreement,
the results and findings of a due diligence inspection of the Assets and CATV
Business by Buyer shall be satisfactory to Buyer in its reasonable discretion,
and the condition of the Assets and CATV Business shall be as represented by
Seller herein and as otherwise disclosed to Buyer prior to the date hereof.
Buyer shall notify Seller within thirty-one (31) days of this Agreement of the
results of such due diligence inspection.
10.6 Cash Flow. As of the Closing Date, McCaw/Rock Seward
Cable System Joint Venture's and ACI's twelve (12) month combined trailing
operating cash flow shall be no less than Three Million Five Hundred Thousand
and no/100 Dollars ($3,500,000.00).
Section 11 Conditions to Obligations of Seller
The obligation of Seller to consummate the transactions
contemplated by this Agreement shall be subject, at Seller's option, to
fulfillment of each of the following conditions as of the Closing Date:
11.1 Accuracy of Representations and Compliance with
Conditions. All representations and warranties of Buyer contained in this
Agreement shall be true and accurate in all material respects when made and,
except (a) as a result of the taking by any person of any action contemplated
hereby or (b) insofar as any representation or warranty specifically relates
solely to an earlier date in which case it shall be true and accurate in all
material respects as of such earlier date, shall be true and accurate in all
material respects as of the Closing Date, as though such representations and
warranties were then made by Buyer, and Buyer shall have performed and complied
in all material respects with all of its covenants and agreements set forth
herein, and satisfied in all material respects all conditions required to be
satisfied by it pursuant to this Agreement at or before the Closing Date.
11.2 Deliveries Complete. All documents required to have been
delivered by Buyer to Seller and all actions required to have been taken by
Buyer, at or prior to the Closing Date, shall have been delivered or taken.
11.3 No Adverse Change. No material adverse change in Buyer's
business shall have occurred (other than changes which affect the United States
telephone industry considered as a whole). Buyer's business operations shall not
have suffered, on or prior to Closing, any loss, claim, casualty, or calamity
which materially
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and adversely affects Buyer, whether or not covered by insurance; provided,
however, that if Buyer has repaired at its expense all damage caused by any
loss, casualty, or calamity prior to the Closing to Seller's reasonable
satisfaction, the condition set forth in this Section 11.3 shall be deemed
satisfied.
11.4 Restraint of Proceedings. No action, proceeding, or
investigation shall have been instituted or threatened, on or prior to Closing,
to set aside or modify the authorization of the transactions contemplated by
this Agreement or to enjoin or prevent its consummation or which would
materially impair the ability of Seller to realize the benefits of the
transactions contemplated herein.
Section 12 Conditions to Both Parties Obligations
12.1 Consents. All Required Consents and Buyer's Required
Consents or waivers thereof shall have been obtained and shall be in full force
and effect as of the Closing Date.
12.2 No Governmental Action. No investigation, action, or
proceeding shall have been commenced by the Department of Justice or the Federal
Trade Commission or any other governmental entity challenging or seeking to
enjoin the consummation of the transactions contemplated by this Agreement and
neither Buyer nor Seller shall have been notified of a present intention by the
Assistant Attorney General in charge of the Antitrust Division of the Department
of Justice, the Director of the Bureau of Competition of the Federal Trade
Commission or any governmental entity (or their respective designees) to
commence, or recommend the commencement of, such an investigation, action, or
proceeding.
12.3 Waiver of Conditions. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
Section 13 Transactions Subsequent to Closing
13.1 Further Actions. At any time and from time to time after
the Closing, each party hereto agrees, at its own expense (except as otherwise
provided herein), to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
13.2 COBRA Benefits. Seller shall comply with all requirements
of COBRA.
Section 14 Agreement Not to Compete
14.1 Agreement. Rock Associates, Inc., a partner of Seller
shall provide to Buyer at Closing an executed Non-Compete Agreement in the form
attached to this
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Agreement as Exhibit E, the terms and conditions of which are hereby
incorporated by reference. Such Non-Compete Agreement shall be given in
consideration of the sale of Assets set forth herein and shall not be subject to
additional consideration.
14.2 Breach of Agreement. If this Section 14 is breached or
threatened to be breached, Seller expressly consents that, in addition to any
other remedy Buyer may have, Buyer may apply to any court of competent
jurisdiction for injunctive relief in order to prevent the continuation of any
existing breach or the occurrence of any threatened breach.
14.3 Enforceability. If any provision of this Section 14 is
determined to be unreasonable or unenforceable, such provision and the remainder
of this Section 14 shall not be declared invalid but rather shall be modified
and enforceable to the maximum extent permitted by law.
Section 15 Survival of Representations and Warranties; Indemnification
15.1 Survival. Except as otherwise provided, the
representations, warranties, and covenants and related indemnity agreements
contained in or made pursuant to this Agreement (including the Exhibits and
Schedules) by Buyer and by Seller shall survive the Closing and shall terminate
on the first anniversary of the Closing Date. Notwithstanding the preceding
provisions of this Section 15.1, the representations, warranties, and covenants
(and related indemnities) in Sections 3.15, 3.17, 3.18, 3.19 and 3.25 shall
survive the Closing for the period of sixty (60) days after the expiration of
the relevant statute of limitations for claims related thereto. The
representations and warranties relating to the ownership of the Assets shall
continue in full force and effect without limitation.
15.2 Indemnity by Seller. Seller and the joint venture
partners agree to indemnify, defend, and hold harmless Buyer and its officers,
directors, Affiliates, employees, attorneys, agents and shareholders (the
"Buyer's Indemnitees") against and in respect of any and all claims, suits,
actions, proceedings (formal and informal), investigations, judgments,
deficiencies, losses, damages, settlements, liabilities and expenses (including,
without limitation, reasonable legal fees and expenses of attorneys chosen by
the Buyer's Indemnitees), (collectively, "Losses"), as and when incurred arising
out of or based upon (1) any breach of any representation, warranty, covenant,
or agreement of Seller contained in this Agreement or in any other agreement
executed and delivered by Seller hereunder or in connection herewith, or (2) the
ownership of the Assets or the conduct of the CATV Business or any other matters
relating to the business of Seller for the period prior to the Closing Date,
including, without limitation, any actions taken by Seller prior to the Closing
Date but which do not become effective until after the Closing Date. No
indemnification shall be required to be made by Seller under this Section as a
result of any breach of any representation, warranty, covenant or agreement of
the Seller until the amount of Buyer's Losses under this Agreement
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exceed, in the aggregate, $10,000. At such time as such aggregate amount of
Buyer's Losses exceeds $10,000, Buyer may seek to recover all of its Losses,
including the first dollar thereof in accordance with the provisions of this
Section, provided, however, that no indemnification shall be required in excess
of the amount of the consideration actually received, in the aggregate, pursuant
to the Agreement. Seller shall not be held liable for any unintentional error in
any representation or warranty or any unintentional inaccuracy or incompleteness
of data, information or material which it otherwise might have been liable for
hereunder if, on or before 10 business days prior to the Closing Date, Seller
shall have provided Buyer with written notices of such error, inaccuracy or
incompleteness and a written statement of the corrections necessary to cure the
same and if, notwithstanding such notice, Buyer shall have elected to close this
transaction.
15.3 Indemnity by Buyer. Buyer agrees to indemnify, defend,
and hold harmless Seller and its partners, managers, Affiliates, employees,
attorneys, agents and shareholders (the "Seller's Indemnitees") against and in
respect of any Losses as and when incurred arising out of or based upon (1) any
breach of any representation, warranty, covenant or agreement of Buyer contained
in this Agreement or in any other agreement executed and delivered by Buyer
hereunder or in connection herewith; or (2) the conduct of the CATV Business or
any other matters relating to the business of Seller for the period on and after
the Closing Date.
15.4 Defense of Claims. No right to indemnification under this
Section 15 shall be available to any of Buyer's Indemnitee or Seller's
Indemnitee (the "Indemnified Party") unless such Indemnified Party shall have
given to the party obliged to provide indemnification of such Indemnified Party
(the "Indemnitor") a notice (a "Claim Notice") describing in reasonable detail
the facts giving rise to any claim for indemnification hereunder promptly after
receipt of knowledge by officers or management personnel of the Indemnified
Party of the facts upon which such claim is based; provided, however, that the
failure of any Indemnified Party to so notify the Indemnitor shall not relieve
the Indemnitor from any indemnification liability it may have except to the
extent that failure to so notify the Indemnitor materially prejudices the
Indemnitor's ability to defend against such claim. Upon receipt by the
Indemnitor of the Claim Notice from an Indemnified Party with respect to any
claim of a third party, such Indemnitor may assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party, and the Indemnified
Party shall cooperate in the defense or prosecution thereof and shall furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested in connection therewith. The Indemnified Party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party unless (i) the
Indemnitor shall not have promptly employed counsel reasonably satisfactory to
such Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses available to it, or to any other Indemnified Party who has
submitted a Claim Notice to the Indemnitor, which are
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different from or additional to those available to the Indemnitor, in either of
which events such fees and expenses shall be borne by the Indemnitor (but in no
event shall the Indemnitor be required to pay the fees and expenses of more than
one counsel employed by more than one Indemnified Party with respect to any
claim) and the Indemnitor shall not have the right to direct the defense of any
such action on behalf of the Indemnified Party. The Indemnified Party shall give
written notice to the Indemnitor of any proposed settlement of any claim, which
settlement the Indemnitor may reject in its reasonable judgment within ten (10)
days of receipt of such notice. The Indemnitor shall have the right, in its sole
discretion, to settle any claim for monetary damages for which indemnification
has been sought and is available hereunder.
15.5 Right to Offset. Seller and Buyer shall have the option
to recoup all or part of its Losses (in lieu of seeking any indemnification
therefor to which it is entitled under this Section 15) by notifying the other
that it is offsetting the amount of the Holdback by the amount of its Losses if
the amount of such Losses is determined before such party releases the
applicable Holdback. The Indemnitee shall notify the Indemnitor of its claim for
Losses to be offset against the applicable Holdback (including the details
forming the basis of such claim) as soon as practically possible after obtaining
knowledge of the basis for its claim for Losses to be so offset. If a party
disagrees with the asserted claim for Losses to be so offset, the parties shall
submit the dispute to arbitration. The amount of such disputed claim shall then
continue to be subject to the Holdback until the dispute is resolved. At the end
of the Holdback period, the Indemnitee shall release to Indemnitor the remaining
balance of the applicable Holdback. An arbitrator named by the accounting firm
of Deloitte & Touche, LLP shall resolve any dispute between the parties with
respect to the Losses offset against the Holdback within thirty (30) days, which
determination shall be binding and conclusive; provided, however, that if the
nature of the disputed claim is not of the type which would normally be
determined by a certified public accountant, the parties shall agree within ten
(10) days on another person to serve as the arbitrator from the list of
arbitrators maintained by the American Arbitration Association and Indemnitor
shall select an arbitrator from the list of arbitrators maintained by the
American Arbitration Association and the two (2) arbitrators so selected shall
select a third arbitrator from the list of arbitrators maintained by the
American Arbitration Association and such panel of three (3) arbitrators shall
resolve the disputed claim for Losses offset against the Holdback within thirty
(30) days. Nothing contained in this Section 15.5 shall be deemed to limit a
party's obligation to indemnity to the extent that the amount to which an
Indemnitee is entitled under Section 15 exceeds the amount of the applicable
Holdback.
15.6 Determination of Indemnified Amounts. The indemnification
obligations of the parties under this Section 15 shall be subject to the
following:
15.6.1 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 15 as
a result of any Loss suffered by the Indemnified Party shall be reduced to the
extent the amount of such Loss
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is actually offset by the receipt by the Indemnified Party of insurance proceeds
pursuant to the terms of the insurance policies, if any, covering such Loss or
by the receipt of any recovery by the Indemnified Party from a third party with
respect to such Loss.
15.6.2 The amount of Losses required to be paid by
the Indemnitor to indemnify the Indemnified Party pursuant to this Section 15 as
a result of any Loss suffered by the Indemnified Party shall be reduced by the
amount of any tax benefit actually realized by the Indemnified Party with
respect to such Loss, to the extent such benefit actually offsets such Loss,
provided that such reduced amount shall be increased by the amount of any taxes
payable by such Indemnified Party as a result of the Indemnitor's payment of
such Loss.
15.6.3 Amounts payable by the Indemnitor in respect
of any Losses shall be payable by the Indemnitor and shall bear interest at the
rate of ten and one-half percent (10.5%) per annum from the date the Loss for
which indemnification is sought were incurred by the Indemnified Party until the
date of payment of indemnification by the Indemnitor.
Section 16 Termination
16.1 Mutual Consent. This Agreement may be terminated by the
written consent of Buyer and Seller. Upon such termination, no party hereto
shall have any further liability to the other, except as provided in Section
16.2.
16.2 Default by Seller. Buyer shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that
Seller defaults in the performance of any material obligation hereunder or if
any representations or warranties of Seller are materially false, and Seller
fails to correct or satisfy such default or falsity within ten (10) days after
written notice is given to Seller or such longer period as shall be required to
correct or satisfy such default or falsity, provided that Seller promptly and
diligently prosecute the cure or satisfaction. If such notice is given within
ten (10) days of the Closing Date, the Closing shall be delayed for the number
of days to permit the cure of the default but in no event more than thirty (30)
days. In the event that Seller has failed to cure the default within the
required period, Buyer shall be entitled to exercise all of its rights in law or
in equity by reason of the breach by Seller of this Agreement. If Seller shall
breach or threaten to breach any of the provisions of this Agreement, Buyer, in
addition to any other remedies it may have at law or in equity, will be entitled
to a restraining order, injunction or other similar remedy in order to
specifically enforce the provisions of this Agreement. Seller and Buyer
specifically acknowledge that money damages alone would be an inadequate remedy
for the injuries and damage which would be suffered and incurred by Buyer as a
result of a breach by Seller of any provisions of this Agreement. In the event
that Buyer seeks an injunction hereunder, Seller hereby waives any requirement
for the posting of a bond or other security. Notwithstanding anything to the
contrary contained in this Section 16.2, Buyer
REGISTRATION STATEMENT
Page II-497
<PAGE>
shall have the right to waive any default by Seller and require the transactions
contemplated by this Agreement to be consummated on the Closing Date.
16.3 Default by Buyer. Seller shall have the right to
terminate this Agreement at or prior to the Closing Date in the event that Buyer
defaults in the performance of any material obligation hereunder or if any
representation or warranty of Buyer is materially false, and Buyer fails to
correct or satisfy such default or falsity within ten (10) days after written
notice is given to Buyer or such longer period as shall be required to correct
or satisfy such default or falsity, provided that Buyer promptly and diligently
prosecute the cure or satisfaction. If such notice is given within ten (10) days
of the Closing Date, the Closing shall be delayed for the number of days to
permit the cure of the default but in no event more than thirty (30) days. In
the event Buyer has failed to cure the default within the required period,
Seller shall be entitled to exercise all of its rights in law by reason of
Buyer's breach of this Agreement. If Buyer shall breach or threaten to breach
the provisions of Section 17.17 of this Agreement, Seller, in addition to any
other remedies it may have at law, will be entitled to a restraining order,
injunction or other similar equitable remedy in order to specifically enforce
such provision of this Agreement. Seller and Buyer specifically acknowledge that
money damages alone would be an inadequate remedy for the injuries and damage
which would be suffered and incurred by Seller as a result of a breach by Buyer
of the provisions of Section 17.17 of this Agreement. If Seller seeks an
injunction hereunder, Buyer hereby waives any requirement for the posting of a
bond or other security. Notwithstanding anything to the contrary contained in
this Section 16.3, Seller shall have the right to waive any default by Buyer and
require the transactions contemplated by this Agreement to be consummated on the
Closing Date.
Section 17 Miscellaneous
17.1 Expenses. Except as otherwise expressly provided in this
Agreement, Seller will bear its own expenses, and Buyer will bear its own
expenses incident to the negotiation, preparation and consummation of this
Agreement and all other agreements executed and delivered by it hereunder or in
connection herewith, including all fees and expenses of its or their respective
counsel and accountants, whether or not the transactions contemplated hereby or
thereby are consummated. Seller shall pay the fees necessary in connection with
the transfer of the APUC licenses and any FCC fees necessary in connection with
any approvals which are required to be obtained by Buyer. Seller will pay the
FCC filing fees with respect to the transfer of the IB business radio licenses.
Filing fees with respect to any filing mandated by the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 shall be borne equally by Seller and Buyer.
17.2 Modification. This Agreement (including the Exhibits and
Schedules hereto) sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements among
them concerning such subject
REGISTRATION STATEMENT
Page II-498
<PAGE>
matter, and may be modified only by a written instrument duly executed by each
party hereto.
17.3 Attorneys' Fees. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other party.
17.4 Right to Specific Performance. Seller and Buyer
acknowledge that the unique nature of the Assets to be purchased by Buyer
pursuant to this Agreement renders money damages an inadequate remedy for the
breach by Seller and Buyer of their obligations under this Agreement, and Seller
and Buyer agree that in the event of such breach, Seller and Buyer will upon
proper action instituted by it, be entitled to a decree of specific performance
of this Agreement.
17.5 Notice. Any notice given pursuant to this Agreement to
any party hereto shall be deemed to have been duly given five (5) business days
after being mailed by registered or certified mail, return receipt requested, or
when received if hand delivered, delivered via overnight messenger service or by
facsimile as follows:
If to Seller: Rock Associates, Inc.
135 Lake Street South, Suite
265
Kirkland, WA 98033
Attention: Sam Evans
Facsimile No.: (206) 828-0226
with a copy to:
Foster Pepper & Shefelman
Suite 3400
1111 Third Avenue
Seattle, Washington 98101
Attention: Robert Diercks
Facsimile No.: (206) 447-9700
If to Buyer: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503
Attention: John M. Lowber, CFO
and Senior Vice President
Facsimile No.: (907) 265-5676
REGISTRATION STATEMENT
Page II-499
<PAGE>
or at such other address as either party shall from time to time designate by
written notice, in the manner provided herein, to the other party hereto. All
references to days in this Agreement shall be deemed to refer to calendar days
unless otherwise specified.
17.6 Waiver. Any waiver must be in writing, and any waiver by
any party of a breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
17.7 Binding Effect; Assignment. The provisions of this
Agreement shall be binding upon and inure to the benefit of Seller and Buyer and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assignable by any
party without the prior written consent of the others, which consent shall not
be unreasonably withheld. Notwithstanding anything to the contrary contained
herein, Buyer may, without Seller's consent, assign its rights under this
Agreement to any Affiliate of Buyer.
17.8 No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
17.9 Rights Cumulative. All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or more
rights or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
17.10 Further Actions. Seller and Buyer will execute and
deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
17.11 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall remain in
effect at the option of the party for whose benefit such provision was made.
17.12 Captions. The Article and Section titles used in this
Agreement are inserted as a matter of convenience and for reference only and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any of the provisions hereof.
REGISTRATION STATEMENT
Page II-500
<PAGE>
17.13 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Alaska without giving effect to
conflict of laws.
17.15 Incorporation by Reference. The Exhibits and Schedules
attached hereto are an integral part of this Agreement and are incorporated
herein by reference.
17.16 Construction. This Agreement has been negotiated by
Buyer and Company and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
17.17 Confidentiality. The parties will hold and cause their
partners, officers, directors, employees, attorneys, investors, accountants,
representatives, agents, consultants, and advisors to hold in strict confidence
the provisions of this Agreement as well as all information (other than such
information as may be publicly available) furnished in connection with the
transactions contemplated by this Agreement, except as otherwise required by
law, and except as to disclosure to the parties' agents, advisors and financial
institutions. Neither party shall issue any press release or otherwise make any
public statement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Seller acknowledge
that Buyer shall issue press releases regarding the general terms and conditions
of the transactions contemplated hereby, as required by the securities
disclosure laws, rules and regulations. Buyer shall have no obligation to obtain
Seller's consent for such press releases, but shall provide Seller with copies
thereof and give reasonable consideration to Seller's suggestions thereon.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
McCAW/ROCK SEWARD CABLE SYSTEM
By: Rock Associates, Inc., one of its
Joint Venturers
By: /s/
Name:
Title:
REGISTRATION STATEMENT
Page II-501
<PAGE>
By: McCaw Communications of Seward, Inc.,
one of its Joint Venturers
By: /s/
Name:
Title:
GENERAL COMMUNICATION, INC.
By: /s/
John M. Lowber, Senior Vice President
REGISTRATION STATEMENT
Page II-502
<PAGE>
EXHIBIT A
Bill of Sale
Pursuant to the terms of that certain Asset Purchase Agreement
between General Communication, Inc., an Alaska corporation, and McCaw/Rock
Seward Cable Systems, a joint venture ("Seller"), dated May , 1996,
Seller hereby sells, transfers and conveys title to the fixtures and equipment
and other personal property listed on the attached Schedules numbered
through , free and clear of all liens and encumbrances except those listed
thereon, to General Communication, Inc.
Dated , 1996.
McCAW/ROCK SEWARD CABLE SYSTEMS
By: Rock Associates, Inc., one
of its joint venturers
By
Name:
Title:
REGISTRATION STATEMENT
Page II-503
<PAGE>
EXHIBIT B
Escrow Agreement
This Escrow Agreement ("Agreement") is dated as of ,
1996 and entered into among National Bank of Alaska ("Escrow Agent") McCaw/Rock
Seward Cable System, a joint venture ("Seller"), and General Communication,
Inc., an Alaska corporation ("GCI"). Seller and GCI are collectively referred to
in this Agreement as "Transaction Parties." Seller and GCI are parties to Asset
Purchase Agreement dated as of May , 1996 ("Purchase Agreement").
For valuable consideration received, the parties agree as
follows:
1. Escrow Agent. The Transaction Parties appoint and designate
Escrow Agent as escrow agent for the purposes set forth in this Agreement, and
Escrow Agent accepts such appointment on the terms provided in this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish and
maintain an escrow account (which, together with all funds delivered to Escrow
Agent by and on behalf of Seller or GCI and earnings thereon, are referred to
collectively as the "Escrow Fund"). Upon the execution of this Agreement, GCI
shall deliver on behalf of Seller to Escrow Agent cash in the amount of
Seventy-Five Thousand and no/100 Dollars ($75,000) ("Seller's Escrow Cash").
Upon execution hereof, GCI will cause delivery to Escrow Agent of cash in the
amount of Seventy-Five Thousand and no/100 Dollars ($75,000) ("GCI Escrow
Cash"). Escrow Agent will hold and disburse the Escrow Fund in accordance with
this Agreement.
3. Disbursement of Sellers' Escrow Deposit.
(a) Except as otherwise provided in this Section
3(a), Escrow Agent will disburse the Seller's Escrow Cash to Seller on
, 199 [181 days after the Closing Date] ("Escrow Disbursement
Date"). If, prior to the Escrow Disbursement Date, Escrow Agent receives a
certificate signed on behalf of GCI (a "GCI Claim Certificate") in the form of
Exhibit A with completed information concerning the nature and amount of an
indemnification claim by GCI under the Purchase Agreement ("GCI Claim Amount"),
Escrow Agent will retain in the Escrow Fund that amount of cash equal to the
certified GCI Claim Amount for disbursement in accordance with Section 3(a)(i)
or (ii) as applicable ("Retained Seller's Cash"). Escrow Agent will disburse the
remainder of the Seller's Escrow Cash not required to be retained pursuant to
the preceding sentence to Seller on the Escrow Disbursement Date. If a GCI Claim
Certificate is delivered to Escrow Agent prior to the Escrow Disbursement Date,
Escrow Agent will retain the Retained Seller's Cash in the Escrow Fund pursuant
to this Agreement until either:
REGISTRATION STATEMENT
Page II-504
<PAGE>
(i) Escrow Agent receives joint written
instructions signed on behalf of Seller and GCI
specifying the method for disbursing the Retained
Seller's Cash in which case the Escrow Agent shall
promptly disburse the Retained Seller's Cash in
accordance with such instructions; or
(ii) Escrow Agent receives instructions
from Deloitte and Touche, LLP, or an arbitrator with
the American Arbitration Association, pursuant to
Section 15.5 of the Purchase Agreement, or an
official copy of a final, non-appealable order issued
by a court of competent jurisdiction specifying the
method for disbursement of the Retained Seller's Cash
in which case Escrow Agent shall promptly disburse
Retained Seller's Cash in accordance with such
instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the Seller's Escrow Cash in accordance
with any joint written instructions signed by the Transaction Parties.
(c) GCI will deliver a copy of any GCI Claim
Certificate to Seller contemporaneously with or before delivery of the GCI Claim
Certificate to Escrow Agent.
4. Disbursement of the GCI Escrow Deposit.
(a) Except as otherwise provided in this Section
4(a), Escrow Agent will disburse the GCI Escrow Cash to GCI on the Escrow
Disbursement Date. If, prior to the Escrow Disbursement Date, Escrow Agent
receives a certificate signed on behalf of Seller (a "Seller's Claim
Certificate") in the form of Exhibit B with completed information concerning the
nature and amount of an indemnification claim by Seller under the Purchase
Agreement ("Seller's Claim Amount"), Escrow Agent shall retain in the Escrow
Fund that amount of GCI Escrow Cash as is equal to the certified Seller Claim
Amount for disbursement ("Retained GCI Cash"). Escrow Agent will disburse the
remainder of the GCI Escrow Cash not required to be retained pursuant to the
preceding sentence to GCI on the Escrow Disbursement Date. If a Seller's Claim
Certificate is delivered to Escrow Agent prior to the Escrow Disbursement Date,
Escrow Agent will retain the Retained GCI Cash, in the Escrow Fund pursuant to
this Agreement until either:
REGISTRATION STATEMENT
Page II-505
<PAGE>
(i) Escrow Agent receives joint written
instructions signed on behalf of Seller and GCI
specifying the method for disbursing the Retained GCI
Cash, in which case such Cash shall be disbursed
promptly by Escrow Agent in accordance with such
instructions; or
(ii) Escrow Agent receives instructions
from Deloitte and Touche, LLP, or an arbitrator with
the American Arbitration Association, pursuant to
Section 15.5 of the Purchase Agreement, or an
official copy of a final, non-appealable order issued
by a court of competent jurisdiction specifying the
method for disbursement of the Retained GCI Cash, in
which case such Cash shall be disbursed promptly by
Escrow Agent in accordance with such instructions.
(b) Notwithstanding anything to the contrary in this
Agreement, Escrow Agent will disburse the GCI Escrow Cash in accordance with any
joint written instructions signed by Seller and GCI.
(c) Seller will deliver a copy of any Seller's Claim
Certificate to GCI contemporaneously with or before delivery of the Seller's
Claim Certificate to Escrow Agent.
5. Rights, Duties and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or
determine the performance or nonperformance of any provision of any agreement
between the Transaction Parties, including, but not limited to, the Purchase
Agreement, which will not bind Escrow Agent in any manner. Escrow Agent assumes
no responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement, except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement.
(b) Escrow Agent will not be personally liable for
any act it may do or omit to do under this Agreement as such agent while acting
in good faith and in the exercise of its own best judgment, and any act done or
omitted by it in accordance with the written advice of its counsel will be
conclusive evidence of such good faith unless, in any event, the same
constitutes gross negligence or willful misconduct. Escrow Agent will have the
right at any time to consult with its counsel upon any
REGISTRATION STATEMENT
Page II-506
<PAGE>
question arising under this Agreement and will incur no liability for any delay
reasonably required to obtain the advice of counsel.
(c) Other than those notices or demands expressly
provided in this Agreement, Escrow Agent is expressly authorized to disregard
any and all notices or demands given by Seller or GCI, or by any other person,
firm or corporation, excepting only orders or process of court, and Escrow Agent
is expressly authorized to comply with and obey any and all final process,
orders, judgments, or decrees of any court, and to the extent Escrow Agent obeys
or complies with any thereof of any court, it will not be liable to any party to
this Agreement or to any other person, firm or corporation by reason of such
compliance.
(d) In consideration of the acceptance of this Escrow
by Escrow Agent, GCI agrees for it and its successors and assigns, to pay to
Escrow Agent its charges, fees and reasonable expenses as contemplated by this
Agreement. The escrow fees or charges will be Two Thousand and no/100 Dollars
($2,000.00). Such sum is intended as compensation for Escrow Agent's ordinary
services as contemplated by this Agreement. In the event Escrow Agent renders
services not provided for in this Agreement, Escrow Agent will be entitled to
receive from the Transaction Parties reasonable compensation and reasonable
costs, if any, for such extraordinary services.
(e) Escrow Agent will be under no duty or obligation
to ascertain the identity, authority or right of Seller or GCI (or their agents)
to execute or deliver or purport to execute or deliver this Agreement or any
certificates, documents or papers or payments deposited or called for or given
under this Agreement.
(f) Escrow Agent will not be liable for the outlawing
of any rights under any statute of limitations or by reason of laches in respect
of this Agreement or any documents or papers deposited with Escrow Agent.
(g) In the event of any dispute among the parties to
this Agreement as to the facts or as to the validity or meaning of any provision
of this Agreement, or any other fact or matter relating to this Agreement or to
the transactions between Seller and GCI, Escrow Agent is instructed that it will
be under no obligation to act, except in accordance with this Agreement or under
process or order of court or, if there is no such process or order, until it has
filed or caused to be filed an appropriate action interpleading Seller and GCI
and delivering the Escrow Fund (or the portion of the Escrow Fund in dispute) to
such court, and Escrow Agent will sustain no liability for its failure to act
pending such process of court or order or interpleader of action.
6. Modification of Agreement. The provisions of this Agreement
may be supplemented, altered, amended, modified, or revoked by writing only,
signed by GCI and Seller and approved in writing by Escrow Agent, and upon
payment of all fees, costs and expenses incident thereto.
REGISTRATION STATEMENT
Page II-507
<PAGE>
7. Assignment of Agreement. No assignment, transfer,
conveyance or hypothecation of any right, title or interest in and to the
subject matter of this Agreement will be binding upon any party, including
Escrow Agent, unless all fees, costs, and expenses incident thereto have been
paid and then only by the assent thereto by all parties in writing.
8. Miscellaneous.
(a) All notices and communications under this
Agreement will be in writing and will be deemed to be duly given if sent by
registered mail, return receipt requested, personal delivery or telecopier, as
follows:
To Escrow Agent: National Bank of Alaska
Escrow Department
301 W. Northern Lights Boulevard
Anchorage, Alaska 99503
Attention: Michael Walton, Vice President
Telecopy: (907) 265-2139
To GCI at: General Communication, Inc.
2550 Denali Street
Suite 1000
Anchorage, Alaska 99503-2781
Attention:John M. Lowber, CFO and Senior Vice
President
Telecopy: (907) 265-5676
With a copy (which will not constitute notice) to:
Hartig, Rhodes, Norman, Mahoney & Edwards, P.C.
717 K Street
Anchorage, Alaska 99501-3397
Attention: Bonnie J. Stratton, Esq.
Telecopy: (907) 277-4352
To Seller at: McCaw/Rock Seward Cable System
135 Lake Street South, Suite 265
Kirkland, Washington 98033
Attention:Sam Evans
Telecopy: (206) 828-0226
REGISTRATION STATEMENT
Page II-508
<PAGE>
with a copy to:
Foster Pepper & Shefelman
Suite 3400
1111 Third Avenue
Seattle, Washington 98101
Attention:Robert Diercks
Facsimile:(206)447-9700
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any such notice or communication
given in the manner specified in this Section 8(a) will be deemed to have been
given as of the date received. In the event that Escrow Agent, in its sole
discretion, determines that an emergency exists, Escrow Agent may use such other
means of communication as Escrow Agent deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement GCI and Sellers' Agent are to deliver a jointly signed writing to
Escrow Agent or jointly advise Escrow Agent in writing, such writing may in each
and all cases are signed jointly or in counterparts and such counterparts will
be deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from
its duties or obligations under this Agreement by giving notice in writing of
such resignation to the Transaction Parties at least thirty (30) days in advance
of such resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by the Transaction Parties of
a successor escrow agent, which will be a federally chartered bank having
combined capital and surplus of at least $100,000,000.00; provided, that if any
such appointment of any successor agent is not effectuated within 30 days of
such written notice, Escrow Agent may file an action for interpleader and
deposit all funds with a court of competent jurisdiction, all as provided for in
Section 5(g). Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by GCI, Seller, Escrow Agent
and the successor escrow agent. Any successor escrow agent appointed under the
provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent.
REGISTRATION STATEMENT
Page II-509
<PAGE>
(e) GCI and Seller hereby jointly and severally agree
to indemnify Escrow Agent for, and to hold it harmless against, any loss,
liability or reasonable out-of-pocket expense arising out of or in connection
with this Agreement and carrying out its duties hereunder, including the
reasonable out-of-pocket costs and expenses of defending itself against any
claim of liability, except in those cases where Escrow Agent has been guilty of
gross negligence or willful misconduct (provided, that in no event will the
Transaction Parties be liable for any allocated cost or expense of persons
regularly employed by Escrow Agent). Anything in this Agreement to the contrary
notwithstanding, in no event will Escrow Agent be liable for special, indirect
or consequential loss or damage of any kind whatsoever (including, but not
limited to, lost profits), even if Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(h) This Agreement will be governed by and construed
in accordance with the law of the State of Alaska without regard to its
principles of conflicts of laws and any action brought under this Agreement will
be brought in the courts of the State of Alaska, located in the Third Judicial
District at Anchorage. Each party hereto irrevocably waives any objection on the
grounds of venue, forum non-convenience or any similar grounds and irrevocably
consents to service of process by mail or in any other manner permitted by
applicable law and consents to the jurisdiction of such courts.
(i) Except as otherwise specified herein, each of the
parties will pay all costs and expenses incurred or to be incurred by it in
negotiating and preparing this Escrow Agreement and in closing and carrying out
the transactions contemplated by this Escrow Agreement.
(j) If any legal action or proceeding is brought for
the enforcement of this Escrow Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Escrow Agreement, the successful or prevailing party or parties will be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
The parties have caused this Agreement to be signed
the day and year first above written.
NATIONAL BANK OF ALASKA, N.A.
By
Roderick R. Shipley, Senior
Vice President
REGISTRATION STATEMENT
Page II-510
<PAGE>
GCI:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
TIN:
Seller:
McCAW/ROCK SEWARD CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
TIN:
REGISTRATION STATEMENT
Page II-511
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of General Communication, Inc.
("GCI"), certifies as follows:
A. GCI and McCaw/Rock Seward Cable System ("Seller") are
parties to that certain Asset Purchase Agreement dated as of May , 1996
("Purchase Agreement").
B. GCI in good faith believes that Seller has breached certain
representations, warranties, covenants or obligations made by Seller in the
Purchase Agreement or are obligated to indemnify GCI with respect to certain
claims. In particular, GCI in good faith is asserting claims against Seller
based on the following:
[reasonably detailed description of claim and
reference to portion of Purchase Agreement in
question to be inserted by GCI at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of GCI's notice to
Seller relating to the claim pursuant to the Purchase Agreement. GCI intends to
pursue the claim with due diligence. GCI in good faith believes the amount of
its claim described in its notice is $ .
D. GCI is furnishing this Certificate to National Bank of
Alaska which is acting as Escrow Agent pursuant to the terms of an Escrow
Agreement dated , 1996 among GCI, McCaw/Rock Seward Cable System
("Seller") and National Bank of Alaska. GCI has delivered or contemporaneously
is delivering a copy of this Certificate to Seller as well.
This Certificate is signed this day of , 199 .
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
Receipt of this Certificate is acknowledged this day of
, 199 .
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-512
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
FORM OF CLAIM CERTIFICATE
The undersigned, on behalf of McCaw/Rock Seward Cable System
("Seller") certifies as follows:
A. Seller and General Communication, Inc. ("GCI") are parties
to that certain Asset Purchase Agreement dated as of May , 1996 ("Purchase
Agreement").
B. Seller, in good faith, believes that GCI has breached
certain representations, warranties, covenants or obligations made by GCI in the
Asset Purchase Agreement or is obligated to indemnify Seller. In particular,
Seller, in good faith, is asserting claims against GCI based on the following:
[reasonably detailed description of claim and reference to portion of Purchase
Agreement in question to be inserted by Seller at time of delivery of
Certificate].
C. Attached to this Certificate is a copy of Seller's notice
to GCI relating to the claim pursuant to the Purchase Agreement. Seller intends
to pursue the claim with due diligence. Seller, in good faith, believes the
amount of the claim described in its notice is $ .
D. Seller is furnishing this Certificate to National Bank of
Alaska which is acting as Escrow Agent pursuant to the terms of an Escrow
Agreement dated , 1996 among GCI, Seller and National Bank of Alaska.
Seller has delivered or contemporaneously is delivering a copy of this
Certificate to GCI as well.
This Certificate is signed this day of , 19 .
McCAW/ROCK SEWARD CABLE SYSTEM
By:Rock Associates, Inc., one
of its joint venturers
By:
Name:
Title:
Receipt of this Certificate is acknowledged this day of
, 1996.
NATIONAL BANK OF ALASKA
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-513
<PAGE>
EXHIBIT C
Assignment and Assumption Agreement
THIS ASSIGNMENT ("Assignment") is made effective as of ,
1996, by and between McCAW/ROCK SEWARD CABLE SYSTEM, a joint venture, 135 Lake
Street South, Kirkland, Washington 98033 ("Assignor") and GENERAL COMMUNICATION,
INC., an Alaska corporation, 2550 Denali Street, Suite 1000, Anchorage, Alaska
99503 ("Assignee").
R E C I T A L S
A. Assignor is a party to that certain contract by and between
Assignor, and ("Contracting
Party"), effective as of , 19 ("Contract"), a true and
complete copy of which is attached hereto as Exhibit A and incorporated herein.
B. Pursuant to Section of the Contract, Assignor has the right at any
time to assign the contract upon the written approval of Contracting Party.
C. Assignor and Assignee have entered into an Asset Purchase Agreement
dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee is
purchasing all of the assets of Assignor except those expressly excluded in the
Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has agreed to
assign and Assignee has agreed to assume all of Assignor's right, title and
interest in and obligations under the Contract.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval of
Contracting Party as provided in Section 2 below, Assignor hereby assigns and
transfers to Assignee all of Assignor's right, title and interest in the
Contract, and Assignee hereby accepts the assignment and assumes and agrees to
perform, and fully comply with, from the effective date of this Assignment, as a
direct obligation to the Contracting Party, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Contract.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising under the Contract, from and after the
date of approval of this Assignment.
REGISTRATION STATEMENT
Page II-514
<PAGE>
2. Approval by Contracting Party. Assignor agrees to act promptly and
in good faith to obtain the written approval of this Assignment by the
Contracting Party as required by Section of the Contract.
3. Assignor's Warranty. Except as otherwise provided in the Asset
Purchase Agreement, Assignor hereby warrants that as of the effective date of
this Assignment the Contract is in good standing, with no material claims,
lawsuits, liens, or defaults; and with all required monies, fees, and other
payments having been timely made; and that Assignor and Contracting Party are in
substantial compliance with all Contract terms.
4. Successors. This Assignment shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns.
5. Governing Law. This Assignment shall be governed by the laws of the
State of Alaska. Venue for any action hereunder shall be in Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the date first written below.
ASSIGNOR:
McCAW/ROCK SEWARD CABLE SYSTEM
By: Rock Associates, Inc., one of its joint venturers
By:
Name:
Title:
ASSIGNEE:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-515
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
The Contracting Party hereby acknowledges and consents to the
above Assignment and agrees to render to Assignee the performance formerly due
the Assignor under the terms of the Contract. The Contracting Party hereby
releases Assignor from all obligations of the Contract from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of the obligations under the Contract.
--------------------------------------
By
Name:
Title:
REGISTRATION STATEMENT
Page II-516
<PAGE>
EXHIBIT D
Assignment of Lease
THIS ASSIGNMENT OF LEASE ("Assignment") is made effective as of
, 1996, by and between McCAW/ROCK SEWARD CABLE SYSTEM, a joint
venture, 135 Lake Street South, Kirkland, Washington 98033 ("Assignor"), and
GENERAL COMMUNICATION, INC., an Alaska corporation, 2550 Denali Street, Suite
1000, Anchorage, Alaska 99503 ("Assignee").
R E C I T A L S
A. Assignor is the lessee under that certain Lease by and between
Assignor and ("Lessor"), dated effective as
of , 19 , ("Lease"), a true and complete copy of which is
attached hereto as Exhibit A and incorporated herein; and which Lease is made of
record by a Memorandum of Lease dated , 19 , and recorded in the
Recording District on , 19 , in
Book , at Page , a true and complete copy of which memorandum is
attached hereto as Exhibit B and incorporated herein.
B. Pursuant to Section of the Lease, Assignor has the right at any
time to assign the Lease upon the written approval of Lessor.
C. Assignor and Assignee have entered into an Asset Purchase Agreement
dated May , 1996 (the "Asset Purchase Agreement"), whereby Assignee is
purchasing all of the assets of Assignor except those expressly excluded in the
Asset Purchase Agreement.
D. Pursuant to the Asset Purchase Agreement, Assignor has agreed to
assign and Assignee has agreed to assume all of Assignor's right, title and
interest in and obligations under the Lease.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Assignment and Assumption. Subject to the required approval of
Lessor as provided in Section 2 below, Assignor hereby assigns, conveys and
transfers to Assignee all of Assignor's right, title and interest in the Lease,
and Assignee hereby accepts the assignment and assumes and agrees to perform,
and fully comply with, from the effective date of this Assignment, as a direct
obligation to the Lessor under the Lease, all of the duties, obligations,
payments, covenants, terms and conditions of or applicable under the Lease.
Assignee further undertakes to defend, indemnify and hold Assignor harmless
from, and against any liability arising from and after the date of the approval
of the Assignment.
REGISTRATION STATEMENT
Page II-517
<PAGE>
2. Approval by Lessor. Assignor agrees to act promptly and in good
faith to obtain the written approval of this Assignment by the Lessee as
required by Section of the Lease.
3. Assignor's Warranty. Except as otherwise provided in the Asset
Purchase Agreement, Assignor hereby warrants that as of the effective date of
this Assignment the Lease is in good standing, with no material claims,
lawsuits, liens, or defaults; and with all required rents, fees, and other
payments having been timely made, and that Assignor and Lessor are in
substantial compliance with all Lease terms.
4. Successors. This Assignment shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns.
5. Recording. The parties, in conjunction with the Lessor, agree to
execute a Notice of Assignment of Lease suitable for recording purposes, the
form of which is attached hereto as Attachment 1.
6. Governing Law. This Assignment shall be governed by the laws of the
State of Alaska. Venue for any action hereunder shall be in Anchorage, Alaska.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the date first written below.
ASSIGNOR:
McCAW/ROCK SEWARD CABLE SYSTEM
By:Rock Associates, Inc., one of its
joint venturers
By:
Name:
Title:
GENERAL COMMUNICATION, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-518
<PAGE>
ACKNOWLEDGMENTS
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Seward Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing Assignment of Lease was acknowledged before me this
day of , 1996, by , of General
Communication, Inc., an Alaska corporation, on behalf of said corporation.
Notary Public in and for the State of Alaska
My commission expires:
REGISTRATION STATEMENT
Page II-519
<PAGE>
CONSENT TO ASSIGNMENT AND RELEASE
Lessor in the above-referenced Lease,
hereby acknowledges and consents to the above assignment and agrees to render to
Assignee the performance due under the terms of said Lease. Lessor hereby
releases Assignor from all obligations of the Lease from and after the date
hereof and from the date hereof agrees to look solely to Assignee for the
performance of Lessee's obligations under the Lease.
LESSOR:
McCAW/ROCK SEWARD CABLE SYSTEM
By:Rock Associates, Inc., one of its
joint venturers
By:
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Seward Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
REGISTRATION STATEMENT
Page II-520
<PAGE>
RECORD THIS INSTRUMENT
IN THE
RECORDING DISTRICT.
ATTACHMENT 1 TO EXHIBIT "D"
Notice of Assignment of Lease
This Notice of Assignment of Lease ("Notice") is made by and among
McCaw/Rock Seward Cable System, a joint venture, 135 Lake Street South,
Kirkland, Washington 98033 ("Assignor"), and General Communication, Inc. an
Alaska corporation, 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503, and
is made effective this day of , 199 .
1. Under an Assignment of Lease dated , 199 , Assignor has
assigned and Assignee has accepted all of Assignor's right, title and interest
in the Lease, a memorandum of which was recorded in the recording
district on , in Book , Page .
2. The subject property description is as set out on the attached
Schedule A.
McCAW/ROCK SEWARD CABLE SYSTEM
By: Rock Associates, Inc., one of its
joint venturers
DATED: By:
Name:
Title:
GENERAL COMMUNICATION, INC.
DATED: By:
Name:
Title:
REGISTRATION STATEMENT
Page II-521
<PAGE>
STATE OF )
) ss.
COUNTY OF )
The foregoing Assignment of Lease was acknowledged before me
this day of , 1996, by of
McCaw/Rock Seward Cable System, a joint venture of Rock Associates, Inc. on
behalf of the corporation as joint venture partner.
Notary Public in and for the State of
My commission expires:
STATE OF ALASKA )
) ss.
THIRD JUDICIAL DISTRICT )
The foregoing Assignment of Lease was acknowledged before me this
day of , 1996, by , of General
Communication, Inc., an Alaska corporation, on behalf of said corporation.
Notary Public in and for the State of Alaska
My commission expires:
AFTER RECORDING, RETURN TO:
Hartig, Rhodes, Norman,
Mahoney & Edwards, P.C.
717 K Street
Anchorage, Alaska 99501
Attn.: Bonnie J. Stratton, Esq.
(907) 276-1592
REGISTRATION STATEMENT
Page II-522
<PAGE>
EXHIBIT E
Non-Compete Agreement
, 1996
Gentlemen:
Reference is made to that certain Asset Purchase Agreement dated as of
May , 1996, (the "Agreement") among McCaw/Rock Seward Cable System, a joint
venture ("Seller") and General Communication, Inc. ("Buyer"). This letter is
being delivered to you pursuant to Section 14 of the Agreement. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
ascribed to them in the Agreement. The undersigned partner of Seller, to induce
Buyer to perform its obligations under and to consummate the transactions
described in the Agreement, is providing this Non-Compete Agreement.
The undersigned agrees that as of the date hereof, through the Closing
Date, and for a period of five (5) years thereafter, it will not, and it will
cause its key employees for so long as such employees are employed by it, not
to, own, manage, operate, join, control, or be connected with (as an employee,
consultant, partner, officer, director, shareholder or investor, other than
through ownership of up to a five percent (5%) equity interest in a publicly
traded entity), any business competing with Seller in the provision of CATV
services related to distribution, by means of cable, microwave, fiber optic,
satellite receivers, or broadcasts, both terrestrial and spatial, of data,
audio, and video signals, to businesses, residences, multi-family dwellings,
hotels, motels, trailers, and other users, within the Service Area.
If the terms or provisions of this Non-Compete Agreement are breached
or threatened to be breached, the undersigned, on its own behalf and on behalf
of its Affiliates, employees, officers, and directors, expressly consent that,
in addition to any other remedy Buyer may have, Buyer may apply to any court of
competent jurisdiction for injunctive relief in order to prevent the
continuation of any existing breach or the occurrence of any threatened breach.
If any provision of this Non-Compete Agreement is determined to be
unreasonable or unenforceable, such provision and the remainder of this
Non-Compete Agreement shall
REGISTRATION STATEMENT
Page II-523
<PAGE>
, 1996
Page
not be declared invalid, but rather shall be modified and enforced to the
maximum extent permitted by law.
Very truly yours,
ROCK ASSOCIATES, INC.
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-524
<PAGE>
EXHIBIT F
Guaranty
FOR VALUE RECEIVED, and in order to induce GENERAL COMMUNICATION, INC.,
a Alaska corporation ("Buyer"), to enter into that certain Asset Purchase
Agreement ("Agreement"), dated as of May , 1996, between Buyer and McCAW/ROCK
SEWARD CABLE SYSTEM, a joint venture ("Seller"), and to induce Buyer to perform
its obligations under and to consummate the transactions described in the
Agreement the undersigned ("Guarantor"), agrees as follows:
1. Definitions. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
2. Representations and Warranties of Guarantor. Guarantor
represents and warrants to Buyer that this Guaranty is Guarantor's legal, valid,
and binding obligation, enforceable against Guarantor in accordance with its
terms.
3. Guaranty. Guarantor, severally, and not jointly, hereby
absolutely, irrevocably and unconditionally, subject to the provisions herein,
guarantees the full and prompt payment when due of any and all monies which may
become due and payable at any time (1) as a result of breaches of Seller's
representations, warranties and covenants under the Agreement, or (2) under or
pursuant to indemnification provisions therein ("Obligations"). Guarantor
further agrees that the following terms and conditions shall apply to this
Guaranty:
(a) This Guaranty is in all respects continuing,
absolute and unconditional.
(b) This Guaranty is a guaranty of payment when due,
and not of collection.
(c) Buyer may, from time to time, at Buyer's sole
discretion and without notice to Guarantor, take any or all of the following
actions:
(i) Obtain or accept a security interest
in any property of Seller to secure payment of any or all of the Obligations;
(ii) Obtain the primary or secondary
obligation of any third party in addition to Guarantor with respect to any or
all of the Obligations;
(iii) Release, compromise or extend any
of the Obligations or any obligation of any nature of any other obligor with
respect to any of the Obligations;
REGISTRATION STATEMENT
Page II-525
<PAGE>
(iv) Release, compromise or extend any
obligation of Guarantor hereunder; and
(v) Release any security interest in, or
surrender, release, or permit any substitution or exchange for, all or any part
of any property securing any of the Obligations or any obligation hereunder, or
release, compromise, extend, alter, or modify any obligation of any nature of
any obligor with respect to any such property.
(d) As between Buyer and Guarantor, Buyer may apply
any amounts it receives from any source for any Obligation (arising by whatever
means) toward the payment of any Obligation then due and payable, in such order
of application as Buyer may from time to time elect. Notwithstanding any
performance or payments made by or for the account of Guarantor pursuant to this
Guaranty, Guarantor will not be subrogated to any rights of Buyer until Buyer
shall have received full performance and payment of all of the Obligations and
Guarantor's performance of all obligations hereunder. Without limiting the
generality of the foregoing, Guarantor agrees and acknowledges that if Buyer is
required at any time to return all or any part of any payment applied by Buyer
to the payment of the Obligations or any costs or expenses covered by this
Guaranty, whether by virtue of Seller's insolvency, bankruptcy, or
reorganization or otherwise, the Obligations to which the returned payment was
applied shall be deemed to have continued in existence and this Guaranty shall
continue to be effective or to be reinstated, as the case may be, as to such
Obligations, as though such payment had not been received and Buyer had not made
such application.
(e) Guarantor hereby expressly waives:
(i) Notice of Buyer's acceptance of this
Guaranty;
(ii) Presentment, demand, notice of
dishonor, protest, and all other notices whatsoever; and
(iii) All diligence in collection of or
realization upon any payments on, or assurance of performance of, any of the
Obligations or any obligation hereunder, or in collection on, realization upon,
or protection of any security for, or guaranty of, any of the Obligations or any
obligation hereunder.
(f) Provided that, notwithstanding anything set forth
above, the guaranty of Guarantor and Guarantor's obligations hereunder shall be
limited to an amount: (a) which does not exceed such Guarantor's pro rata
portion of such liability or liabilities based upon a percentage determined by
dividing the value of the consideration actually received by such Guarantor
pursuant to the Agreement by the aggregate value of all the consideration
actually received by all Guarantors pursuant to the Agreement (including value
received by any Guarantor released or waived pursuant to the above
REGISTRATION STATEMENT
Page II-526
<PAGE>
provisions), and (b) which does not exceed, in the aggregate, the amount of
consideration received by such Guarantor pursuant to the Agreement.
4. Notices. All notices and communications under this Guaranty
shall be in writing and shall be deemed to have been duly given when delivered
by messenger, by overnight delivery service, or by facsimile (receipt
confirmed), or mailed by first class certified mail, return receipt requested;
if to Guarantor addressed to , ,
Attention: ; and if to Buyer, addressed to Buyer's address set
forth in the Agreement; or in each case to such other address respectively as
the party shall have specified by notice to the other.
5. Integration, Assignment, Modification, Payment of Expenses
and Construction. This Guaranty constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes any prior
written or oral agreements between Guarantor and Buyer. Guarantor may not assign
this Guaranty without Buyer's prior written consent. Subject to the foregoing,
this Guaranty will inure to Buyer's benefit, and be binding upon Guarantor, and
their respective successors and assigns. This Guaranty may be amended or
modified only by a writing signed by Guarantor and Buyer. Buyer and Guarantor
shall each pay its own costs and expenses in connection with the negotiation and
execution of this Guaranty. Guarantor agrees to pay all of Buyer's expenses
(including, without limitation, costs and expenses of litigation and reasonable
attorneys' fees) in enforcing or endeavoring to realize upon this Guaranty or in
endeavoring to collect any amount payable under this Guaranty which is not paid
when due. The unenforceability or invalidity of any provision of this Guaranty
shall not affect the validity of the remainder of this Guaranty.
6. Waiver. The failure of Buyer to insist upon strict
performance of any of the terms, conditions, agreements, or covenants in this
Guaranty in any one or more instances shall not be deemed to be a waiver by
Buyer of its rights to enforce thereafter any of such terms, conditions,
agreements, or covenants. Any waiver by Buyer of any of the terms, conditions,
agreements, or covenants in this Guaranty must be in writing signed by Buyer.
7. Applicable Law. This Guaranty will be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Alaska, without regard to the conflicts of laws rules of such state. Venue for
any action shall be at Anchorage, Alaska.
8. Section Headings. The section headings used in this
Guaranty are for the convenience of Buyer and Guarantor only and shall not
affect the construction or interpretation of the provisions of this Guaranty.
REGISTRATION STATEMENT
Page II-527
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed as of , 1996.
--------------------------------------
By:
Name:
Title:
REGISTRATION STATEMENT
Page II-528
<PAGE>
EXHIBIT G
Letter to Programmers
[DATE]
To: Programmer from
Dear :
The purpose of this letter is to inform you of the impending
sale of systems now owned by McCaw/Rock Seward Cable System ("Seller") to
General Communication, Inc. ("GCI"). GCI will not assume the Seller's
programming contract currently in place to serve the systems described in the
Asset Purchase Agreement dated May , 1996, between GCI and Seller. This is
not a notice deleting your programming from these systems; GCI or its agent will
contact you about continuation of coverage of your service.
Very truly yours,
REGISTRATION STATEMENT
Page II-529
<PAGE>
EXHIBIT H
Affidavit
STATE OF )
) ss.
COUNTY OF )
This Affidavit is delivered pursuant to the Asset Purchase Agreement
dated as of May , 1996, between McCaw/Rock Seward Cable System, a joint
venture ("Seller") and General Communication, Inc., an Alaska corporation
("Buyer"). Section 1445 of the United States Internal Revenue Code of 1986, as
amended ("IRC"), provides that a transferee of a United States real property
interest must withhold tax if the transferor is a foreign person. The
undersigned, being the duly elected of Seller and being duly
sworn, certifies and agrees on behalf of Seller as follows:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
IRC and the regulations promulgated thereunder).
2. Seller's U.S. taxpayer identification number is .
3. Seller understands that this certification may be disclosed to the
Internal Revenue Service.
4. Seller hereby agrees to indemnify and hold harmless Buyer and
Buyer's partners and agents of, from and against any and all loss, liability,
interest, penalties, costs, damages, claims or causes of action which may arise
or be incurred by Buyer or Buyer's agents by reason of any failure of any
representation or warranty made in this Affidavit to be true and correct in all
respects, including but not limited to any liability for failure to withhold any
amount required under IRC section 1445.
Dated this day of , 1996.
REGISTRATION STATEMENT
Page II-530
<PAGE>
SELLER:
McCAW/ROCK SEWARD CABLE SYSTEM
By: Rock Associates, Inc., one of its joint venturers
By:
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
SUBSCRIBED AND SWORN to before me this day of , 1996 by
, on behalf of Rock Associates, Inc. as a joint
venture partner of McCaw/Rock Seward Cable System, a joint venture.
Notary Public in and for the State of
My commission expires:
REGISTRATION STATEMENT
Page II-531
EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement"), dated as of September 13,
1996, is between General Communication, Inc., an Alaska corporation ("GCI"), and
MCI Telecommunications Corporation, a Delaware corporation ("MCI").
1. Agreement to Purchase and Sell Shares. On the terms and subject to
the conditions contained in this Agreement, on the Final Closing Date, as
defined below, GCI agrees to sell to MCI, and MCI agrees to purchase from GCI,
two million (2,000,000) shares of GCI's Class A Common Stock ("Shares"). On the
Final Closing Date, GCI shall deliver to MCI certificates representing the
Shares. The Final Closing Date ("Final Closing Date") shall occur on the fifth
(5th) business day after which all franchise transfer and other regulatory
consents have been obtained which are required for the full performance of the
Securities Purchase and Sale Agreement dated effective as of May 2, 1996 for the
purchase and sale of Prime Cable of Alaska, L.P., Alaska Cable, Inc. and Prime
Cable Fund I, Inc. (the "Prime SPA").
2. Purchase Price. The purchase price payable for the Shares shall be
Thirteen Million Dollars $13,000,000.00 ("Purchase Price"). On the Final Closing
Date MCI shall pay to GCI the Purchase Price by wire transfer of immediately
available funds to a GCI designated account.
3. Closing. Unless this Agreement and the transactions contemplated
hereby shall have been terminated, the closing ("Closing") of this Agreement
shall take place at the offices of Hartig, Rhodes, Norman, Mahoney & Edwards,
P.C., 717 K Street, Anchorage, Alaska 99501 on or before the fifth (5th)
business day following the latest of (i) the full consummation and performance
of the Prime SPA, or (ii) the last condition precedent set forth in Section 8
shall have been satisfied or waived, or at such other time or place as MCI and
GCI shall mutually agree in writing.
4. Representations and Warranties of GCI. GCI represents and warrants
to MCI as follows:
a) Due Organization and Qualification. GCI and each
of its subsidiaries are corporations duly organized, validly existing and in
good standing under the laws of their respective jurisdictions of incorporation,
with corporate power and authority to own, lease and operate their respective
properties and to conduct their respective businesses as they are now owned,
leased and operated, and conducted. Each of GCI and its subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
REGISTRATION STATEMENT
Page II-532
<PAGE>
except where the failure so to qualify would not have a material adverse effect
on GCI and its subsidiaries taken as a whole.
b) Authorization. GCI has the requisite corporate
power to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by GCI of, and the performance by GCI of its obligations
under this Agreement have been duly authorized by all requisite corporate action
of GCI, and this Agreement is a valid and binding agreement of GCI, enforceable
against GCI in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally, or by the principles governing the availability of
equitable remedies. None of the execution and delivery by GCI of this Agreement,
the issuance and sale by GCI of the Shares, the consummation of the transactions
contemplated hereby, or the compliance by GCI with the terms, conditions and
provisions hereof, will conflict with or result in a breach or violation of any
of the terms, conditions, or provisions of GCI's articles of incorporation or
by-laws or of any material agreement or instrument to which GCI is a party or by
which GCI or any of its material properties may be bound, or constitute, with or
without the provision of notice or the passage of time, or both, a default or
create a right of termination, cancellation or acceleration thereunder, or
result in the creation or imposition of any security interest, mortgage, lien,
charge or encumbrance of any nature whatsoever upon GCI or any of its material
properties or assets.
c) Capital Stock. As of the date hereof and after the
issuance of the Shares as contemplated by this Agreement, the authorized and
issued and outstanding capital stock of GCI will be as set forth on the attached
Exhibit A, except for such changes (i) resulting from the exercise of stock
options, (ii) the purchase of shares contemplated herein, and (iii) the purchase
and sale of securities in connection with the Cable Acquisitions (as defined
below)..
All of the outstanding shares of Class A Common Stock and Class B Common Stock
listed on the Exhibit A have been or when issued, will be validly issued and
outstanding, fully paid, nonassessable and not entitled to any preemptive
rights. Except as set forth on Schedule 4(c)(i), there are currently outstanding
no options, warrants, rights or convertible securities or other agreements or
commitments of any character providing for the issuance of capital stock of GCI
or any of its subsidiaries. Except as set forth on the attached Schedule
4(c)(ii), there are no voting trusts and other agreements or understandings to
which GCI or any subsidiary is a party, and to GCI's knowledge, no other voting
trusts exist with respect to the voting of the capital stock of GCI or any of
its subsidiaries.
Except as set forth on the attached Schedule 4(c)(iii), GCI owns the entire
equity interest in each of its subsidiaries, and all the outstanding capital
stock of each subsidiary of GCI are validly issued, fully paid and nonassessable
and are owned by GCI free and clear of all liens, charges, preemptive rights,
claims or encumbrances.
REGISTRATION STATEMENT
Page II-533
<PAGE>
d) Issuance of Shares. The Shares, when sold and
delivered by GCI to MCI pursuant to this Agreement, will have been duly
authorized and validly issued, and will be fully paid and non-assessable, not
subject to any preemptive rights and free and clear of any security interest,
lien, charge or encumbrance of any nature whatsoever.
e) SEC Reports. GCI has timely filed all forms,
reports, statements and schedules with the Commission required to be filed by it
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act") or
other federal securities laws since June 30, 1993, and has heretofore delivered
to MCI (in the form filed with the Commission), together with any amendments or
supplements thereto, including superseding amendments, its (i) Annual Reports on
Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1995,
(ii) all definitive proxy statements relating to GCI's meetings of stockholders
(whether annual or special) held since March 31, 1993 as filed with the
Securities and Exchange Commission ("Commission"), and (iii) all other reports
or registration statements filed by GCI pursuant to the Exchange Act and the
Securities Act of 1933, as amended ("Securities Act") since March 31, 1993
(collectively, "SEC Reports"). The SEC Reports (i) were prepared in compliance
with the applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not as of their respective dates contain any
untrue statement of material fact or omit to state any 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. None of the subsidiaries
of GCI is required to file any reports, statements, forms or other documents
with the Commission.
f) Financial Statements. The audited financial
statements of GCI included or incorporated by reference in the SEC Reports and
the unaudited interim monthly financial statements for periods subsequent to
such audited financial statements (collectively, including the footnotes
thereto, "Financial Statements") are correct and complete, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP") (except as otherwise stated in the Financial Statements or in the
related reports of GCI's independent accountants) and present fairly the
consolidated financial position of GCI and its subsidiaries as of the dates
thereof, and the results of operations, changes in financial position and the
statements of stockholders' equity of GCI and its subsidiaries on a consolidated
basis for the periods indicated. No event has occurred since the preparation of
the Financial Statements that would require a restatement of the Financial
Statements under GAAP. GCI has received no notice of any fact which may form a
basis for any claim by a third party which, if asserted, could result in
liability affecting GCI not disclosed by or reserved against in GCI's most
recent balance sheet. The Financial Statements reflect and at the Closing Date
will reflect, the interest of GCI in the assets, liabilities and operations of
all subsidiaries of GCI.
REGISTRATION STATEMENT
Page II-534
<PAGE>
Neither GCI nor any of its subsidiaries has any material liability, obligation
or commitment of any nature whatsoever (whether known or unknown, due or to
become due, accrued, fixed, contingent, liquidated, unliquidated, or otherwise)
other than liabilities, obligations or commitments (i) which are accrued or
reserved against in the consolidated balance sheet of GCI and its consolidated
subsidiaries ("Balance Sheet") as of December 31, 1995 or reflected in the notes
thereto, (ii) which (x) arose in the ordinary course of business since such date
and (y) do not or would not individually or in the aggregate have a material
adverse effect on the business, properties or financial condition of GCI and its
subsidiaries taken as a whole, or (iii) which are the type that would not be
required to be reflected on a consolidated balance sheet of GCI and its
subsidiaries or in the notes thereto if such balance sheet were prepared in
accordance with GAAP as of the date hereof or as at the Closing Date, as the
case may be. From the date of the most recent balance sheet included in the
Financial Statements to and including the date hereof, (i) GCI's business has
been operated only in the ordinary course, (ii) GCI has not sold or disposed of
any assets other than in the ordinary course of business, (iii) there has not
occurred any material adverse change or event in GCI's business, operations,
assets, liabilities, financial condition or results of operations compared to
the business, operations, assets, liabilities, financial condition or results of
operations reflected in the Financial Statements, and (iv) there has not
occurred any theft, damage, destruction or loss which has had a material adverse
effect on GCI.
g) Related Transactions. Since the date of GCI's 1995
Proxy Statement to the date hereof, GCI has not entered into or otherwise become
obligated with respect to any transactions which would require a disclosure
pursuant to Item 404 of Regulation S-K in accordance with Items 7(b) or (c) of
Schedule 14A under the Exchange Act were GCI to distribute a proxy statement as
of the date hereof and the Closing Date.
h) Litigation. Except as set forth on Schedule 4(h),
there is no claim, suit, action, governmental investigation or proceeding
pending or, to the knowledge of GCI, threatened against or affecting GCI or any
of its subsidiaries which (i) seek to restrain or enjoin the consummation of the
transactions contemplated by this Agreement, or (ii) if decided adversely to GCI
or such subsidiary would have, or would be likely to have a material adverse
effect on the business, properties or financial condition of GCI and its
subsidiaries taken as a whole. There is no outstanding order, writ, injunction
or decree or, to the knowledge of GCI, any claim or investigation of any court,
governmental agency or arbitration tribunal materially and adversely affecting
or which can reasonably be expected to materially and adversely affect GCI, any
of its subsidiaries, or their respective properties, assets or businesses,
franchises, licenses or permits under which they operate, or their ability to
operate their respective businesses in the ordinary course.
i) Governmental. No governmental consent, approval,
hearing, filing, registration or other action, including the passage of time, is
necessary for the
REGISTRATION STATEMENT
Page II-535
<PAGE>
execution and delivery of this Agreement, the issuance and sale of the Shares,
or the consummation of the transactions contemplated by this Agreement, other
than (i) any applicable consents and/or approvals of the Federal Communications
Commission ("FCC"), and (ii) any applicable filings with and consents and/or
approvals of state public service commissions, public utility commissions or
similar state regulatory bodies ("Public Utility Commissions") under state
public utility statutes and similar laws.
j) Absence of Certain Changes. Since December 31,
1995, (i) there has not occurred or arisen any event having, and neither GCI nor
any of its subsidiaries has suffered, a material adverse effect on the business,
properties or financial condition of GCI and its subsidiaries taken as a whole,
(ii) GCI and its subsidiaries have conducted their businesses only in the
ordinary course, consistent with past practices, and (iii) neither GCI nor any
of its subsidiaries has taken any actions described in Sections 7 a) through e).
k) Fees. Neither GCI nor any of its subsidiaries has
paid or become obligated to pay any fee, commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
l) Certain Agreements. Except as set forth on the
attached Schedule 4(l), there are no contracts, agreements, arrangements or
understandings to which GCI or any of its subsidiaries, officers, agents or
representatives is a party, that create, govern or purport to govern the right
of another party to acquire GCI or an equity interest in GCI, or any subsidiary
of GCI, or to increase any such equity interest.
m) Labor Relations. Neither GCI nor any of its
subsidiaries is a party to any collective bargaining agreement. Since March 31,
1993, neither GCI nor any of its subsidiaries has (i) had any employee strikes,
work stoppages, slowdowns or lockouts, or (ii) except as set forth on the
attached Schedule 4(m)(ii), received any request for certification of bargaining
units or any other requests for collective bargaining.
n) Licenses. GCI and its subsidiaries have all
permits, licenses, waivers, authorizations, approvals and certificates of public
convenience and necessity ("Licenses") (including, without limitation, Licenses
by the FCC and Public Utility Commissions) which are necessary for GCI and its
subsidiaries to conduct their operations in the manner heretofore conducted,
except for Licenses, the failure of which to obtain would not have a material
adverse effect on the business, properties or financial condition of GCI and its
subsidiaries taken as a whole. No event has occurred, been initiated or
threatened with respect to the Licenses which permits, or after notice or lapse
of time or both would permit, revocation or termination thereof or would result
in any material impairment of the rights of the holder of any of the Licenses
except for revocations, terminations or impairments that would not, in the
aggregate, have a material adverse effect on the business, properties or
financial condition of GCI and its subsidiaries taken as a whole.
REGISTRATION STATEMENT
Page II-536
<PAGE>
o) Employee Benefit Plans. Each employee benefit
plan, as such term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), of GCI or any subsidiary of GCI
("Pension Plan") and each other employee benefit plan within the meaning of
ERISA (collectively with the Pension Plans, ("Plans") complies in all material
respects with all applicable requirements of ERISA and the Internal Revenue Code
of 1986, as amended ("Code"), and other applicable laws. None of the Plans is a
multi-employer plan, as such term is defined in Section 3(37) of ERISA. Each
Pension Plan which is intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service to be qualified and nothing
has occurred since the date of any such determination or application which would
adversely affect such qualification. Neither GCI nor any subsidiary of GCI, nor
any Plan nor any of their respective directors, officers, employees or agents
has, with respect to any Plan, engaged in any "prohibited transaction," as such
term is defined in Section 4975 of the Code or Section 406 of ERISA, which could
result in any taxes or penalties or other liabilities under Section 4975 of the
Code or Section 502(i) of ERISA, except taxes, penalties or liabilities which in
the aggregate would not have a material adverse effect on the business,
properties or financial condition of GCI and its subsidiaries taken as a whole.
No liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Pension Plan that has not been satisfied in full. No Pension Plan
has incurred an "accumulated funding deficiency" within the meaning of the Code.
There has been no "reportable event" within the meaning of Section 4043 of ERISA
with respect to any Pension Plan. All amounts required by the provisions of any
Pension Plan to be contributed have been so contributed.
p) Property and Leases. Except as set forth on the
attached Schedule 4(p), GCI and its subsidiaries have good title to all material
assets reflected on the Balance Sheet except for (i) liens for current taxes and
assessments not yet past due, (ii) inchoate mechanics' and materialmens' liens
for construction in progress, (iii) workers', repairmens', warehousemens' and
carriers' liens arising out of the ordinary course of business, and (iv) all
matters of record, liens and imperfections of title and encumbrances which
matters, liens and imperfections would not, in the aggregate, have a material
adverse effect on the business, properties or financial condition of GCI and its
subsidiaries taken as a whole.
q) Material Agreements. Schedule 4(q) attached hereto
sets forth a complete listing of all contracts and agreements existing on the
date hereof to which GCI or any of its subsidiaries is a party or by which any
of their respective properties or assets is bound other than contracts for
services purchased under tariffs, which (i) are with any customer which
accounted for more than two percent of GCI or any of its subsidiary's revenues
for the year ended December 31, 1995, (ii) involve contracts that call for
annual aggregate expenditures by GCI in excess of $5,000,000, or (iii) involve
contracts that call for aggregate expenditures by GCI during the remainder of
their respective term in excess of $10,000,000. All such contracts and
agreements
REGISTRATION STATEMENT
Page II-537
<PAGE>
are valid and binding, in full force and effect and enforceable against the
parties thereto in accordance with their respective terms. Except as set forth
on the attached Schedule 4(q)(i), to GCI's knowledge, there is not under any
such contract or agreement any existing default, or event which, after notice of
lapse of time, or both, would constitute a default, by GCI or any of its
subsidiaries or any other party.
r) Compliance with Laws.
(i) GCI is in material compliance with all
applicable laws, rules, regulations, orders, ordinances, and codes of the United
States of America, its territories and possessions, and of any state, county,
municipality, or other political subdivision or any agency of any of the
foregoing having jurisdiction over GCI's business and affairs.
In General.
GCI has constructed, maintained and operated, and is
constructing, maintaining and operating, its business (including, without
limitation, the real property owned or leased by GCI ("GCI's Real Property")) in
material compliance with all applicable laws including the Communications Act,
the rules and regulations of the FCC, the APUC (in each case as the same are
currently in effect);
(i) All reports, notices, forms and filings,
and all fees and payments, required to be given to, filed with, or paid to, any
governmental authority by GCI under all applicable laws have been timely and
properly given and made by GCI, and are complete and accurate in all material
respects, in each case as required by applicable law;
(ii) GCI has not received any notice
(written or oral) from any governmental authority or any other Person that it,
or its ownership and operation of its business is in material violation of any
applicable law, and GCI knows of no basis for the allegation of any such
violations; and
(iii) GCI has complied in all material
respects with all applicable legal requirements relating to the employment of
labor, including ERISA, continuation coverage requirements with respect to group
health plans, and those relating to wages, hours, unemployment compensation,
worker's compensation, equal employment opportunity, age and disability
discrimination, immigration control and the payment and withholding of taxes,
and no reportable event, within the meaning of Title IV of ERISA, has occurred
and is continuing with respect to any "employee benefit plan" or "multiemployer
plan" (as those terms are defined in ERISA) maintained by GCI or its affiliates
(as defined in Section 407(d)(7) of ERISA). No prohibited transaction, within
the meaning of Title I of ERISA, has occurred with respect to any such employee
benefit plan or multiemployer plan, and no material accumulated funding
deficiency (as defined
REGISTRATION STATEMENT
Page II-538
<PAGE>
in Title I of ERISA) or withdrawal liability (as defined in Title IV of ERISA)
exists with respect to any such employee benefit plan or multiemployer plan.
(iv) To GCI's knowledge, except as set forth
in Schedule 4(r)(v): (i) GCI has not received any notice (written or oral) from
any governmental authority or other Person that the Person giving such notice is
investigating whether, or has determined that there are, any violations of
Environmental Laws by GCI, or violations of Environmental Law due to activities
on, or affecting, or related to GCI's Real Property, (ii) none of GCI's Real
Property has previously been used by any Person for the generation, production,
emission, manufacture, handling, processing, treatment, storage, transportation,
disposal or discharge of any Hazardous Substances, (iii) GCI has not used,
generated, produced, emitted, manufactured, handled, possessed, treated, stored,
transported, disposed or discharged, and does not presently use, generate,
produce, emit, manufacture, handle, possess, treat, store, transport, dispose or
discharge, any Hazardous Substances on, into or from GCI's Real Property, (iv)
GCI is in compliance in all material respects with all laws applicable to its
own (as distinguished from other Persons') use, generation, production,
emission, manufacturing, treatment, storage, transportation, disposal, and
discharge of any Hazardous Substances on, into or from GCI's Real Property, (v)
there are no above ground or underground storage tanks, or any Equipment
containing polychlorinated biphenyls, on GCI's Real Property, (vi) no release of
Hazardous Substances outside GCI's Real Property has entered or threatens to
enter any of GCI's Real Property, nor is there any pending or threatened claim
based on Environmental Laws which arises from any condition of the land
surrounding any of GCI's Real Property, (vii) no Real Property has been used at
any time as a gasoline service station or any other facility for storing,
pumping, dispensing or producing gasoline or any other petroleum products or
wastes, (viii) no building or other structure on any of GCI's Real Property
contains asbestos, and (ix) there are no incinerators, septic tanks or cesspools
on GCI's Real Property and all waste is discharged into a public sanitary sewer
system. GCI has provided MCI with complete and correct copies of (A) all
studies, reports, surveys or other materials in GCI's possession or of which GCI
has knowledge and to which GCI has access relating to the presence or alleged
presence of Hazardous Substances at, on or affecting GCI's Real Property, (B)
all notices or other materials in GCI's possession or of which GCI has knowledge
and to which GCI has access that were received from any governmental authority
having the power to administer or enforce any Environmental Laws relating to
current or past ownership, use or operation of the real property or activities
at or affecting GCI's Real Property and (C) all materials in GCI's possession or
to which GCI has access relating to any claim, allegation or action by any
private third party under any Environmental Law. The representations and
warranties in this Section 4(r) are the only representations and warranties
given by GCI with respect to the Environmental Law compliance of GCI and its
business.
s) Tax Returns and Other Reports. GCI has duly and
timely filed in proper form all federal, state, local, and foreign, income,
franchise, sales, use,
REGISTRATION STATEMENT
Page II-539
<PAGE>
property, excise, payroll, and other tax returns and other reports (whether or
not relating to taxes) required to be filed by law with the appropriate
governmental authority, and, to the extent applicable, has paid or made
provision for payment of all taxes, fees, and assessments of whatever nature
including penalties and interest, if any, which are due with respect to any
aspect of its business or any of its properties. Except as set forth on Schedule
4(s), there are no tax audits pending and no outstanding agreements or waivers
extending the statutory period of limitations applicable to any relevant tax
return.
t) Transfer Taxes. There are no sales, use, transfer,
excise, or license taxes, fees, or charges applicable with respect to the
transactions contemplated by this Agreement.
u) Disclosure. No written statement in this Agreement
or in any agreement or other document delivered pursuant to this Agreement by or
on behalf of GCI contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. None of
the periodic filings made by GCI with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, since January 1, 1995,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
v) Investment Company. GCI is not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended (the "Act"), and GCI has not
relied on rule 3a-2 under the Act as a means of excluding it from the definition
of an "investment company" under the Act at any time within the three (3) year
period preceding the Closing Date.
w) No Insolvency. As of even date and as of the
Closing Date, GCI is not and shall not be insolvent.
5. Representations and Warranties of MCI. MCI represents and warrants
to GCI as follows:
a) Due Organization. MCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with corporate power to own its properties and to conduct its business
as now owned and conducted.
b) Authorization. MCI has the requisite corporate
power to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by MCI of, and the performance by MCI of its obligations
under this Agreement have been duly authorized by all requisite corporate action
of MCI and this Agreement
REGISTRATION STATEMENT
Page II-540
<PAGE>
is a valid and binding agreement of MCI, enforceable against MCI in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the principles governing the availability of equitable remedies.
c) Purchase for Investment; Existing Shareholder. MCI
is purchasing the Shares for investment for its own account and not with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act. MCI is an existing security holder of shares of issued and
outstanding common stock of GCI and no commission or other remuneration shall be
paid by MCI, directly or indirectly, in connection with MCI's purchase of
Shares.
d) No Registration of Shares. MCI understands that
(i) the Shares have not been registered under the Securities Act or under any
state securities laws and are being issued in reliance on the exemptions from
the registration and prospectus delivery requirements of the Securities Act
which are set forth in Sections 4(2) and 4(6) of the Securities Act and the
regulations promulgated thereunder and in reliance on exemptions from the
registration requirements of applicable state securities laws; and (ii) the
Shares cannot be transferred without compliance with the registration
requirements of the Securities Act and applicable state securities laws or
unless an exemption from such registration requirements is available, and (iii)
the reliance of GCI upon the aforesaid exemptions is predicated in part upon
MCI's representations and warranties.
e) Residence. The jurisdiction in which MCI's
principal executive offices are located is in the District of Columbia.
f) Accredited Investor. MCI is an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act.
g) Availability of Information. GCI has made
available to MCI the opportunity to ask questions of, and to receive answers
from, GCI's officers and directors, and any other person acting on their behalf,
concerning the terms and conditions of this Agreement and the transactions
contemplated herein and to obtain any other information requested by MCI to the
extent GCI possesses such information or can acquire it without unreasonable
effort or expense. MCI has been afforded the opportunity to inspect, and to have
its auditors or other agents inspect, the books and records of GCI. The
furnishing of such information, the opportunity to inspect and any inspection so
undertaken by MCI shall not affect MCI's right to rely on the representations
and warranties of GCI set forth in this Agreement.
h) Disclosure. No written statement in this Agreement
or in any agreement or other document delivered pursuant to this Agreement by or
on behalf of MCI contains any untrue statement of a material fact or omits to
state a material fact
REGISTRATION STATEMENT
Page II-541
<PAGE>
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
i) Investment Company. MCI is not an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended (the "Act"), and MCI has not
relied on rule 3a-2 under the Act as a means of excluding it from the definition
of an "investment company" under the Act at any time within the three (3) year
period preceding the Closing Date.
j) No Insolvency. As of even date and as of the
Closing Date, MCI is not and shall not be insolvent.
6. Restrictive Legend. The certificates representing the Shares shall
bear a legend substantially to the effect of the following:
"The securities represented by this certificate have been
issued without registration under the Securities Act of 1933,
as amended, or any state securities laws and may not be
offered, sold or otherwise disposed of, unless the securities
are registered under such act and applicable state securities
laws or exemptions from the registration requirements thereof
are available for the transaction."
7. Additional Agreements. During the period from the date of this
Agreement to the Final Closing Date:
a) Interim Operations. GCI shall, and shall cause its
subsidiaries to, conduct their respective business only in the ordinary course,
and maintain, keep and preserve their respective assets and properties in good
condition and repair, ordinary wear and tear excepted.
b) Certificate and By-laws. GCI shall not, and shall
not permit any of its subsidiaries to, make or propose any change or amendment
in their respective Certificates of Incorporation or By-laws.
c) Capital Stock. Except in connection with the Cable
Acquisitions (as defined below), GCI shall not, and shall not permit any of its
subsidiaries to, issue, pledge or sell any shares of capital stock or any other
securities of any of them or issue any securities convertible into, or
exchangeable for or representing the right to purchase or receive, or enter into
any contract with respect to the issuance of, any shares of capital stock or any
other securities of any of them (other than pursuant to this Agreement or the
exercise of stock options outstanding on the date hereof), or enter into any
contract with respect to the purchase or voting of shares of their capital stock
or
REGISTRATION STATEMENT
Page II-542
<PAGE>
adjust, split, combine, reclassify any of their securities, or make any other
material changes in their capital structures.
d) Dividends. GCI shall not declare, set aside, pay
or make any dividend or other distribution or payment (whether in cash, stock or
property) with respect to, or purchase or redeem, any shares of capital stock.
e) Assets; Mergers; Etc. GCI shall not, and shall not
permit any of its subsidiaries to, encumber, sell, lease or otherwise dispose of
or acquire any material assets, or encumber, sell, lease or otherwise dispose of
assets having a value in excess of $3,000,000 in the aggregate, or enter into
any merger or other agreement providing for the acquisition of any material
assets of GCI or any of its subsidiaries by any third party or acquire (by
merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or enter any
contract, agreement, commitment or arrangement to do any of the foregoing,
except under: (i) the Prime SPA, (ii) the Alaskan Cable Network Asset Purchase
Agreement, dated April 15, 1996, and (iii) the Alaska Cablevision, Inc. and
McCaw/Rock Associates Asset Purchase Agreements, dated May 10, 1996 ((i), (ii)
and (iii) above collectively, "Cable Acquisitions").
f) Access to Information. GCI shall, and shall cause
its subsidiaries, officers, directors, employees and agents-to, afford MCI
access at all reasonable times to their officers, employees, agents, properties,
books, records and contracts, and shall furnish MCI all financial, operating and
other data and information as MCI may reasonably request.
g) Certain Filings, Consents and Arrangements. MCI
and GCI shall (i) cooperate with one another in promptly (x) determining whether
any filings are required to be made or consents, approvals, permits or
authorizations are required to be obtained under any federal or state law or
regulation or any consents, approvals or waivers are required to be obtained
from other parties to loan agreements or other contracts material to GCI's
business in connection with the transaction contemplated by this Agreement, and
(y) making any such filings, furnishing information required in connection
therewith and seeking timely response to obtain any such consents, permits,
authorizations, approvals or waivers; and (ii) as promptly as practicable, file
with the Federal Trade Commission and the Department of Justice the notification
and report forms, if required.
h) Amendments to Prime SPA. GCI shall not amend,
modify or alter, in any manner whatsoever, the Prime SPA without the prior
written consent of MCI.
REGISTRATION STATEMENT
Page II-543
<PAGE>
8. Conditions.
a) Conditions to Obligations of MCI and GCI. The
obligations of MCI and GCI to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or before the Final Closing Date,
of each of the following conditions:
(i) The consummation of the transactions
contemplated by this Agreement shall not be precluded by any order, decree or
preliminary or permanent injunction of a federal or state court of competent
jurisdiction; and
(ii) The consummation of the transactions
contemplated under the Prime SPA.
b) Conditions to Obligations of GCI. The obligations
of GCI to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or before the Final Closing Date, of each of the
following conditions:
(i) The representations of MCI set forth in
this Agreement shall have been true and correct in all material respects when
made and (unless made as of a specified date) shall be true and correct in all
material respects as if made as of the Final Closing Date;
(ii) MCI shall have performed in all
material respects its agreements contained in this Agreement required to be
performed at or prior to the Final Closing Date;
(iii) GCI shall have received a certificate
of an officer of MCI, dated as of the Final Closing Date, certifying as to the
fulfillment of the matters contained in paragraphs (i) and (ii) of this Section
8 b); and
(iv) GCI shall have received from MCI the
amount of $13,000,000.00 by wire transfer of immediately available funds.
c) Conditions to Obligations of MCI. The obligations
of MCI to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or before the Final Closing Date, of each of the
following conditions:
(i) The representations of GCI set forth in
this Agreement shall have been true and correct in all material respects when
made and (unless made as of a specified date) shall be true and correct in all
material respects as if made as of the Final Closing Date;
REGISTRATION STATEMENT
Page II-544
<PAGE>
(ii) GCI shall have performed in all
material respects its agreements contained in this Agreement required to be
performed at or prior to the Final Closing Date;
(iii) All applicable consents and approvals
(including those of the FCC and any applicable Public Utility Commission) which
are necessary to consummate the transactions contemplated by this Agreement,
shall have been obtained;
(iv) MCI shall have received from GCI
certificates representing the Shares, registered in MCI's name and with all the
necessary documentary stock transfer stamps annexed thereto;
(v) MCI shall have received a certified copy
of GCI's articles of incorporation and by-laws, as amended as of the Final
Closing Date and a certificate of good standing for GCI from its jurisdiction of
incorporation dated as of a date on or after January 1, 1996;
(vi) MCI shall have received (a) the
Registration Rights Agreement attached as Exhibit B executed by a duly
authorized officer of GCI dated as of the Final Closing Date, and (b) the Voting
Agreement attached as Exhibit C executed by a duly authorized officer of all the
parties thereto dated as of the Final Closing Date;
(vii) MCI shall have received an opinion of
Hartig, Rhodes, Norman, Mahoney & Edwards, P.C., counsel to GCI, dated as of the
Final Closing Date in the form of Exhibit D;
(viii) MCI shall have received a certificate
of the Secretary or Assistant Secretary of GCI, dated as of the Final Closing
Date, certifying that attached thereto is a complete copy of a resolution duly
adopted by the board of directors of GCI authorizing and approving the execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement;
(ix) MCI shall have received a certificate
of an officer of GCI, dated as of the Final Closing Date, certifying as to the
fulfillment of the matters contained in paragraphs (i) through (iii) of this
Section 8 c);
(x) the Prime SPA shall not have been
amended, modified or altered without the prior written consent of MCI; and
(xi) GCI shall not have issued, in the
aggregate, more than 18,000,000 shares of its Class A Common Stock in connection
with the Cable Acquisitions and the price per share for any share of Class A
Common Stock issued in connection therewith shall have been at least $6.50.
REGISTRATION STATEMENT
Page II-545
<PAGE>
9. Termination. This Agreement and the transactions contemplated hereby
may be terminated at any time prior to the Closing Date:
a) by the mutual written consent of MCI and GCI;
b) by MCI and GCI if either is prohibited by an order
or injunction (other than an injunction on a temporary or preliminary basis) of
a court of competent jurisdiction from consummating the transactions
contemplated by this Agreement and all means of appeal and all appeals from such
order or injunction have been finally exhausted;
c) by MCI or GCI if the Final Closing Date shall not
have occurred on or before December 31, 1996; provided, however, that the right
to terminate under this paragraph c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of the
failure of the Closing to occur on or before such date.
In the event of termination, no party hereto shall have any liability or further
obligation to the other party hereto, except that nothing herein will relieve
any party from any breach of this Agreement.
10. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
11. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns. MCI shall have the right to assign to any direct or indirect subsidiary
of MCI or its parent, MCI Communications Corporation, any and all rights and
obligations of MCI under this Agreement.
12. Notices. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be given by
personal delivery, by telex, telecopier or by mail (registered or certified
mail, postage prepaid, return receipt requested) to the respective parties as
follows:
If to GCI:
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
Attn: Chief Financial Officer
REGISTRATION STATEMENT
Page II-546
<PAGE>
If to MCI:
MCI Telecommunications Corporation
1801 Pennsylvania Avenue, NW
Washington, DC 20006
Attn: Vice President Corporate Development
With a copy to:
MCI Telecommunications Corporation
1133 19th Street, NW
Washington, DC 20036
Attn: Office of the General Counsel (0596/003)
or to such other address with respect to a party as such party shall notify the
other in writing. Any such notice shall be deemed given upon receipt.
13. Amendment; Waiver. This Agreement may not be amended except by a
writing duly signed by the parties. No party may waive any of the terms or
conditions of this Agreement except by a duly signed writing referring to the
specific provision to be waived.
14. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Alaska, without regard
to the conflict of laws and rules thereof.
15. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) constitutes the entire agreement with respect to the
transactions contemplated hereby, and supersedes all other and prior agreements
and understandings, both written and oral, among the parties to this Agreement.
16. Expenses. Each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
17. Captions. The Section and Paragraph captions herein are for
convenience only, do not constitute part of this Agreement, and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
REGISTRATION STATEMENT
Page II-547
<PAGE>
19. Cable Acquisitions. GCI agrees that it will not, at any time,
issue, in the aggregate, more than 18,000,000 shares of its Class A Common Stock
in connection with the Cable Acquisitions and the price per share for any share
of Class A Common Stock issued in connection therewith shall have been at least
$6.50.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the day and year first written above.
GENERAL COMMUNICATION, INC.
By /s/
John M. Lowber
Its: Senior Vice President
MCI TELECOMMUNICATIONS
CORPORATION
By /s/
Name:
Its:
REGISTRATION STATEMENT
Page II-548
<PAGE>
<TABLE>
ATTACHMENT
Table of Contents
<CAPTION>
<S> <C>
I..................................................................................................................
Exhibit A - Capital Stock...............................................................550
Exhibit B - Registration Rights Agreement...............................................551
Exhibit C - Voting Agreement............................................................564
Exhibit D - Opinion of Hartig Rhodes Norman Mahoney
& Edwards, P.C.........................................................571
II.................................................................................................................
Schedule 4(c)(i) - Options, Warrants, Rights
or Convertible Securities..........................................576
Schedule 4(c)(ii) - Voting Agreements...................................................577
Schedule 4(c)(iii) - Ownership and Outstanding Capital Stock
of each GCI subsidiary............................................578
Schedule 4(h) - Pending Litigation..................................................579
Schedule 4(l) - Equity Agreements...................................................580
Schedule 4(m)(ii) - Collective Bargaining Requests......................................581
Schedule 4(p) - Asset Liens.........................................................582
Schedule 4(q) - Material Contracts..................................................583
Schedule 4(q)(i) - Existing Defaults...................................................585
Schedule 4(r)(v) - Environmental Notices...............................................586
Schedule 4(s) - Tax Audits..........................................................587
III................................................................................................................
Section 8(b)(iii) - MCI's Officer's Certificate.........................................588
Section 8((c)(i) - GCI's Officer's Certificate.........................................589
Section 8(c)(ii) - GCI's Officer's Certificate.........................................589
Section 8(c)(iii) - GCI's Officer's Certificate.........................................589
Section 8(c)(viii) - GCI's Officer's Certificate.........................................589
Section 8(c)(ix) - GCI's Officer's Certificate.........................................589
</TABLE>
REGISTRATION STATEMENT
Page II-549
<PAGE>
EXHIBIT A
Capital Stock
As of the date hereof and after the issuance of the Shares as
contemplated by this Agreement, the authorized and issued and outstanding
capital stock of GCI will be as follows, except for such changes resulting from
the exercise of stock options, warrants and common stock contemplated herein:
================================================================================
Authorized Shares
-----------------
Class A Common 50,000,000
Class B Common 10,000,000
Preferred 1,000,000
================================================================================
Issued Shares After Issuance After Issuance of
As of 07/15/96 of MCI Shares Prime/Rock/Cooke Shares
Class A Common 19,768,1501 (1) 21,768,1501 38,029,1501
Class B Common 4,159,657 4,159,657 4,159,657
Preferred -0- -0- -0-
- ------------------------
(1) Includes 120,111 treasury shares.
REGISTRATION STATEMENT
Page II-550
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of this
day of , 1996, is between General Communication, Inc., an Alaska
corporation ("GCI"), and MCI Telecommunications Corporation, a Delaware
corporation ("MCI").
RECITALS
A. MCI has acquired Two Million (2,000,000) shares of GCI's
Class A Common Stock, no par value. All such shares of GCI's Class A Common
Stock which MCI now owns and any securities issued in exchange for or in respect
of such stock, whether pursuant to a stock dividend, stock split, stock
reclassification or otherwise are collectively referred to in this Agreement as
the "Registrable Shares."
B. GCI desires to grant registration rights to MCI and any
successor or assign of MCI as the holder of all or any portion of the
Registrable Shares. MCI and such successors and assigns are referred to in this
Agreement as the "Holders," or, individually as a "Holder."
AGREEMENT
In consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
1. Demand Registration.
(a) Following the expiration of a one hundred eighty
(180) day "stand still period" after the date hereof and then only if required
to permit resales of the Registrable Shares by Holders, Holders shall at any
time and from time to time, have the right to require registration under the
Securities Act of 1933, as amended ("Securities Act"), of all or any portion of
the Registrable Shares on the terms and subject to the conditions set forth in
this Agreement.
(b) Upon receipt by GCI of a Holder's written request
for registration, GCI shall (i) promptly notify each other Holder in writing of
its receipt of such initial written request for registration, and (ii) as soon
as is practicable, but in no event more than sixty (60) days after receipt of
such written request, file with the Securities and Exchange Commission
("Commission"), and use its best efforts to cause to become effective, a
registration statement under the Securities Act ("Registration Statement") which
shall cover the Registrable Shares specified in the initial written request and
any other written request from any other Holder received by GCI within twenty
(20) days of GCI giving the notice specified in clause (i) hereof.
REGISTRATION STATEMENT
Page II-551
<PAGE>
(c) If so requested by any Holder requesting
participation in a public offering or distribution of Registrable Shares
pursuant to this Section 1 or Section 2 of this Agreement ("Selling Holder"),
the Registration Statement shall provide for delayed or continuous offering of
the Registrable Shares pursuant to Rule 415 promulgated under the Securities Act
or any similar rule then in effect ("Shelf Offering"). If so requested by the
Selling Holders, the public offering or distribution of Registrable Shares under
this Agreement shall be pursuant to a firm commitment underwriting, the managing
underwriter of which shall be an investment banking firm selected and engaged by
the Selling Holders and approved by GCI, which approval shall not be
unreasonably withheld. GCI shall enter into the same underwriting agreement as
shall the Selling Holders, containing representations, warranties and agreements
not substantially different from those customarily made by an issuer in
underwriting agreements with respect to secondary distributions. GCI, as a
condition to fulfilling its obligations under this Agreement, may require the
underwriters to enter into an agreement in customary form indemnifying GCI
against any Losses (as defined in Section 6) that arise out of or are based upon
an untrue statement or an alleged untrue statement or omission or alleged
omission in the Disclosure Documents (as defined in Section 6) made in reliance
upon and in conformity with written information furnished to GCI by the
underwriters specifically for use in the preparation thereof.
(d) Each Selling Holder may, before such a
Registration Statement becomes effective, withdraw its Registrable Shares from
sale, should the terms of sale not be reasonably satisfactory to such Selling
Holder; if all Selling Holders who are participating in such registration so
withdraw, however, such registration shall be deemed to have occurred for the
purposes of Section 4 of this Agreement, unless such Selling Holders pay (pro
rata, in proportion to the number of Registrable Shares requested to be
included) within twenty (20) days after any such withdrawal, all of GCI's
out-of-pocket expenses incurred in connection with such registration.
(e) Notwithstanding the foregoing, GCI shall not be
obligated to effect a registration pursuant to this Section 1 during the period
starting with the date sixty (60) days prior to GCI's estimated date of filing
of, and ending on a date six (6) months following the effective date of, a
registration statement pertaining to an underwritten public offering of equity
securities for GCI's account, provided that (i) GCI is actively employing in
good faith all reasonable efforts to cause such registration statement to become
effective and that GCI's estimate of the date of filing on such registration
statement is made in good faith, and (ii) GCI shall furnish to the Holders a
certificate signed by GCI's President stating that in the Board of Directors'
good-faith judgment, it would be seriously detrimental to GCI or its
shareholders for a Registration Statement to be filed in the near future; and in
such event, GCI's obligations to file a Registration Statement shall be deferred
for a period not to exceed six (6) months.
2. Incidental Registration. Each time that GCI proposes to
register any of its equity securities under the Securities Act (other than a
registration effected
REGISTRATION STATEMENT
Page II-552
<PAGE>
solely to implement an employee benefit or stock option plan or to sell shares
obtained under an employee benefit or stock option plan or a transaction to
which Rule 145 or any other similar rule of the Commission under the Securities
Act is applicable), GCI will give written notice to the Holders of its intention
to do so. Each of the Selling Holders may give GCI a written request to register
all or some of its Registrable Shares in the registration described in GCI's
written notice as set forth in the foregoing sentence, provided that such
written request is given within twenty (20) days after receipt of any such GCI
notice. Such request will state (i) the amount of Registrable Shares to be
disposed of and the intended method of disposition of such Registrable Shares,
and (ii) any other information GCI reasonably requests to properly effect the
registration of such Registrable Shares. Upon receipt of such request, GCI will
use its best efforts promptly to cause all such Registrable Shares intended to
be disposed of to be registered under the Securities Act so as to permit their
sale or other disposition (in accordance with the intended methods set forth in
the request for registration), unless the sale is a firmly underwritten public
offering and GCI determines reasonably and in good faith in writing that the
inclusion of such securities would adversely affect the offering or materially
increase the offering's costs. In which case such securities and all other
securities to be registered, other than those to be offered for GCI's account,
shall be excluded to the extent the underwriter determines. The total number of
secondary shares included in such registration shall be shared pro rata by all
security holders having contractual registration rights based upon the amount of
GCI's securities requested by such security holders to be sold thereunder. GCI's
obligations under this Section 2 shall apply to a registration to be effected
for securities to be sold for GCI's account as well as a registration statement
which includes securities to be offered for the account of other holders of GCI
equity securities having contractual registration rights; however, the
registration rights granted pursuant to the provisions of this Section 2 are
subject to the registration rights granted by GCI pursuant to (a) the
Registration Rights Agreement dated as of January 18, 1991, between GCI and
WestMarc Communications, Inc., (b) the Registration Rights Agreement dated as of
March 31, 1993, between GCI and MCI, (c) the Registration Rights Agreement of
even date between GCI and the owners of Prime Cable of Alaska, L.P., (d) the
Registration Rights Agreement of even date between GCI and the owners of Alaskan
Cable Network, Inc., and (e) the Registration Rights Agreement of even date
between GCI and the owners of Alaska Cablevision, Inc., the effect of which
agreements is that all parties hereto and thereto have pro rata piggy-back
registration rights.
In connection with a registration to be effected pursuant to this
Section 2, the Selling Holders shall enter into the same underwriting agreement
as shall GCI and the other selling security holders, if any, provided that such
underwriting agreement contains representations, warranties and agreements on
the part of the Selling Holders that are not substantially different from those
customarily made by selling-security holders in underwriting agreements with
respect to secondary distributions.
REGISTRATION STATEMENT
Page II-553
<PAGE>
If, at any time after giving notice of GCI's intention to register any
of its securities under this Section 2 and prior to the effective date of the
registration statement filed in connection with such registration, GCI shall
determine for any reason not to register such securities, GCI may, at its
election, give notice of such determination to Holder and thereupon will be
relieved of its obligation to register the Registrable Shares in connection with
such registration.
3. Expenses of Registration. GCI shall pay all costs and
expenses incident to GCI's performance of or compliance with this Agreement,
including, without limitation, all expenses incurred in connection with the
registration of the Registrable Shares, fees and expenses of compliance with
Securities or blue sky laws, printing expenses, messenger, delivery and shipping
expenses and fees and expenses of counsel for GCI and for certified public
accountants and underwriting expenses (but not fees) except that each Selling
Holder shall pay all fees and disbursements of such Selling Holder's own
attorneys and accountants, and all transfer taxes and brokerage and
underwriters' discounts and commissions directly attributable to the Registrable
Shares being offered and sold by such Selling Holder.
4. Limitations on Registration Rights. Notwithstanding the
provisions of Section 1 of this Agreement, GCI shall not be required to effect
any registration under that Section if (i) the request(s) for registration cover
an aggregate number of Registrable Shares having an aggregate Market Value of
less than One Million Five Hundred Thousand Dollars ($1,500,000.00) as of the
date of the last of such requests, (ii) GCI has previously filed two (2)
registration statements under the Securities Act pursuant to Section 1, (iii)
GCI, in order to comply with such request, would be required to (A) undergo a
special interim audit or (B) prepare and file with the Commission, sooner than
would otherwise be required, pro forma or other financial statements relating to
any proposed transaction, or (iv) if, in the opinion of counsel to GCI, the form
of which opinion of counsel shall be acceptable to the Holders, a registration
is not required in order to permit resale by Holders. The first demand
registration under this Agreement may be requested only by the Holders of a
minimum of thirty percent (30%) of the Registrable Shares. "Market Value" as
used in this Agreement shall mean, as to each class of Registrable Shares at any
date, the average of the daily closing prices for such class of Registrable
Shares, for the ten (10) consecutive trading days before the day in question.
The closing price for shares of such class for each day shall be the last
reported sale price regular way, or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the composite tape, or if the shares of such class are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended
("Exchange Act"), on which shares of such class are listed or admitted to
trading, or if they are not listed or admitted to trading on any such exchange,
the closing sale price (or the average of the quoted closing bid and asked price
if no sale is reported) as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system, or if
the shares
REGISTRATION STATEMENT
Page II-554
<PAGE>
of such class are not quoted on NASDAQ or any comparable system, the average of
the closing bid and asked prices as furnished by any market maker in the
securities of such class who is a member of the National Association of
Securities Dealers, Inc., or in the absence of such closing bid and asked price,
as determined by such other method as GCI's Board of Directors shall from time
to time deem to be fair.
5. Obligations with Respect to Registration.
(a) If and whenever GCI is obligated by the
provisions of this Agreement to effect the registration of any Registrable
Shares under the Securities Act, GCI shall promptly:
(i) Prepare and file with the Commission a
registration statement with respect to such Registrable Shares and use
reasonable commercial efforts to cause such registration statement to become
effective, provided that before filing a registration statement, or prospectus
or any amendment or supplement thereto, GCI will furnish to counsel selected by
the holders of a majority of the Registrable Shares covered by such registration
statement copies of all such statements proposed to be filed, which documents
shall be subject to the review of such counsel;
(ii) Prepare and file with the Commission
any amendments and supplements to the Registration Statement and to the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated thereunder with respect
to the disposition of all Registrable Shares covered by the Registration
Statement for the period required to effect the distribution of such Registrable
Shares, but in no event shall GCI be required to do so (i) in the case of a
Registration Statement filed pursuant to Section 1, for a period of more than
two hundred seventy (270) days following the effective date of the Registration
Statement and (ii) in the case of a Registration Statement filed pursuant to
Section 2, for a period exceeding the greater of (A) the period required to
effect the distribution of securities for GCI's account and (B) the period
during which GCI is required to keep such Registration Statement in effect for
the benefit of selling security holders other than the Selling Holders;
(iii) Notify the Selling Holders and their
underwriter, and confirm such advice in writing, (A) when a Registration
Statement becomes effective, (B) when any post-effective amendment to a
Registration Statement becomes effective, and (C) of any request by the
Commission for additional information or for any amendment of or supplement to a
Registration Statement or any prospectus relating thereto;
(iv) Furnish at GCI's expense to the Selling
Holders such number of copies of a preliminary, final, supplemental or amended
prospectus, in conformity with the requirements of the Securities Act and the
rules and regulations
REGISTRATION STATEMENT
Page II-555
<PAGE>
promulgated thereunder, as may reasonably be required in order to facilitate the
disposition of the Registrable Shares covered by a Registration Statement, but
only while GCI is required under the provisions hereof to cause a Registration
Statement to remain effective; and
(v) Register or qualify at GCI's expense the
Registrable Shares covered by a Registration Statement under such other
securities or blue sky laws of such jurisdictions in the United States as the
Selling Holders shall reasonably request, and do any and all other acts and
things which may be necessary to enable each Selling Holder whose Registrable
Shares are covered by such Registration Statement to consummate the disposition
in such jurisdictions of such Registrable Shares; provided, however, that GCI
shall in no event be required to qualify to do business as a foreign corporation
or as a dealer in any jurisdiction where it is not so qualified, to amend its
articles of incorporation or to change the composition of its assets at the time
to conform with the securities or blue sky laws of such jurisdiction, to take
any action that would subject it to service of process in suits other than those
arising out of the offer and sale of the Registrable Shares covered by the
Registration Statement or to subject itself to taxation in any jurisdiction
where it has not therefore done so.
(vi) Notify each Holder of Registrable
Shares, at any time when a prospectus relating thereto 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 a material fact necessary to make
the statements therein not misleading, and, at the request of any such seller,
GCI will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to purchasers of Registrable Shares, 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;
(vii) Cause all such Registrable Shares to
be listed on each securities exchange on which similar securities issued by GCI
are then listed and to be qualified for trading on each system on which similar
securities issued by GCI are from time to time qualified;
(viii) Provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such registration statement and thereafter maintain such a transfer agent and
registrar;
(ix) Enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the holders of a majority of the shares of Registrable Shares being
sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares;
REGISTRATION STATEMENT
Page II-556
<PAGE>
(x) Make available for inspection by any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent corporate documents and
properties of GCI, and cause GCI's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(xi) Otherwise use reasonable commercial
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as reasonably practicable,
all earning statements as and when filed with the Commission, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(xii) permit any Holder of Registrable
Shares which might be deemed, in the sole and exclusive judgment of such Holder,
to be an underwriter or a controlling person of GCI, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to GCI in writing, which in the
reasonable judgment of such holder and its counsel should be included; and
(xiii) In the event of the issuance of any
stop order suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or suspending
the qualification of any Registrable Shares included in such registration
statement for sale in any jurisdiction, GCI will use reasonable commercial
efforts to promptly obtain the withdrawal of such order.
(b) GCI's obligations under this Agreement with
respect to the Selling Holder shall be conditioned upon the Selling Holder's
compliance with the following:
(i) Such Selling Holder shall cooperate with
GCI in connection with the preparation of the Registration Statement, and for so
long as GCI is obligated to file and keep effective the Registration Statement,
shall provide to GCI, in writing, for use in the Registration Statement, all
such information regarding the Selling Holder and its plan of distribution of
the Registrable Shares as may be necessary to enable GCI to prepare the
Registration Statement and prospectus covering the Registrable Shares, to
maintain the currency and effectiveness thereof and otherwise to comply with all
applicable requirements of law in connection therewith;
(ii) During such time as the Selling Holder
may be engaged in a distribution of the Registration Shares, such Selling Holder
shall comply with Rules 10b-2, 10b-6 and 10b-7 promulgated under the Exchange
Act and pursuant thereto it
REGISTRATION STATEMENT
Page II-557
<PAGE>
shall, among other things: (A) not engage in any stabilization activity in
connection with GCI's securities in contravention of such rules; (B) distribute
the Registrable Shares solely in the manner described in the Registration
Statement; (C) cause to be furnished to each broker through whom the Registrable
Shares may be offered, or to the offeree if an offer is not made through a
broker, such copies of the prospectus covering the Registrable Shares and any
amendment or supplement thereto and documents incorporated by reference therein
as may be required by law; and (D) not bid for or purchase any GCI securities or
attempt to induce any person to purchase any GCI securities other than as
permitted under the Exchange Act;
(iii) If the Registration Statement provides
for a Shelf Offering, then at least ten (10) business days prior to any
distribution of the Registrable Shares, any Selling Holder who is an "affiliated
purchaser" (as defined in Rule 10b-6 promulgated under the Exchange Act) of GCI
shall advise GCI in writing of the date on which the distribution by such
Selling Holder will commence, the number of the Registrable Shares to be sold
and the manner of sale. Such Selling Holder also shall inform GCI when each
distribution of such Registrable Shares is over; and
(iv) GCI shall not grant any conflicting
registration rights to other holders of its shares, to the extent that such
rights would prevent Holders from timely exercising their rights hereunder.
6. Indemnification.
(a) By GCI. In the event of any registration under
the Securities Act of any Registrable Shares pursuant to this Agreement, GCI
shall indemnify and hold harmless any Selling Holder, any underwriter of such
Selling Holder, each officer, director, employee or agent of such Selling
Holder, and each other person, if any, who controls such Selling Holder or
underwriter within the meaning of Section 15 of the Securities Act, against any
losses, costs, claims, damages or liabilities, joint or several (or actions in
respect thereof) ("Losses"), incurred by or to which each such indemnified party
may become subject, under the Securities Act or otherwise, but only to the
extent such Losses arise out of or based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, in any preliminary prospectus (if used
prior to the effective date of such Registration Statement) or in any final
prospectus or in any post effective amendment or supplement thereto (if used
during the period GCI is required to keep the Registration Statement effective)
("Disclosure Documents"), (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements made therein not misleading or (iii) any violation of any federal or
state securities laws or rules or regulations thereunder committed by GCI in
connection with the performance of its obligations under this Agreement; and GCI
will reimburse each such indemnified party for all legal or other expenses
reasonably incurred by such party
REGISTRATION STATEMENT
Page II-558
<PAGE>
in connection with investigating or defending any such claims, including,
subject to such indemnified party's compliance with the provisions of the last
sentence of subsection (c) of this Section 6, any amounts paid in settlement of
any litigation, commenced or threatened, so long as GCI's counsel agrees with
the reasonableness of such settlement; provided, however, that GCI shall not be
liable to an indemnified party in any such case to the extent that any such
Losses arise out of or are based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission (x) made in any such Disclosure
Documents in reliance upon and in conformity with written information furnished
to GCI by or on behalf of such indemnified party specifically for use in the
preparation thereof, (y) made in any preliminary or summary prospectus if a copy
of the final prospectus was not delivered to the person alleging any loss,
claim, damage or liability for which Losses arise at or prior to the written
confirmation of the sale of such Registrable Shares to such person and the
untrue statement or omission concerned had been corrected in such final
prospectus or (z) made in any prospectus used by such indemnified party if a
court of competent jurisdiction finally determines that at the time of such use
such indemnified party had actual knowledge of such untrue statement or omission
or (ii) the delivery by an indemnified party of any prospectus after such time
as GCI has advised such indemnified party in writing that the filing of a
post-effective amendment or supplement thereto is required, except the
prospectus as so amended or supplemented, or the delivery of any prospectus
after such time as GCI's obligation to keep the same current and effective has
expired.
(b) By the Selling Holders. In the event of any
registration under the Securities Act of any Registrable Shares pursuant to this
Agreement, each Selling Holder shall, and shall cause any underwriter retained
by it who participates in the offering to agree to, indemnify and hold harmless
GCI, each of its directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls GCI within
the meaning of Section 15 of the Securities Act, against any Losses, joint or
several, incurred by or to which such indemnified party may become subject under
the Securities Act or otherwise, but only to the extent such Losses arise out of
or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any of the Disclosure Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein not misleading, if the
statement or omission was in reliance upon and in conformity with written
information furnished to GCI by such indemnifying party specifically for use in
the preparation thereof, (ii) the delivery by such indemnifying party of any
prospectus after such time as GCI has advised such indemnifying party in writing
that the filing of a post-effective amendment or supplement thereto is required,
except the prospectus as so amended or supplemented, or after such time as the
obligation of GCI to keep the Registration Statement effective and current has
expired or (iii) any violation by such indemnifying party of its obligations
under Section 5(b) of this Agreement or any information given or representation
made by such indemnifying party in connection with the sale of the Selling
Holder's Registrable Shares which is not contained in and not in conformity with
the prospectus (as amended or
REGISTRATION STATEMENT
Page II-559
<PAGE>
supplemented at the time of the giving of such information or making of such
representation); and each Selling Holder shall, and shall cause any underwriter
retained by it who participates in the offering to agree to, reimburse each such
indemnified party for all legal or other expenses reasonably incurred by such
party in connection with investigating or defending any such claim, including,
subject to such indemnified party's compliance with the provisions of the last
sentence of subsection (c) of this Section 6, any amounts paid in settlement of
any litigation, commenced or threatened; provided, however, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action arising pursuant to a
registration if such settlement is effected without the consent of Selling
Holder; and provided further, that no Selling Holder shall be required to
undertake liability under this Section 6(b) for any amounts in excess of the
proceeds to be received by such Selling Holder from the sale of its securities
pursuant to such registration, as reduced by any damages or other amounts that
such Selling Holder was otherwise required to pay hereunder.
(c) Third Party Claims. Promptly after the receipt by
any party hereto of notice of any claim, action, suit or proceeding by any
person who is not a party to this Agreement (collectively, an "Action") which is
subject to indemnification hereunder, such party ("Indemnified Party") shall
give reasonable written notice to the party from whom indemnification is claimed
("Indemnifying Party"). The Indemnifying Party shall be entitled, at the
Indemnifying Party's sole expense and liability, to exercise full control of the
defense, compromise or settlement of any such Action unless the Indemnifying
Party, within a reasonable time after the giving of such notice by the
Indemnified Party, shall (i) admit in writing to the Indemnified Party, the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this Section 6, (ii) notify the Indemnified Party in writing of the
Indemnifying Party's intention to assume the defense thereof and (iii) retain
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The Indemnified Party and the Indemnifying Party shall
cooperate with the party assuming the defense, compromise or settlement of any
such Action in accordance herewith in any manner that such party reasonably may
request. If the Indemnifying Party so assumes the defense of any such Action,
the Indemnified Party shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the Indemnified Party's sole
expense unless (i) the Indemnifying Party has agreed to pay such fees and
expenses, (ii) any relief other than the payment of money damages is sought
against the Indemnified Party or (iii) the Indemnified Party shall have been
advised by its counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnifying
Party, and in any such case the fees and expenses of such separate counsel shall
be borne by the Indemnifying Party. No Indemnifying Party shall settle or
compromise any such Action in which any relief other than the payment of money
damages is sought against any Indemnified Party unless the Indemnified Party
consents in writing to such compromise or settlement, which consent shall not be
unreasonably
REGISTRATION STATEMENT
Page II-560
<PAGE>
withheld. No Indemnified Party shall settle or compromise any such Action for
which it is entitled to indemnification hereunder without the Indemnifying
Party's prior written consent, unless the Indemnifying Party shall have failed,
after reasonable notice thereof, to undertake control of such Action in the
manner provided above in this Section 6.
(d) Contribution. If the indemnification provided for
in subsections (a) or (b) of this Section 6 is unavailable to or insufficient to
hold the Indemnified Party harmless under subsections (a) or (b) above in
respect of any Losses referred to therein for any reason other than as specified
therein, then the Indemnified Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Indemnified Party on the
one hand and such Indemnified Party on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations; provided, however, that the contribution
obligations contained in this Section 6(d) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action arising pursuant to a
registration if such settlement is effected without the consent of Selling
Holder; and provided further, that no Selling Holder shall be required to make
any contributions under this Section 6(d) for any amounts in excess of the
proceeds to be received by such Selling Holder from the sale of its securities
pursuant to such registration, as reduced by any damages or other amounts that
such Selling Holder was otherwise required to pay hereunder. The relative fault
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 (or omitted to be
supplied by) GCI or the Selling Holder (or underwriter) and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by an indemnified
party as a result of the Losses referred to above in this subsection (d) shall
be deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
7. Miscellaneous.
(a) Notices. All notices, requests, demands, waivers
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or mailed, certified or registered mail with postage prepaid, or sent
by telecopier, as follows:
REGISTRATION STATEMENT
Page II-561
<PAGE>
(i) if to GCI at:
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
ATTN: Chief Financial Officer
Telecopy: (907) 265-5676
(ii) if to MCI, at:
MCI Telecommunications Corporation
1801 Pennsylvania Avenue, NW
Washington, DC 20006
ATTN: Senior Vice President
and Chief Financial Officer
Telecopy: (202) 887-2195
with a copy to:
MCI Telecommunications Corporation
1133 19th Street, NW
Washington, DC 20036
ATTN: Office of the General Counsel
(iii) if to any Holder other than MCI, at
the address provided to GCI (and if
none provided, to MCI)
or to such other person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
(b) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto and supersedes all prior agreements
and understandings, oral and written, between the parties hereto with respect to
the subject matter hereof.
(c) Binding Effect; Benefit. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied is intended to confer on any person other than the parties hereto or
their respective successors and assigns (including, in the case of MCI, any
successor or assign of MCI as the holder of
REGISTRATION STATEMENT
Page II-562
<PAGE>
Registrable Shares), any rights, remedies, obligations or liabilities under or
by reason of this Agreement, other than rights conferred upon indemnified
persons under Section 6.
(d) Amendment and Modification. This Agreement may be
amended or modified only by an instrument in writing signed by or on behalf of
each party and any other person then a Holder. Any term or provision of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof.
(e) Section Headings. The section headings contained
in this Agreement are inserted for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
(g) Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of Alaska, without regard to the conflict
of laws and rules thereof.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GENERAL COMMUNICATION, INC.
By
John M. Lowber, Senior Vice President
MCI TELECOMMUNICATIONS CORPORATION
By
Name:
Its
REGISTRATION STATEMENT
Page II-563
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT ("Agreement") is entered into effective on the
day of , 1996, by and between Prime II Management, L.P.
("Prime"), as the designated agent for the parties named on Annex 1 attached
hereto (collectively, "Prime Sellers"), MCI Telecommunications Corporation,
Ronald A. Duncan, Robert M. Walp, and TCI GCI, Inc. (Prime, as designated agent
for the Prime Sellers, "Duncan," "Walp," and "TCI GCI," respectively, or
individually, "Party" and collectively, "Parties"), all of whom are shareholders
of General Communication, Inc., an Alaska corporation ("GCI"), as identified in
this Agreement.
WHEREAS, the Parties are as of the date of this Agreement, the owners
of the amounts of GCI's Class A and Class B common stock as set forth in this
Agreement;
WHEREAS, the Parties desire to combine their votes as shareholders of
GCI in the election of certain positions of the Board of Directors ("Board") of
GCI and specifically to vote on certain issues as set forth in this Agreement;
WHEREAS, the Parties desire to establish their mutual rights and
obligations in regard to the Board and those certain issues to come before the
shareholders or before the Board;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained in this Agreement, the Parties agree as follows:
Section 1. Shares. The shares of GCI's Class A and Class B common stock
subject to this Agreement will consist of those shares held by each Party as set
forth in this Section 1 and any additional shares of GCI's voting stock acquired
in any manner by any one or more of the Parties ("Shares"):
(1) Prime - ( ) shares of Class A
common stock;
(2) MCI - 8,251,509 Shares of Class A common stock and
1,275,791 Shares of Class B common stock, which total
to an aggregate of 21,009,419 votes for MCI;
(3) Duncan - 852,775 Shares of Class A common stock and
233,708 Shares of Class B common stock, which total
to an aggregate of 3,189,855 votes for Duncan;
(4) Walp - 534,616 Shares of Class A common stock and
301,049 Shares of Class B common stock, which total
to an aggregate of 3,545,106 votes for Walp; and
REGISTRATION STATEMENT
Page II-564
<PAGE>
(5) TCI GCI - 590,043 Shares of Class B common stock,
which totals to an aggregate of 5,900,430 votes for
TCI GCI.
Section 2. Voting. (a) All of the Shares will, during the term of this
Agreement, be voted as one block in the following matters:
(1) For so long as the full membership on the Board is at
least eight, the election to the Board of individuals
recommended by a Party ("Nominees"), with the
allocation of such recommendations to be in the
following amounts and by the following identified
Parties:
(A) For recommendations from MCI, two Nominees;
(B) For recommendations from Duncan and Walp,
one Nominee from each;
(C) For recommendations from TCI GCI, two
Nominees; and
(D) For recommendations from Prime, two (2)
nominees, for so long as (i) the Prime
Sellers (and their distributees who agree in
writing to be bound by the terms of this
Agreement) collectively own at least ten
percent of the issued and then-outstanding
shares of GCI's Class A common stock, and
(ii) that certain Management Agreement
between Prime and GCI dated of even date
herewith ("Prime Management Agreement") is
in full force and effect. If either of these
conditions are not satisfied, then Prime
shall only be entitled to recommend one
Nominee. If neither of these conditions are
met, Prime shall not be entitled to
recommend any Nominee at that time;
(2) To the extent possible, to cause the full membership
of the Board to be maintained at not less than eight
members;
(3) Other matters to which the Parties unanimously agree.
(b) The Parties will abide by the classification by the Board
of a Nominee in accordance with the provisions for classification of the Board
as set forth in Article V(b) of GCI's Articles of Incorporation and Section 2(b)
of GCI's Article IV of Bylaws which classification was, as of the date of this
Agreement, for Nominees allocated to MCI as follows: one in Class I and one in
Class III, and for Nominees allocated to Prime as follows: one in Class II and
one in Class III, and for Nominees allocated to TCI GCI as follows: one in Class
II and one in Class III.
(c) The Parties understand that to insure the election of
their allocated Nominees, the Shares must constitute sufficient voting power to
cause those elections and that as new shares are issued by GCI through the
exercise of warrants and options,
REGISTRATION STATEMENT
Page II-565
<PAGE>
acquisitions by employee benefit plans, or otherwise, the number of outstanding
shares of voting common stock will increase, making the percentage which the
Shares represent of the outstanding shares decrease.
(d) The Parties will take such action as is necessary to cause
the election to the Board of each Party's Nominee(s).
Section 3. Manner of Voting. Votes, for purposes of this Section 3,
will be as determined by written ballot upon each matter to be voted upon.
Should such a matter require shareholder action, e.g., election of Nominees to
the Board or should the Board choose to present the matter for shareholder
consent, approval or ratification, such balloting must take place so that the
results are received by GCI at its principal executive offices not less than 120
calendar days in advance of the date of GCI's proxy statement released to
security holders in connection with the previous year's annual meeting of
security holders.
Section 4. Limitation on Voting. Except as set forth in (a) of Section
2 of this Agreement, the Agreement will not extend to voting upon other
questions and matters on which shareholders will have the right to vote under
GCI's Articles of Incorporation, GCI's Bylaws of the Company, or the laws of the
State of Alaska.
Section 5. Term of Agreement. (a) The term of this Agreement will be
through the completion of the annual meeting of GCI's shareholders taking place
in June, 2001 or until there is only one Party to the Agreement, whichever
occurs first; provided that the Parties may extend the term of this Agreement
only upon unanimous vote and written amendment to this Agreement.
(b) Except as provided in (a) and (d) of this Section 5, a
Party (other than Prime) will be subject to this Agreement until the Party
disposes of more than 25% of the votes represented by the Party's holdings of
common stock which equates to the following (adjusted for stock splits) for each
party:
1. MCI - 5,252,355 votes;
2. Duncan - 797,464 votes;
3. Walp - 886,277 votes; and
4. TCI GCI - 1,475,108 votes.
(c) Should one party dispose of an amount of its portion of
the Shares in excess of the limit as set forth in (b) of this Section 5, each
other Party will have the right to withdraw and terminate that Party's rights
and obligations under this Agreement by giving written notice to the other
Parties.
(d) Anything to the contrary in this Agreement notwithstanding
each Party shall remain a Party to this Agreement with respect to its obligation
to vote (a) for
REGISTRATION STATEMENT
Page II-566
<PAGE>
Prime's Nominee(s) pursuant to Section 2(a)(1) above, and (b) to maintain at
least an eight (8) member Board pursuant to Section 2(a)(2) above only, for so
long as either (i) the Prime Sellers (and their distributees who agree in
writing to be bound by the terms of this Agreement) collectively own at least
ten percent (10%) of the issued and then-outstanding shares of GCI's Class A
common stock or (ii) the Prime Management Agreement is in effect. Upon each
request, Prime shall, within a reasonable period of time after delivery by GCI
to Prime of GCI's shareholders list showing the number of shares of GCI common
stock owned by each such shareholder, provide GCI with its certificate, in form
and substance reasonably satisfactory to GCI, confirming the Prime Sellers'
aggregate, then-current percentage ownership of GCI Class A common stock.
Section 6. Binding Effect. The Parties will, during the term of this
Agreement, be fully subject to its provisions. There will be no prohibition
against transfer or other assignment of Shares under the terms of this
Agreement. Should a Party transfer or otherwise assign Shares, and the new
holder of those Shares will not have any rights under, nor be subject to the
terms of, this Agreement, except that any assignee which is an affiliate or
subsidiary entity of a Party shall be bound by, and have the benefits of, this
Agreement; provided, however, that anything to the contrary in the foregoing
notwithstanding, any distributee of a Prime Seller that agrees in writing to be
bound by the terms of this Agreement will have rights under and be subject to
the terms of this Agreement.
Section 7. GCI's Agreement. GCI agrees (i) to submit the Nominees
selected pursuant to Section 2(a) above in its proxy materials delivered to
GCI's shareholders in connection with each election of GCI directors; and (ii)
not to take any action inconsistent with the agreements of the Parties set forth
herein.
Section 8. Notices. Notices required or otherwise given under this
Agreement will be given by hand delivery or certified mail to the following
addresses, unless otherwise changed by a Party with notice to the other Parties:
To Prime: Prime II Management, L.P.
600 Congress Avenue, Suite 3000
Austin, Texas 78701
Attn: President
With copies (which shall not constitute
notice) to:
Edens Snodgrass Nichols & Breeland, P.C.
2800 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701
ATTN: Patrick K. Breeland
REGISTRATION STATEMENT
Page II-567
<PAGE>
To MCI: MCI Telecommunications Corporation
1133 19th Street, N.W.
Washington, D.C. 20035
ATTN: Douglas Maine, Chief Financial Officer
To Duncan: Ronald A. Duncan
President and Chief Executive Officer
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
To Walp: Robert A. Walp
Vice Chairman
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
To TCI GCI : Larry E. Romrell, President
TCI GCI, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Section 9. Performance. The Parties agree that damages are not an
adequate remedy for a breach of the terms of this Agreement. Should a Party be
in breach of a term of this Agreement, one or more of the other Parties may seek
the specific performance or injunction of that Party under the terms of this
Agreement by bringing an appropriate action in a court in Anchorage, Alaska.
Section 10. Governing Law. The terms of this Agreement will be governed
by and construed in accordance with the laws of the State of Alaska.
Section 11. Amendments. This Agreement constitutes the entire Agreement
between the Parties, and any amendment of it must be in writing and approved by
all Parties.
Section 12. Group. Prior to a Party filing a Schedule 13D or an
amendment to such a schedule pursuant to the Securities Exchange Act of 1934,
the Party will provide a written notice to each of the other Parties within five
days after the triggering event under that schedule and at least two days prior
to the filing of that schedule or amendment, as the case may be, and further
provide to any other Party any information or documentation reasonably requested
by that Party in this regard.
Section 13. Termination of Prior Agreement. This Agreement supersedes
and replaces in its entirety that certain Voting Agreement dated effective as of
March 31, 1993, by and between MCI, Duncan, Walp and TCI GCI, as successor in
interest to WestMarc Communications, Inc.
REGISTRATION STATEMENT
Page II-568
<PAGE>
Section 14. Severability. If a court of competent jurisdiction finds
any portion of this Agreement invalid or not enforceable, this Agreement shall
be automatically reformed to carry out the intent of the Parties as nearly as
possible without regard to the portion so invalidated. If this entire Agreement
is determined to be limited in duration by a court of competent jurisdiction,
the Parties agree to enter into a new Agreement which carries forward the intent
of the Parties upon such termination.
IN WITNESS WHEREOF, the Parties set their hands to this Agreement,
effective on the first date above written.
PRIME II MANAGEMENT, L.P.
By Prime II Management, Inc.
Its General Partner
By
Name:
Its:
MCI TELECOMMUNICATIONS CORPORATION
By
Name:
Its:
REGISTRATION STATEMENT
Page II-569
<PAGE>
RONALD A. DUNCAN
ROBERT M. WALP
TCI GCI, INC.
By
Name:
Its:
GENERAL COMMUNICATION, INC.
By
Name:
Its:
REGISTRATION STATEMENT
Page II-570
<PAGE>
EXHIBIT "D"
Form of Legal Opinion
[HARTIG, RHODES LETTERHEAD]
, 1996
Anchorage
MCI Telecommunications Corporation
1133 19th Street, NW
Washington, D.C. 20038
RE: Stock Purchase Agreement (the
"Agreement") dated as of ,
1996 between General Communication,
Inc. (the "Company") and MCI
Telecommunications Corporation (the
"Purchaser")
Our File: 6552-35
Ladies and Gentlemen:
This opinion letter is delivered to you pursuant to Paragraph 8(c)(vii)
of the Agreement. Capitalized terms used but not defined in this opinion letter
have the meanings given to them in the Agreement.
We have acted as counsel to the Company in connection with the
preparation and the execution and delivery of the Agreement and the related
documents. In that capacity we have examined the Agreement and the related
documents, including, but not limited to, the Registration Rights Agreement,
dated of even date herewith, between the
REGISTRATION STATEMENT
Page II-571
<PAGE>
Company and the Purchaser and the Voting Agreement, dated of even date herewith,
by and between the Company, Prime II Management, L.P., as the designated agent,
the Purchaser, Ronald A. Duncan, Robert M. Walp and TCI GCI, Inc. ("Related
Agreements") and such other documents and records, and we have made such other
investigations, as we have deemed necessary to enable us to state the opinions
expressed below. As to certain factual matters, we have relied upon the
representations of the Company and the Purchaser contained in the Agreement and
upon certificates of officers of the Company and the Purchaser.
In such examination, we have assumed the genuineness and authenticity
of all documents submitted to us as originals, the conformity with genuine and
authentic originals of all documents submitted to us as copies, the genuineness
of all signatures, the power and authority of each entity which may be a party
thereto (other than the Company and its subsidiaries), the authority of each
person signing for each such entity (other than the Company and its
subsidiaries), and the due organization, existence, qualification and
authorization to transact business of each such party (other than the Company
and its subsidiaries).
This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the American Bar
Association Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord, and this
opinion letter should be read in conjunction therewith. The law covered by the
opinions expressed herein is limited to the federal law of the United States
(except as provided in the Accord) as currently in effect, and the law of the
State of Alaska (except as provided in the Accord) as currently in effect.
Furthermore, we express no opinion with respect to: (i) matters governed by the
Federal Communications Act of 1934, as amended, and the rules and regulations of
the Federal Communications Commission thereunder; or (ii) matters governed by
the Federal Aviation Act of 1958, as amended, and the rules and regulations of
the Federal Aviation Administration thereunder.
On the basis of our examination and subject to stated qualifications,
assumptions and limitations, in our opinion:
1. The Company and each of its subsidiaries are duly organized, validly
existing and in good standing under the laws of the State of Alaska, have all
requisite corporate power and authority to own their property as now owned and
carry on their business as now conducted and are qualified to do business and is
in good standing in each jurisdiction in which the conduct of their business or
the ownership of their property requires such qualification, except, in each
case, where the failure to qualify would not have a material adverse effect on
the financial condition or operations of the Company or its subsidiary.
REGISTRATION STATEMENT
Page II-572
<PAGE>
2. The Shares are duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock having the rights, preferences, privileges
and restrictions set forth in the Articles of Incorporation, will not be subject
to any preemptive rights, and, to our knowledge, will be free and clear of any
security interest, lien, charge or encumbrance of any nature whatsoever.
3. The execution, delivery and performance by the Company of the
Agreement and the Related Agreements are within the corporate powers of the
Company, have been duly authorized by all necessary corporate action of the
Company, and do not and will not conflict with or constitute a breach of the
terms, conditions or provisions of, or constitute a default under, its Articles
of Incorporation and Bylaws or any material contract, undertaking, indenture or
other agreement or instrument by which the Company is bound or to which it or
any of its assets is subject.
4. The Company is not required, in connection with the execution,
delivery, and performance of the Agreement and the Related Agreements to give
any notice to or obtain any consent from any lender pursuant to any agreement or
instrument for borrowed money of which we have knowledge and to which the
Company is a party or by which the property of the Company is bound, except that
consent to the issuance of the Shares is required from NationsBank of Texas,
N.A. ("NationsBank"), as Administrative Lender under that certain Credit
Agreement dated as of April 26, 1996, between GCI Communication Corp. and
NationsBank.
5. Registration is not required under the Securities Act or the Alaska
Securities Act of 1959, as amended, for the issuance and delivery of the Shares.
In expressing the opinion set forth in the foregoing sentence, we have relied,
without any independent investigation, on the representations of Purchaser set
forth in Paragraphs 5 (c) and (d) of the Agreement and A.S. 45.55.900(b)(7). The
applicable exemption from the registration requirements under the Securities Act
is set forth in Section 4(2) of the Securities Act. We express no opinions as to
the necessity of registering the Shares under the laws of any state, other than
the State of Alaska, in connection with the transaction.
6. The Company is not required to make any filings with or give any
notice to, or obtain any consents, approvals, or authorizations from, any
governmental authority in connection with the execution, delivery and
performance by the company of the Agreement and the Related Agreements. The
execution, delivery, and performance by the Company of the Agreement and the
Related Agreements, do not and will not violate any law, rule, regulation or
order of any court or other governmental authority applicable to the Company.
7. The Agreement and the Related Agreements are the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforceability of those agreements
may be affected or
REGISTRATION STATEMENT
Page II-573
<PAGE>
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by general principles of equity, whether applied in a proceeding in
equity or at law.
8. There is no pending, or to the best of our knowledge, threatened,
judicial, administrative or arbitral action, suit, proceeding or claim against
or investigation of the Company which questions the validity of the Agreement or
the Related Agreements.
The opinions expressed above are subject to and qualified in all
respects by the Accord and the following:
We have relied as to factual matters on the representations and
warranties of the Company set forth in the Agreement, certificates of officers
and other representatives of the Company and the following additional items, and
have made no other investigation or inquiry as to such factual matters:
(a) Certificates from the State of Alaska as to the existence
and good standing of the Company and its subsidiaries.
(b) Constituent Documents of the Company and its subsidiaries.
We have rendered the foregoing opinion as of the date hereof, and we do
not undertake to supplement our opinion with respect to the factual matters or
changes in the law which may hereafter occur.
You are hereby notified that (a) we do not consider you to be our
client in the matters to which this opinion letter relates, (b) neither the
Alaska Code of Professional Responsibility nor current case law clearly
articulates the circumstances under which an attorney may give a legal opinion
to a person other than the attorney's own client, (c) a court might determine
that it is improper to us to issue, and for you to rely upon, a legal opinion
issued by us when we have acted as counsel to the Company in connection with the
transactions, and (d) you may wish to obtain a legal opinion from your own legal
counsel as to the matters addressed in this opinion letter.
We express no opinions herein regarding the enforceability of
provisions involving choices or conflicts of law or of provisions of the
Registration Rights Agreement purporting to require indemnification of a party
for its own action or inaction, to the extent the action or inaction involves
negligence.
This opinion is given solely to you and may be relied upon by you only
in connection with the Agreement and may not be used or relied upon by you or
any other person or entity for any other purposes whatsoever. This opinion
letter may not be quoted, circulated or published, in whole or in part, or
furnished to or relied upon by any other party, or otherwise referred to, or be
filed with or furnished to any governmental
REGISTRATION STATEMENT
Page II-574
<PAGE>
agency or other person or entity not involved in the Agreement without prior
written consent.
Sincerely,
HARTIG, RHODES, NORMAN,
MAHONEY & EDWARDS, P.C.
By:
Robert B. Flint
REGISTRATION STATEMENT
Page II-575
<PAGE>
SCHEDULE 4(c)(i)
GCI's Stock Option Plans, Warrants,
Rights or Convertible Securities
General Communication, Inc. Outstanding Options:
No. of Shares Exercise Price
------------- --------------
Shares reserved for exercise of
options issued pursuant to GCI's
Incentive Stock Option Plan 2,233,734 $.75 to $4.50 per share
Shares to be issued pursuant to
an option agreement with
William C. Behnke, an Officer 85,190 $.001 per share
Shares to be Issued pursuant to
an option agreement with
John M. Lowber, an Officer 100,000 $.75 per share
Shares to be issued to MCI
Telecommunications Corporation 2,000,000 $6.50 per share
Shares to be issued to Prime entities 11,800,000 $6.50 per share
Shares to be issued to Cooke entities 2,923,077 $6.50 per share
Shares to be issuable to the Rock
entities pursuant to a $10,000,000
convertible note 1,538,462 $6.50 per share
NOTE: For additional details regarding GCI's Stock Option Plan, please refer to
the footnotes in GCI's financial statements in its SEC Forms 10K and 10Q.
REGISTRATION STATEMENT
Page II-576
<PAGE>
SCHEDULE 4(c)(ii)
Voting Agreements
There are no voting trusts or other agreements or understandings to
which GCI or any subsidiary is a party, and to GCI's knowledge no other voting
trusts exist with respect to the voting of the capital stock of GCI or any of
its subsidiaries, except for (i) that Voting Agreement entered into as of March
31, 1993, by and between MCI Telecommunications Corporation ("MCI"), Ronald A.
Duncan ("Duncan"), Robert M. Walp ("Walp"), and WestMarc Communications, Inc.,
all as shareholders of GCI; which is projected to be superseded and replaced in
its entirety by (ii) that Voting Agreement to be entered into as of ,
1996, by and between Prime II Management, L.P., Prime Venture I Holdings, L.P.,
Prime Cable Growth Partners, L.P., Alaska Cable, Inc., MCI, Duncan, Walp, TCI
GCI, Inc. and GCI.
REGISTRATION STATEMENT
Page II-577
<PAGE>
SCHEDULE 4(c)(iii)
Outstanding Stock Liens
GCI owns the entire equity interest in each of its
subsidiaries, and all the outstanding capital stock of each subsidiary of GCI
are validly issued, fully paid and nonassessable and are owned by GCI free and
clear of all liens, charges, preemptive rights, claims or encumbrances, except
as follows:
1. NationsBank of Texas, N.A., as Administrative Agent under
the Credit Agreement dated as of May 14, 1993, as amended, holds the original
Stock Certificates Nos. 1, 2 and 3, for One Thousand (1,000), One Hundred
Thousand (100,000) and Ten Thousand (10,000) shares respectively, of Class A
Common Stock of GCI Communication Corp. for security purposes only, not as
purchaser. GCI is the owner of all of such One Hundred Eleven Thousand (111,000)
shares of GCI Communication Corp. stock.
2. NationsBank of Texas, N.A., as Administrative Agent under
the Credit Agreement dated as of May 14, 1993, as amended, also holds the
original Stock Certificate No. 1 for One Hundred (100) shares of GCI
Communication Services, Inc., for security purposes only, not as purchaser. GCI
is the owner of such One Hundred (100) shares.
3. National Bank of Alaska ("NBA"), as Lender under the Loan
Agreement dated December 31, 1992, holds the original Stock Certificate No. 1
for One Hundred (100) shares of the Common Stock of GCI Leasing Co., Inc. for
security purposes only, not as purchaser. GCI Communication Services, Inc., is
the owner of such 100 shares. NationsBank of Texas, N.A., as Administrative
Agent, holds a second lien on such shares.
REGISTRATION STATEMENT
Page II-578
<PAGE>
SCHEDULE 4(h)
Pending Litigation
None.
REGISTRATION STATEMENT
Page II-579
<PAGE>
SCHEDULE 4(l)
Contracts/Agreements to Acquire Equity
Interest in GCI or its Subsidiaries
1. The proposed Common A stock issuance to acquire (i) the ongoing
cable television and cable television systems of Prime Cable of Alaska, L.P.,
pursuant to the terms of the Securities Purchase Agreement dated as of May 2,
1996, among General Communication, Inc., Prime Venture I Holdings, L.P., Prime
Cable Growth Partners, L.P., Prime Venture II, L.P., Prime Cable Limited
Partnership, Austin Ventures, L.P., William Blair Venture Partners III Limited
Partnership, Centennial Fund, II, L.P., Centennial Fund III, L.P., Centennial
Business Development Fund, Ltd., BancBoston Capital, Inc., First Chicago
Investment Corporation, Madison Dearborn Partners, Prime II Management, L.P.,
Prime Cable of Alaska, L.P., Alaska Cable, Inc. and Prime Cable Fund I, Inc.
2. The proposed Common A stock issuance to acquire certain ongoing
cable television business and cable television systems pursuant to the (i) Asset
Purchase Agreements dated as of May 10, 1996, among General Communication, Inc.
and McCaw/Rock Homer Cable Systems and McCaw/Rock Seward Cable System
respectively; and (ii) the Asset Purchase Agreement, dated May 10, 1996, among
General Communication, Inc. and Alaska Cablevision, Inc.
3. The proposed Common A stock issuance to acquire certain ongoing
cable television business and cable television systems pursuant to that Asset
Purchase Agreement, dated as of April 15, 1996, among General Communication,
Inc., Alaskan Cable Network/Fairbanks, Inc., Alaskan Cable Network/Juneau, Inc.
and Alaskan Cable Network/Ketchikan-Sitka, Inc.
REGISTRATION STATEMENT
Page II-580
<PAGE>
SCHEDULE 4(m)(ii)
Requests for Collective Bargaining
None.
REGISTRATION STATEMENT
Page II-581
<PAGE>
SCHEDULE 4(p)
Asset Liens
GCI and its subsidiaries have good title to all material
assets on the Balance Sheet, except as set forth in paragraph 4(p)(i) through
(iv) of the MCI Stock Purchase Agreement, and except as follows:
1. To secure a debt in the current principal amount of
$30,100,000. NationsBank of Texas, N.A., as Administrative Agent under the
Credit Agreement dated April 26, 1996, holds a security position on
substantially all of GCI's and GCI Communication Corp.'s property and equipment,
including, without limitation, the stock listed in Schedule 4(c)(iii) hereof,
all of GCI Communication Corp.'s fixtures as a transmitting utility on all of
its real properties and leasehold estates located both in Alaska and Washington.
2. To secure a debt in the current principal amount of
$7,595,595, National Bank of Alaska, as Lender under the Loan Agreement dated
December 31, 1992, holds a security interest in GCI Communication Corp.'s
undersea fiber operations, as well as a security interest in the lease payments
from MCI.
3. There is a capital lease in the current principal amount of
$766,049; RDB Partnership holds title to the building occupied by GCI
Communication Corp.
4. There is a capital lease in the current principal amount of
$143,973; the National Bank of Alaska Leasing Co. holds title to GCI
Communication Services, Inc.'s shared hub assets and contract proceeds. However,
GCISI has an option to acquire those assets at the end of the capital lease's
term.
REGISTRATION STATEMENT
Page II-582
<PAGE>
SCHEDULE 4(q)
Material Contracts
The following is a complete listing of all contracts and
agreements existing on the date hereof for GCI and/or its subsidiaries which (i)
are with any customer which accounted for greater than 2% of GCI's or any of its
subsidiary's revenues for the year ended 12/31/95; (ii) involve contracts that
call for annual aggregate expenditures by GCI of greater than $5,000,000; or
(iii) involve contracts that call for aggregate expenditures by GCI during the
remainder of their respective terms in excess of $10,000,000:
1. Customers which account for greater than 2% of GCI or any of its subsidiary's
revenues for the year ended 12/31/95.
a. GCI Communication Services, Inc.: 2% Floor is approx.
greater than $20,000/year: Chevron Shared Hub
contract; est. $880,000 annual revenues.
b. GCI Communication Corp.: 2% Floor is approx. greater
than $1,538,000/year:
i. Carrier Agreement with MCI
Telecommunications Corporation;
ii. Service Agreement with US Sprint
Communications Company Limited Partnership
of Delaware; and
iii. Agreement with British Petroleum.
c. General Communication, Inc. and GCI Leasing Co.,
Inc.: None.
2. Contracts calling for annual aggregate expenditures by GCI or its
subsidiaries of greater than $5,000,000 annually or for aggregate expenditures
by GCI during the remainder of their respective terms of greater than
$10,000,000.
a. GCI and GCI Communication Corp.:
i. NationsBank of Texas, N.A. These entities
owe the current principal amount of $
30,100,000 to NationsBank of Texas, N.A.
as Administrative Agent under the Credit
Agreement dated April 26, 1996.
ii. National Bank of Alaska. GCI
Communication Corp. owes the current
principal amount of $7,595,595, National
Bank of
REGISTRATION STATEMENT
Page II-583
<PAGE>
Alaska, as Lender under the Loan Agreement
dated December 31, 1992, relating to its
undersea fiber operations.
iii. MCI Telecommunications Corporation. The
lease agreement between MCI and GCI
Leasing Company, Inc., dated December 31,
1992, will result in payments exceeding
$10 Million over its term.
iv. Scientific-Atlanta, Inc. The Company's
1996 commitment under its equipment
purchase contract with Scientific-Atlanta,
Inc. exceeds $5,000,000.
v. Hughes Communications Galaxy, Inc. 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
amount of the down payment required in
1996 will exceed $5 Million and the
remaining commitment will exceed $10
Million.
REGISTRATION STATEMENT
Page II-584
<PAGE>
SCHEDULE 4(q)(i)
Existing Defaults
None.
REGISTRATION STATEMENT
Page II-585
<PAGE>
SCHEDULE 4(r)(v)
Environmental Notices
None.
REGISTRATION STATEMENT
Page II-586
<PAGE>
SCHEDULE 4(s)
Tax Audits
GCI's 1993 federal income tax return was selected for examination by the
Internal Revenue Service ("IRS") during 1995. The examination commenced during
the fourth quarter of 1995 and was completed in March, 1996. GCI has received a
letter from the agent conducting the examination indicating that no changes are
proposed or required.
The IRS is in the process of reviewing GCI's compliance with the federal excise
tax on telecommunication services. No substantive issues have been raised at
this time.
The Washington State Department of Revenue has notified GCI that it intends to
conduct an audit in July, 1996, of Washington state sales, use and business
occupation taxes for the period of January, 1992 through March, 1996.
Management believes these examinations will not result in material adjustments
and will not have a material impact on GCI's financial statements.
REGISTRATION STATEMENT
Page II-587
<PAGE>
MCI's OFFICER'S CERTIFICATE
(Section 8(b)(iii))
In compliance with Section 8(b)(iii) of the Stock Purchase Agreement
dated , 1996, between GENERAL COMMUNICATION, INC. ("GCI") and MCI
TELECOMMUNICATIONS CORPORATION ("Agreement") I, the undersigned, certify as
follows:
1. I am the duly appointed and acting of MCI and
I am authorized to execute this Certificate.
2. The Final Closing Date as defined in the Agreement is
, 1996.
3. This representations of MCI set forth in the Agreement are
true and correct in all material respects as of the date when made and (unless
made as of a specified date) are true and correct in all material respects as if
made as of the Final Closing Date.
4. MCI has performed in all material respects its agreements
contained in the Agreement required to be performed at or prior to the Final
Closing Date.
Dated this day of , 1996.
MCI TELECOMMUNICATIONS CORPORATION
By:
Name:
Its:
MCI's Officer's Certificate
GCI-MCI
Page 588
<PAGE>
GCI's OFFICER'S CERTIFICATE
(Section 8(c)(i), (ii), (iii), (viii) and (ix))
In compliance with Section 8(c)(i), (ii), (iii), (viii) and (ix) of the
Stock Purchase Agreement dated , 1996, between GENERAL
COMMUNICATION, INC. ("GCI") and MCI TELECOMMUNICATIONS CORPORATION ("Agreement")
I, John M. Lowber, certify as follows:
1. I am the duly appointed and acting Secretary of GCI
authorized to execute this Certificate.
2. The Final Closing Date as defined in the Agreement is
, 1996.
3. This representations of GCI set forth in the Agreement are
true and correct in all material respects as of the date when made and (unless
made as of a specified date) are true and correct in all material respects as if
made as of the Final Closing Date.
4. GCI has performed in all material respects its agreements
contained in the Agreement required to be performed at or prior to the Final
Closing Date.
5. All applicable consents and approvals (including those of
the FCC and any applicable Public Utility Commission which are necessary to
consummate the transactions contemplated by the Agreement have been obtained.
6. Attached hereto is a complete copy of a resolution duly
adopted by the board of directors of GCI authorizing and approving the execution
of the Agreement and the consummation of the transactions contemplated by the
Agreement.
Dated this day of , 1996.
GENERAL COMMUNICATION, INC.
By:
John M. Lowber, Secretary
MCI's Officer's Certificate
GCI-MCI
Page 589
EXHIBIT 4.1
SPECIMEN
Company Common Stock Certificate
for Class A Common Stock
of Registrant
CLASS A COMMON STOCK
Shares
----------------------
NUMBER [GCI GENERAL COMMUNICATION, INC.
SA LOGO] SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF ALASKA
[ART WORK] THIS CERTIFIES THAT
----------------------------------------------------------
IS THE OWNER OF
----------------------------------------------------------
Fully paid and non-assessable shares of the Class A
common stock of the par value of no par per share of
GENERAL COMMUNICATION, INC.
[ART WORK]
(the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by a duly
authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid unless signed
by the Transfer Agent of the Corporation and the facsimile
signatures of its duly authorized officers.
Countersigned and Registered:
Dated President Transfer Agent and Registrar
Secretary By: Authorized Signature
[Corporate
Seal]
**[SIDE 1 OF 2]**
REGISTRATION STATEMENT
II-590
<PAGE>
SPECIMEN EXHIBIT 4.1 [continued]
The Company is authorized to issue shares of more than one class of
common stock and also more than one series of a class of preferred stock. The
Company will furnish to a shareholder, upon request and without charge, a full
summary statement of the designations, preferences, limitations and relative
rights of the shares of each such class authorized and, in addition for
preferred stock, the variations in the relative rights and preferences between
shares of each series as determined by the board of directors.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .. Custodian ..
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform
survivorship and not as tenants Gifts to Minors
in common Act..............
(State)
COM PROP-- as community property UNIF TRF MIN ACT -- ..Custodian
(Cust)
(until age ___)
.. under Uniform
(Minor)
Transfers to
Minors Act .....
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
----------------------------------------------------------------------
----------------------------------------------------------------------
-----------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
-------------------------------------------------------attorney in fact
to transfer the said stock on the books of the within named Corporation
Dated
-----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
Signature Guaranteed:
- ------------------------------------------------------
THE SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARDIAN INSTITUTION PURSUANT TO S.E.C. RULE 17AD-15.
**[SIDE 2 OF 2]**
REGISTRATION STATEMENT
II-591
EXHIBIT 5.1
WOHLFORTH, ARGETSINGER, JOHNSON & BRECHT
A PROFESSIONAL CORPORATION
JULIUS J. BRECHT TELEPHONE
CHERYL RAWLS BROOKING (907) 276-6401
CYNTHIA L. CARTLEDGE ATTORNEYS AT LAW
ROBERT M. JOHNSON
BRADLEY E. MEYEN 900 WEST 5TH AVENUE, SUITE 600 FACSIMILE
KENNETH E. VASSAR (907) 276-5093
ERIC E. WOHLFORTH ANCHORAGE, ALASKA 99501-2048
- ------------------
OF COUNSEL
PETER ARGETSINGER
October 4, 1996
John M. Lowber
Senior Vice President and
Chief Financial Officer
General Communication, Inc.
2550 Denali Street, Suite 1000
Anchorage, AK 99503
RE: Opinion as to the Legality of Certain Shares to be Registered
Pursuant to an Offering by General Communication, Inc. and
Issued in Conjunction with Acquisition of Securities of Prime
Cable of Alaska, L.P. and Assets of Alaskan Cable Network
Companies; Our File No. 618.1044
Dear Mr. Lowber:
You have requested an opinion from this firm on behalf of General
Communication, Inc. ("Company") in connection with the registration of certain
shares of Class A Common Stock of the Company to be offered to four television
cable companies in conjunction with the Company's acquisition of securities and
assets of those companies ("Company Stock"). This acquisition is part of an
acquisition by the Company of seven cable television companies. However, this
opinion is limited to the issuance of Company Stock to four of those companies
as further described in this letter.
FACTS
It is this firm's understanding that certain material facts surrounding
the proposed transactions are represented by the Company as follows ("Facts"):
1. On April 12, 1996 a teleconference meeting of the board of directors
of the Company ("Board"), was held at which the Board approved a resolution
("Resolution") which states that, among other things, the Company is authorized
REGISTRATION STATEMENT
II-592
<PAGE>
to enter into separate purchase agreements in the form of agreements
substantially as presented to the Board, with seven cable television companies
providing services in Alaska. Four cable television companies will receive, as
part of their consideration, 14,723,077 shares of Company Class A common stock
according to two agreements as follows:
(a) An agreement with Prime Cable of Alaska, L.P., a Delaware
limited partnership ("Prime") offering 11,800,000 shares of Company Stock to the
holders, directly or indirectly, of all of the limited and general partner
interests of Prime (for subsequent distribution to the security holders of those
partners) and the holders of equity participation interests in Prime; and
(b) An agreement with Alaskan Cable Network/Fairbanks, Inc.,
Alaskan Cable Network/Juneau, Inc., and Alaskan Cable Network/Ketchikan-Sitka,
Inc. (collectively "Alaskan Cable") offering 2,923,077 shares of Company Stock
to Alaskan Cable for subsequent distribution to the respective sole shareholder
of each of the three corporations comprising Alaskan Cable;
2. The Company received a Certificate of Incorporation from the State
of Alaska dated July 16, 1979, and its Articles of Incorporation have been
restated as of November 25, 1986, August 14, 1990, February 3, 1992, and August
16, 1993 ("Articles") and such Articles are on file with the Alaska Department
of Commerce and Economic Development. The Articles state that the Company is
organized for the purposes of transacting any and all lawful business for which
a corporation may be incorporated under the Alaska Corporations Code. The
Articles state that the Company has the power to issue and sell its Class A
common stock; and
3. As of the date of this letter, the Company was current on the filing
of its biennial corporate report and payment of its corporation tax under the
Alaska Corporations Code.
4. Copies of the Articles, the current Bylaws (as revised on March 23,
1993), the Certificate of Incorporation, and the Resolution (collectively, the
"Corporate Documents") have been delivered to this firm.
CONCLUSIONS OF LAW
Copies of the Articles, the current Bylaws (as revised on March 23,
1993), the Certificate of Incorporation, and the Resolution (collectively, the
"Corporate Documents") have been delivered to this firm. Based upon the
foregoing Facts and our review of Corporate Documents, we are of the opinion as
follows:
REGISTRATION STATEMENT
II-593
<PAGE>
1. The Corporate Documents are consistent with the Alaska Corporations
Code and applicable Alaska law.
2. The Company Stock, when issued, will represent legally issued, fully
paid and nonassessable shares of Class A common stock of the Company; and
3. Each holder of a share of the Company Stock will be entitled to the
benefits of a shareholder pro rata based upon ownership of outstanding shares of
the Class A common stock of the Company.
We have rendered the foregoing opinion as of the date hereof, and we do
not undertake to supplement our opinion with respect to factual matters or
changes in the law which may hereafter occur.
Other than as an exhibit in the registration of the Company Stock under
the federal Securities Act of 1933, as amended, and under registration or
exemption under other applicable state securities laws, this letter must not be
quoted or referred to in the Company's financial statements or provided to
persons other than the officers and directors of the Company without prior
consultation with us or without our prior written consent.
WOHLFORTH, ARGETSINGER,
JOHNSON & BRECHT, A
Professional Corporation
/S/
REGISTRATION STATEMENT
II-594
EXHIBIT 8.1.1
[Jenkins & Gilchrist Letterhead]
September 13, 1996
Prime Cable Limited Partnership
Prime Cable Fund I, Inc.
c/o Prime Cable
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Attn: William P. Glasgow
Re: Merger of Prime Cable Fund I, Inc. with and into GCI Cable,
Inc., a wholly-owned subsidiary of General Communication, Inc.
Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the merger of Prime Cable Fund I, Inc. ("PCF") with and into
GCI Cable, Inc. ("GCI Cable"), a wholly-owned subsidiary of General
Communication, Inc. ("GCI"), in exchange for shares of GCI class A common stock,
as hereinafter described. Our opinion is based on (i) the Securities Purchase
and Sale Agreement (the "Purchase Agreement") entered into as of May 2, 1996, by
and between GCI and the sole shareholder of PCF (1); (ii) the Agreement and Plan
of Merger (the "Plan") to be entered into by and between PCF and GCI Cable;
(iii) the Form S-4 Registration Statement to be filed with the Securities and
Exchange Commission in connection with the merger (the "Registration
Statement"); and (iv) the facts, representations, and assumptions set forth
below. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Purchase Agreement or the Plan, as the case may be.
- ------------------------
(1) GCI also agreed to purchase pursuant to the Purchase Agreement (i) 100
percent of the partnership interests in Prime Cable of Alaska, L.P. ("PCA") and
(ii) 100 percent of the outstanding stock of Alaska Cable, Inc ("ACI") through
the merger of ACI with and into GCI Cable in exchange for GCI class A common
stock (the "ACI Merger") . We have provided under separate cover an opinion with
respect to the federal income tax consequences of the ACI Merger. You have not
requested an opinion with respect to the federal income tax consequences of the
purchase of the PCA partnership interests.
REGISTRATION STATEMENT
II-595
<PAGE>
William P. Glasgow
September 13, 1996
Page
FACTS
The following facts were ascertained from our review of the Purchase
Agreement, the Plan, and the Registration Statement. In rendering our opinions
below, we have assumed all of the facts stated herein are accurate, without
independently verifying the accuracy of any such facts. Furthermore, we are
relying on the truth of the covenants, representations, and warranties of PCF,
GCI, GCI Cable, and the shareholder of PCF as set forth in the Purchase
Agreement and the PCF Plan.
Capital Structure of PCF
PCF is a corporation duly organized and existing under the laws of the
State of Delaware with authorized capital consisting of 1,000 shares of common
stock, par value $.50 per share ("PCF Stock"), of which 1,000 shares are issued
and outstanding and held by Prime Cable Limited Partnership (the "PCF
Shareholder").
Capital Structure of GCI Cable and GCI
GCI Cable is a corporation duly organized and existing under the laws of
the state of Alaska with authorized capital consisting of 1,000 shares,
classified as common stock, no par value, of which 100 shares are issued and
outstanding and held by GCI.
GCI is a corporation duly organized and existing under the laws of the
state of Alaska with authorized capital consisting of (i) 50,000,000 shares
voting class A common stock, no par value ("GCI Class A Stock"), of which
19,696,207 were issued and outstanding as of April 15, 1996; (ii) 10,000,000
shares of Class B common stock convertible into GCI Class A Stock, of which
4,175,434 were issued and outstanding as of April 15, 1996; and (iii) 1,000,000
shares of preferred stock, of which no shares were issued and outstanding as of
April 15, 1996.
The Merger
The Purchase Agreement and the Plan provide for the merger of PCF with
and into GCI Cable pursuant to Alaska Statutes Section 10.06.562 and Section 252
of the Delaware General Corporation Law (the "Merger"). Upon consummation of the
Merger, the separate corporate existence of PCF shall cease, and GCI Cable shall
continue as the surviving corporation. All PCF property of every kind and
description shall be vested in and devolve upon GCI Cable without
REGISTRATION STATEMENT
II-596
<PAGE>
William P. Glasgow
September 13, 1996
Page
further act and deed, and GCI Cable shall assume all of the liabilities of every
kind and description of PCF.
At the Effective Time, each share of PCF Stock issued and outstanding
immediately before the Effective Time shall be converted into 2,227.071 shares
of GCI Class A Stock. Neither the Purchase Agreement nor the Plan grant the PCF
Shareholder the right to receive cash in lieu of fractional shares of GCI Class
A Stock.
In Section 5.14 of the Purchase Agreement, GCI agrees to file with the
Securities and Exchange Commission the Registration Statement relating to the
shares of the GCI Class A Stock to be delivered to the PCF Shareholder pursuant
to the Purchase Agreement and the Plan and to use its reasonable best efforts to
cause the Registration Statement to become effective. In Section 13 of the
Purchase Agreement, GCI and the PCF Shareholder agree to execute the
Registration Rights Agreement attached thereto as Exhibit B under which GCI
agrees to keep the prospectus that is a part of the original Registration
Statement current for at least two years after the Closing Date, after which the
PCF Shareholder will be entitled to certain demand and piggyback registration
rights.
To secure the PCF Shareholder's indemnification for breaches of
representations, warranties and covenants, the PCF Shareholder will deposit into
escrow with a third party escrow agent 188,938 shares (the "Indemnity Shares")
of the 2,227,071 total shares of GCI Class A Stock received by the PCF
Shareholder in the Merger for 180 days after the Closing Date pursuant to
Section 2.3 of the Purchase Agreement and the Escrow Agreement attached thereto
as Exhibit A (the "Escrow Agreement"). Upon the expiration of such 180-day
period, the escrow agent will disburse the Indemnity Shares not required to
satisfy any indemnity claims made by GCI to Prime II Management, L.P. ("PIIM"),
as the designated agent for the PCF Shareholder pursuant to the Sellers' Escrow
Agreement entered into as of May 2, 1996, among the PCF Shareholder, the ACI
shareholders, the PCA partners, and PIIM (the "Sellers' Escrow Agreement").
Under the Sellers' Escrow Agreement, PIIM will hold the Indemnity Shares
in escrow until one year and ten days from the Closing Date has expired, at
which time PIIM will disburse to the PCF Shareholder any of the PCF
Shareholder's Indemnity Shares not required to satisfy the indemnification
claims, if any, made by GCI under the Purchase Agreement. During the term of the
Sellers' Escrow Agreement, PIIM will disburse any dividends received with
respect to the Indemnity Shares.
REGISTRATION STATEMENT
II-597
<PAGE>
William P. Glasgow
September 13, 1996
Page
REPRESENTATIONS AND ASSUMPTIONS
In connection with your request that we furnish this opinion, certain
representations have been made to us by PCF and the PCF Shareholder and certain
assumptions have been made by us with respect to the existence of certain facts.
These constitute material representations and assumptions relied upon by us as a
basis for our opinion, and our opinion is conditioned upon the initial and
continuing accuracy of these representations and assumptions. These
representations and assumptions are substantially the same as the
representations required by the Internal Revenue Service (the "IRS") in order to
seek a private letter ruling with respect to the applicability of Section
368(a)(1)(A) and (2)(D), (2) as set forth in Revenue Procedure 86-42, 1986-2
C.B. 722, section 7.03. (3) Specifically, it has been represented to us that:
1. As of the date of this opinion, the fair value of the GCI Class A Stock
and other consideration receivable by the PCF Shareholder will be
approximately equal to the fair value of the PCF Stock to be
surrendered in the exchange.
2. There is no present plan or intention by either the PCF Shareholder or,
to the best of its knowledge, any of its partners to sell, exchange or
otherwise dispose (except for distributions by the PCF Shareholder to
its partners ("Distributee Partners")) of a number of shares of GCI
Class A Stock to be received in the Merger that would reduce the PCF
Shareholder's and the Distributee Partners' aggregate ownership of GCI
Class A Stock to a number of shares having a value, as of the date of
the Merger, of less than 50 percent of the value of all of the formerly
outstanding PCF Stock as of the date of the Merger. For purposes of
this representation, shares of PCF Stock and shares of GCI Class A
Stock held by the PCF Shareholder or a Distributee Partner and
otherwise sold, redeemed, or disposed of prior to, or with respect to
which there is a plan or intent to so sell, redeem or dispose of
subsequent to, the transaction will be considered in making this
representation.
3. GCI Cable will acquire at least 90 percent of the fair value of the net
assets and at least 70 percent of the fair value of the gross assets
held by PCF immediately prior to the Merger. For purposes of this
representation, PCF assets used to pay its reorganization expenses and
- ------------------------
(2) Unless otherwise stated, all references to Section refer to the
Internal Revenue Code of 1986, as amended.
(3) InRevenue Procedure 90-56, 1990-2 C.B. 639, the IRS stated that it will
no longer issue advance rulings on whether a transaction constitutes a
reorganization within the meaning of Section 368(a)(1)(A), but did not revoke
Revenue Procedure 86-42.
REGISTRATION STATEMENT
II-598
<PAGE>
William P. Glasgow
September 13, 1996
Page
all redemptions and distributions (except for regular, normal
dividends) made by PCF immediately preceding the Merger will be
included as assets of PCF held immediately prior to the Merger.
4. The liabilities of PCF assumed by GCI Cable and the liabilities to
which the transferred assets of PCF are subject were incurred by PCF in
the ordinary course of business.
5. Neither GCI nor GCI Cable will pay the expenses of PCF or the PCF
Shareholder incurred in connection with the Merger.
6. There is no intercorporate indebtedness existing between GCI and PCF or
between GCI Cable and PCF that was issued, acquired, or will be settled
at a discount.
7. PCF is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of Section 368(a)(3)(A).
8. The fair value of the assets of PCF transferred to GCI Cable will equal
or exceed the sum of the liabilities assumed by GCI Cable, plus the
amount of liabilities, if any, to which the transferred assets are
subject.
9. No stock of GCI Cable will be issued in the Merger.
10. The following representations pertain to the terms and conditions
associated with the Escrow Agreement and the Sellers' Escrow Agreement:
a. There is a valid business reason for establishing each such
escrow;
b. the Indemnity Shares will appear as issued and outstanding on
the balance sheet of GCI and such stock is legally outstanding
under applicable state law;
c. all dividends paid on the Indemnity Shares during the 180-day
period of the Escrow Agreement will be distributed to the PCF
Shareholder upon the expiration of such period to the extent
that the Inemnity Shares are then distributed to the PCF
Shareholder;
d. all dividends paid on the Indemnity Shares during the period of
the Sellers' Escrow Agreement will be distributed currently to
the PCF Shareholder;
REGISTRATION STATEMENT
II-599
<PAGE>
William P. Glasgow
September 13, 1996
Page
e. all voting rights of the Indemnity Shares are exercisable by or
on behalf of the PCF Shareholder or its authorized agent;
f. no shares of the Indemnity Shares are subject to restrictions
requiring their return to GCI because of death, failure to
continue employment, or similar restrictions;
g. all Indemnity Shares will be released from each escrow within 5
years from the Effective Time (except where there is a bona
fide dispute as to whom the stock should be released);
h. the return of the Indemnity Shares will not be triggered by an
event the occurrence or nonoccurrence of which is within the
control of the PCF Shareholder;
i. the return of Indemnity Shares will not be triggered by the
payment of additional tax or reduction in tax paid as a result
of a IRS audit of the PCF Shareholder or PCF with respect to
the Merger;
j. the mechanism for the calculation of the number of shares of
the Indemnity Shares to be returned is objective and readily
ascertainable; and
k. at least 50 percent of the number of shares of GCI Class A
Stock issued initially to the PCF Shareholder in the Merger is
not subject to any of such escrow arrangements.
In addition to the above factual representations, we have assumed the
existence of the following facts for purposes of rendering our opinion:
1. Prior to the Merger, GCI will be in control of GCI Cable within the
meaning of Section 368(c).
2. Following the transaction, GCI Cable will not issue additional shares
of its stock that would result in GCI losing control of GCI Cable
within the meaning of Section 368(c).
3. GCI has no plan or intention to reacquire any of the GCI Class A Stock
issued in the Merger except for Indemnity Shares reacquired by GCI
pursuant to the Escrow Agreement or the Sellers' Escrow Agreement.
REGISTRATION STATEMENT
II-600
<PAGE>
William P. Glasgow
September 13, 1996
Page
4. GCI has no plan or intention to liquidate GCI Cable; to merge GCI Cable
with and into another corporation; to sell or otherwise dispose of the
GCI Cable stock; or to cause GCI Cable to sell or otherwise dispose of
any of the assets of PCF acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C).
5. Following the Merger, GCI Cable will continue the historic business of
PCF or use a significant part of PCF's historic business assets in a
business.
6. Neither PCF, GCI, nor GCI Cable is an investment company as defined in
Sections 368(a)(2)(F)(iii) and (iv).
7. Neither GCI nor GCI Cable own, nor has it owned during the past five
years, any shares of the PCF Stock.
8. The GCI Class A Stock exchanged by GCI Cable in the Merger will be
received by GCI Cable immediately prior to and in connection with the
Merger.
9. The Merger will be carried out strictly in accordance with the terms of
the Purchase Agreement and the Plan.
10. The PCF Shareholder will not receive cash in lieu of fractional shares
of GCI in the Merger.
11. There are no other agreements, arrangements, or understandings among
any of PCF, the PCF Shareholder, GCI, and GCI Cable other than those
described or referenced in the Purchase Agreement or the Plan.
12. The Merger will constitute a statutory merger under the applicable laws
of the State of Alaska and the State of Delaware.
13. Neither the PCF Shareholder nor the Distributee Partners will dispose
of the GCI Class A Stock received by the PCF Shareholder in the Merger
to such extent as to cause the Merger to not satisfy the continuity of
proprietary interest requirement of Treasury Regulation Section
1.368-1(b).
REGISTRATION STATEMENT
II-601
<PAGE>
William P. Glasgow
September 13, 1996
Page
LEGAL AUTHORITIES
Section 368(a)(1)(A) defines a "reorganization" to include a statutory
merger. Treasury Regulation Section 1.368-2(b)(1) provides that in order to
qualify as a reorganization under Section 368(a)(1)(A) the transaction must be a
merger effected pursuant to the corporation laws of the United States or a State
or Territory or the District of Columbia.
Section 368(a)(2)(D) provides that a transaction otherwise qualifying
under Section 368(a)(1)(A) shall not be disqualified by reason of the fact that
stock of a corporation which is in control, within the meaning of Section
368(c), of the acquiring corporation is used in the transaction if (i) the
acquiring corporation acquires "substantially all of the properties" of the
acquired corporation as a result of the transaction, and (ii) no stock of the
acquiring corporation is used in the transaction.
Control is defined in Section 368(c) as the ownership of stock
possessing at least 80 percent of the total combined voting power of all classes
of stock entitled to vote and at least 80 percent of the total number of shares
of all other classes of stock of the corporation.
Treasury Regulation Section 1.368-2(b)(2) provides that the term
"substantially all" under Section 368(a)(2)(D) has the same meaning as it has in
Section 368(a)(1)(c). The IRS provided in Revenue Ruling 57-518, 1957-2 C.B. 253
that the test for substantially all under Section 368(a)(1)(C) will depend on
the facts and circumstances in each case rather than upon any particular
percentage. For advance ruling purposes, the IRS indicated in Revenue Procedure
77-37, 1977-2 C.B. 568 that the "substantially all" requirement will be
satisfied if there is a transfer of assets representing at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by the acquired corporation immediately
prior to the transfer.
Treasury Regulation Section 1.368-1(b) provides that requisite to a
reorganization under Section 368(a) is a continuity of the business enterprise
under the modified corporate form. Treasury Regulation Section 1.368-1(d)(2)
provides that continuity of business enterprise requires that the acquiring
corporation either (i) continue the historic business of the acquired
corporation or (ii) use a significant portion of the acquired corporation's
historic business assets in a business.
Treasury Regulation Section 1.368-1(b) also provides that requisite to a
reorganization under Section 368(a)(1) is a continuity of interest in the
business enterprise on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization. In Revenue Ruling
95-69, 1995-42 I.R.B. 4, the IRS ruled that the satisfaction of the continuity
REGISTRATION STATEMENT
II-602
<PAGE>
William P. Glasgow
September 13, 1996
Page
of interest requirement was not affected by a partnership's distribution of
stock received in a reorganization to its partners in accordance with their
interests in the partnership. The distributee partners were considered indirect
owners of the business enterprise under Treasury Regulation Section 1.368-1(b).
For advance ruling purposes, the IRS provided in Revenue Procedure
77-37, 1977-2 C.B. 568 that the continuity of interest requirement is satisfied
if there is a continuing interest through stock ownership in the acquiring
corporation (or a corporation in control thereof) on the part of the direct or
indirect former owners of the acquired corporation which is equal in value, as
of the effective date of the reorganization, to at least 50 percent of the value
of all of the formerly outstanding stock of the acquired corporation as of the
same date. Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the plan of reorganization will be considered in determining
whether there is a 50 percent continuing interest through stock ownership as of
the effective date of the reorganization. Revenue Procedure 77-37, by its terms,
does not define, as a matter of law, the lower limits of continuity of interest.
See, e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935); Helvering v.
Minnesota Tea Co., 296 U.S. 378 (1935); Miller v. Commissioner, 84 F.2d 415 (6th
Cir. 1936).
The direct or indirect owners of the acquired corporation must not plan
or intend, at the time of the reorganization, to sell, exchange or otherwise
dispose of a number of shares of the stock of the acquiring corporation (or the
corporation in control thereof) received in the reorganization that would negate
the required continuity of interest in the acquiring corporation under Treasury
Regulation Section 1.368-1(b); if they do have such a plan or intent, any
post-reorganization sales of such stock will be taken into account in
determining whether the continuity of interest requirement is satisfied. See
e.g., McDonald's Restaurants of Illinois v. Commissioner, 688 F.2d 520 (7th Cir.
1982); Penrod v. Commissioner, 88 T.C. 1415 (1987).
In Revenue Procedure 84-42, 1984-1 C.B. 521, the IRS stated that in
reorganization transactions a portion of the stock issued in exchange for the
requisite stock or property may be placed in escrow by the exchanging
shareholders for possible return to the issuing corporation under specified
conditions provided that: (i) there is a valid business reason for establishing
the arrangement; (ii) the stock subject to such arrangement appears as issued
and outstanding on the balance sheet of the issuing corporation and such stock
is legally outstanding under applicable state law; (iii) all dividends paid on
such stock will be distributed currently to the exchanging shareholders; (iv)
all voting rights of such stock are exercisable by or on behalf of the
shareholders or their authorized agent; (v) no shares of such stock are subject
to restrictions requiring their return to the issuing corporation because of
death, failure to continue employment, or similar restrictions; (vi) all such
stock is released from the arrangement within 5 years from the date of the
REGISTRATION STATEMENT
II-603
<PAGE>
William P. Glasgow
September 13, 1996
Page
consummation of the transaction (except where there is a bona fide dispute as to
whom the stock should be released); (vii) at least 50 percent of the number of
shares of each class of stock issued initially to the shareholders is not
subject to the arrangement; (viii) the return of stock will not be triggered by
an event the occurrence or nonoccurrence of which is within the control of the
shareholders; (ix) the return of stock will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an audit by the IRS of
the shareholders or the corporation; and (x) the mechanism for the calculation
of the number of shares of stock to be returned is objective and readily
ascertainable.
Section 354(a)(1) provides the general rule that no gain or loss shall
be recognized if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged solely
for stock or securities in such corporation or in another corporation a party to
the reorganization. Section 368(b)(2) defines a party to a reorganization to
include in the case of a reorganization under Section 368(a)(2)(D) the acquired
corporation, the acquiring corporation, and the corporation in control of the
acquiring corporation.
Section 1223(1) provides that in determining the period for which the
taxpayer has held property received in an exchange, there shall be included the
period for which he held the property exchanged if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis in
whole or part in his hands as the property exchanged and the property exchanged
at the time of such exchange was a capital asset as defined in Section 1221.
Section 361(a) provides the general rule that no gain or loss shall be
recognized to a corporation if such corporation is a party to a reorganization
and exchanges property, in pursuance of the plan of reorganization, solely for
stock or securities in another corporation a party to the reorganization.
Section 358(a)(1) provides that in the case of an exchange to which
Section 354 applies, the basis of the property permitted to be received under
Section 354 without the recognition of gain or loss shall be the same as that of
the property exchanged.
REGISTRATION STATEMENT
II-604
<PAGE>
William P. Glasgow
September 13, 1996
Page
OPINIONS
Based upon the facts, representations, and assumptions set forth above,
the authorities and ruling policies of the IRS discussed above as applied to
those facts, representations, and assumptions and conditioned upon the initial
and continuing accuracy of the representations and assumptions set forth above,
it is our opinion that:
1. The Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and (2)(D), and PCF, GCI Cable, and GCI will each
be a party to the reorganization within the meaning of Section 368(b).
2. No gain or loss will be recognized by the PCF Shareholder upon the
receipt of shares of GCI Class A Stock in exchange for shares of PCF
Stock pursuant to the Merger.
3. The tax basis of the shares of GCI Class A Stock received by the PCF
Shareholder in the Merger will be the same as the tax basis for its PCF
Stock.
4. The holding period of the GCI Class A Stock received by the PCF
Shareholder in the Merger will include the holding period of the shares
of PCF Stock exchanged therefor, provided the PCF Stock was held as a
capital asset immediately before the Merger.
5. No gain or loss will be recognized by PCF upon the transfer of its
assets to GCI Cable pursuant to the Merger.
In rendering our opinion, we have considered and relied upon the
authorities and ruling policies of the IRS discussed above, all of which are
subject to change prospectively and retroactively. No assurance can be given
that the federal income tax consequences of the Merger under subsequent
legislation, Treasury Regulations, administrative rulings and interpretations,
or judicial decisions will be the same as the federal income tax consequences
stated in this opinion.
We have rendered the foregoing opinion as of the date hereof, and we do
not undertake to supplement our opinion with respect to factual matters or
changes in the law which may hereafter occur.
We express no opinion as to the tax treatment of the Merger under the
provisions of any other Sections of the Code which may also be applicable
thereto or to the tax treatment of any
REGISTRATION STATEMENT
II-605
<PAGE>
William P. Glasgow
September 13, 1996
Page
conditions existing at the time of, or effects resulting from, the transactions
which are not specifically addressed in the foregoing opinions.
We also express no opinion as to the federal income tax consequences to
the Distributee Partners upon a distrubtion by the PCF Shareholder of all or a
portion of the GCI Class A Stock received by the PCF Shareholder in the Merger.
Section 731(c) provides that the distribution by a partnership of marketable
securities shall be treated in the same manner as a cash distribution, in which
case the distributee partners would recognize gain under Section 731(a)(1) to
the extent that the fair market value of the marketable securities received
exceeds their adjusted basis in the partnership. Proposed Treasury Regulation
Section 1.731-2(d)(2), however, provides that marketable securities will not be
treated in the same manner as cash to the extent that (i) the security was
acquired in a nonrecognition transaction in exchange for property other than
money or marketable securities, (ii) the distributed security is actively traded
as of the date of distribution, and (iii) the security is distributed within
five years of either the date on which the security was acquired by the
partnership or, if later, the date on which the security became actively traded.
This Proposed Treasury Regulation applies to distributions of marketable
securities made after December 31, 1995 and is subject to change and is not
binding before being adopted either as a Temporary or Final Treasury Regulation,
and technically will not be effective until the date specified in the Temporary
or Final Regulations. Accordingly, it is not certain that the treatment provided
in Proposed Treasury Regulation Section 1.731-2(d)(2) will be appropriate or
available unless and until Temporary or Final Treasury Regulations become
effective. Assuming that Temporary or Final Treasury Regulations are issued
adopting Proposed Treasury Regulation 1.731-2(d)(2), a distribution by the PCF
Shareholder of the GCI Class A Stock to the Distributee Partners after the
effective date of such Temporary or Final Treasury Regulations and within five
years of the Merger would not be treated as a distribution of money under
Section 731(c). Thus, the Distributee Partners would not recognize gain upon
such distribution, and the Distributee Partner's basis in the GCI Class A Stock
would equal (i) if a non-liquidating distribution, the PCF Shareholder's basis
in the GCI Class A Stock immediately before the distribution pursuant to Section
732(a) (e.g., a carry over basis) or (ii) if a liquidating distribution, the
Distributee Partner's adjusted basis in its Partnership interest in the the PCF
Shareholder reduced by any money received in liquidation and any basis allocated
to other property received in liquidation (e.g., a substituted basis). The
Distributee Partners would recognize gain or loss on a subsequent taxable
disposition of the GCI Class A Stock.
Our opinion expressed herein is given to you by us solely for your use
and is not to be quoted or otherwise referred to or furnished to any
governmental agency (other than to the Securities and Exchange Commission as an
exhibit to the Registration Statement or to the IRS in connection with an
examination of the Merger) or to other persons without our prior written
REGISTRATION STATEMENT
II-606
<PAGE>
William P. Glasgow
September 13, 1996
Page
consent. We hereby consent to the use of our name under "Certain Federal Income
Tax Consequences" in the Registration Statement and the filing of a copy of this
opinion as an exhibit to the Registration Statement.
Sincerely,
/S/
JENKENS & GILCHRIST,
a Professional Corporation
REGISTRATION STATEMENT
II-607
EXHIBIT 8.1.2
September 13, 1996
Prime Venture I Holdings, L.P. William Blair Venture Partners III
Prime Venture II, L.P. Limited Partnership
Prime Cable Growth Partners, L.P. c/o Samuel B. Guren
Alaska Cable, Inc. Baird Capital Partners
c/o Prime Cable 227 West Monroe Street
3000 One American Center Suite 2100
600 Congress Avenue Chicago, Illinois 60606
Austin, Texas 78701
Attn: William P. Glasgow
Centennial Fund II, L.P. Austin Ventures, L.P.
Centennial Fund III, L.P. 1300 Norwood Tower
Centennial Business Development 114 West 7th Street
Fund, Ltd. Austin, Texas 78701
c/o Centennial Funds Attn: Jeffery C. Garvey
1999 Broadway, Suite 3100
Denver, Colorado 80202
Attn: Jackson Tankersley, Jr.
Re: Merger of Alaska Cable, Inc. with and into GCI Cable, Inc., a
wholly-owned subsidiary of General Communication, Inc.
Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the merger of Alaska Cable, Inc. ("ACI") with and into GCI
Cable, Inc. ("GCI Cable"), a wholly-owned subsidiary of General Communication,
Inc. ("GCI"), in exchange for shares of GCI class A common stock, as hereinafter
described. Our opinion is based on (i) the Securities Purchase and Sale
Agreement (the "Purchase Agreement") entered into as of May 2, 1996, by
REGISTRATION STATEMENT
II-608
<PAGE>
September 13, 1996
Page
and between GCI and the shareholders of ACI; (1) (ii) the Agreement and Plan of
Merger (the "Plan") to be entered into by and between ACI and GCI Cable; (iii)
the Form S-4 Registration Statement to be filed with the Securities and Exchange
Commission in connection with the merger (the "Registration Statement"); and
(iv) the facts, representations, and assumptions set forth below. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Purchase Agreement or the Plan, as the case may be.
FACTS
The following facts were ascertained from our review of the Purchase
Agreement, the Plan, and the Registration Statement. In rendering our opinions
below, we have assumed all of the facts stated herein are accurate, without
independently verifying the accuracy of any such facts. Furthermore, we are
relying on the truth of the covenants, representations, and warranties of ACI,
the shareholders of ACI, GCI, and GCI Cable as set forth in the Purchase
Agreement and the Plan.
Capital Structure of ACI
ACI is a corporation duly organized and existing under the laws of the
State of Delaware with authorized capital consisting of 4,621 shares, classified
as (i) 4,600 shares of class A common stock, par value $.10 per share ("ACI
Class A Stock), of which 4,600 shares are issued and outstanding; and (ii) 21
shares of class B common stock, par value $.10 per share ("ACI Class B Stock"),
of which 21 shares are issued and outstanding. The shares of the ACI Class A and
B Stock are held by the following shareholders (collectively the "ACI
Shareholders"): (i) Prime Venture I Holdings, L.P., which holds 600 shares of
ACI Class A Stock and 5 shares of ACI Class B Stock; (ii) Prime Venture II,
L.P., which holds 1,000 shares of ACI Class A Stock and 5 shares of ACI Class B
Stock; (iii) Prime Cable Growth Partners, L.P., which holds 11 shares of ACI
Class B Stock; (iv) Austin Ventures, L.P., which holds 800 shares of ACI Class A
Stock; (v) William Blair Venture Partners III Limited Partnership, which holds
1,000 shares of ACI Class A Stock; (vi) Centennial Fund II, L.P. ("CFII"), which
holds 200 shares of ACI Class A Stock; (vii) Centennial Fund III, L.P.
("CFIII"), which holds 600 shares of ACI Class
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(1) GCI also agreed to purchase pursuant to the Purchase Agreement (i) 100
percent of the partnership interests in Prime Cable of Alaska, L.P. ("PCA") and
(ii) 100 percent of the outstanding stock of Prime Cable Fund I, Inc ("PCF")
through the merger of PCF with and into GCI Cable in exchange for GCI class A
common stock (the "PCF Merger"). We have provided under separate cover an
opinion with respect to the federal income tax consequences of the PCF Merger.
You have not requested an opinion with respect to the federal income tax
consequences of the purchase of the PCA partnership interests.
REGISTRATION STATEMENT
II-609
<PAGE>
September 13, 1996
Page
A Stock; and (viii) Centennial Business Development Fund, Ltd. ("CBDF"), which
holds 400 shares of ACI Class A Stock.
Capital Structure of GCI Cable and GCI
GCI Cable is a corporation duly organized and existing under the laws of
the state of Alaska with authorized capital consisting of 1,000 shares,
classified as common stock, no par value, of which 100 shares are issued and
outstanding and held by GCI.
GCI is a corporation duly organized and existing under the laws of the
state of Alaska with authorized capital consisting of (i) 50,000,000 shares
voting class A common stock, no par value ("GCI Class A Stock"), of which
19,696,207 were issued and outstanding as of April 15, 1996; (ii) 10,000,000
shares of Class B common stock convertible into GCI Class A Stock, of which
4,175,434 were issued and outstanding as of April 15, 1996; and (iii) 1,000,000
shares of preferred stock, of which no shares were issued and outstanding as of
April 15, 1996.
The Merger
The Purchase Agreement and the Plan provide for the merger of ACI with
and into GCI Cable pursuant to Alaska Statutes Section 10.06.562 and Section 252
of the Delaware General Corporation Law (the "Merger"). Upon consummation of the
Merger, the separate corporate existence of ACI shall cease, and GCI Cable shall
continue as the surviving corporation. All ACI property of every kind and
description shall be vested in and devolve upon GCI Cable without further act
and deed, and GCI Cable shall assume all of the liabilities of every kind and
description of ACI.
At the Effective Time, each share of ACI Class A Stock issued and
outstanding immediately before the Effective Time shall be converted into
1,237.261739 shares of GCI Class A Stock. Neither the Purchase Agreement nor the
Plan grant the ACI Shareholders the right to receive cash in lieu of fractional
shares of GCI Class A Stock. At the Effective Time, each share of ACI Class B
Stock issued and outstanding immediately before the Effective Time shall be
exchanged for cash in the amount of $1.00 per share.
In Section 5.14 of the Purchase Agreement, GCI agrees to file with the
Securities and Exchange Commission a Registration Statement relating to the
shares of the GCI Class A Stock to be delivered to the ACI Shareholders pursuant
to the Purchase Agreement and the Plan, and to use its reasonable best efforts
to cause the Registration Statement to become effective. In Section 13 of the
Purchase Agreement, GCI and the ACI Shareholders agree to execute the
Registration Rights Agreement attached thereto as Exhibit B under which GCI
agrees to keep the
REGISTRATION STATEMENT
II-610
<PAGE>
September 13, 1996
Page
prospectus that is a part of the original Registration Statement current for at
least two years after the Closing Date, after which the ACI Shareholders will be
entitled to certain demand and piggyback registration rights.
To secure the ACI Shareholder's indemnification for breaches of
representations, warranties and covenants, the ACI Shareholders will deposit
into escrow with a third party escrow agent 482,839 shares (the "Indemnity
Shares") of the 5,691,404 total shares of GCI Class A Stock for 180 days after
the Closing Date pursuant to Section 2.3 of the Purchase Agreement and the
Escrow Agreement attached thereto as Exhibit A (the "Escrow Agreement"). Upon
the expiration of such 180-day period, the escrow agent will disburse the
Indemnity Shares not required to satisfy any indemnity claims made by GCI to
Prime II Management, L.P. ("PIIM"), as the designated agent for the ACI
Shareholders pursuant to the Sellers' Escrow Agreement entered into as of May 2,
1996, among the ACI Shareholders, the PCA partners, the PCF shareholder, and
PIIM (the "Sellers' Escrow Agreement").
Under the Sellers' Escrow Agreement, PIIM will hold the Indemnity Shares
in escrow until one year and ten days from the Closing Date has expired, at
which time PIIM will disburse to the ACI Shareholders any of the ACI
Shareholders' Indemnity Shares not required to satisfy the indemnification
claims, if any, made by GCI under the Purchase Agreement. During the term of the
Sellers' Escrow Agreement, PIIM will disburse any dividends received with
respect to the Indemnity Shares.
With respect to the GCI Class A Stock other than the Indemnity Shares,
the ACI Shareholders entered into an additional escrow agreement as of May 2,
1996 (the "ACI Escrow Agreement"). Under the ACI Escrow Agreement, each ACI
Shareholder agreed to deposit with a third party escrow agent that number of
shares of GCI Class A Stock it received in the Merger equal to the excess of (i)
50 percent of the aggregate number of shares of GCI Class A Stock received by
such ACI Shareholder in the Merger, over (ii) the number of Indemnity Shares
deposited into escrow by such ACI Shareholder pursuant to the Escrow
Agreement.(2) CFII, CFIII and CBDF also agreed to deposit with a third party
escrow agent that number of GCI Class A Stock they received in the Merger equal
to the excess of (i) 50 percent of the aggregate number of shares of GCI Class A
Stock received by them as a group in the Merger, over (ii) the number of
Indemnity Shares deposited into escrow by them pursuant to the Escrow Agreement.
The escrow agent will disburse such shares to the depositing ACI Shareholder one
year and five days after the Closing Date (the "Distribution Date").
- ------------------------
(2) For purposes of the ACI Escrow Agreement, CFII, CFIII, and CBDF acted
as one shareholder and deposited the aggregate required shares with the escrow
agent.
REGISTRATION STATEMENT
II-611
<PAGE>
September 13, 1996
Page
In Section 4 of the ACI Escrow Agreement, each ACI Shareholder
represents and warrants to the others that it has no current plan or intention
to sell or otherwise distribute (other than distributions to such ACI
Shareholder's partners; and each ACI Shareholder represents and warrants to the
others that it has no knowledge that any distributee partner has any current
plan or intention to sell or otherwise distribute) on or after the Distribution
Date any of the GCI Class A Stock received by it in the Merger.
REPRESENTATIONS AND ASSUMPTIONS
In connection with your request that we furnish this opinion, certain
representations have been made to us by ACI and the ACI Shareholders and certain
assumptions have been made by us with respect to the existence of certain facts.
These constitute material representations and assumptions relied upon by us as a
basis for our opinion, and our opinion is conditioned upon the initial and
continuing accuracy of these representations and assumptions. These
representations and assumptions are substantially the same as the
representations required by the Internal Revenue Service (the "IRS") in order to
seek a private letter ruling with respect to the applicability of Section
368(a)(1)(A) and (2)(D),(3) as set forth in Revenue Procedure 86-42, 1986-2 C.B.
722, section 7.03. (4) Specifically, it has been represented to us that:
1. As of the date of this opinion, the fair value of the GCI Class A Stock
and other consideration receivable by each ACI Shareholder will be
approximately equal to the fair of the ACI Class A and B Stock to be
surrendered in the exchange.
2. There is no present plan or intention by any of the ACI Shareholders
or, to the best of their knowledge, any of their partners to sell,
exchange or otherwise dispose (except for distributions by an ACI
Shareholder to its partners ("Distributee Partners")) of a number of
shares of GCI Class A Stock to be received in the Merger that would
reduce the ACI Shareholders', all of which are Partnerships, and the
Distributee Partners' aggregate ownership of GCI Class A Stock to a
number of shares having a value, as of the date of the Merger, of less
than 50 percent of the value of all of the formerly outstanding ACI
Class A and B Stock as of the date of the Merger. For purposes of this
representation, shares of ACI Class A and B Stock exchanged for cash
will be treated as outstanding ACI Class A or B Stock, as the case may
be, on the date of the Merger. Moreover, shares of
- ------------------------
(3) Unless otherwise stated, all references to Section refer to the
Internal Revenue Code of 1986, as amended.
(4) In Revenue Procedure 90-56, 1990-2 C.B. 639, the IRS stated that it
will no longer issue advance rulings on whether a transaction constitutes a
reorganization within the meaning of Section 368(a)(1)(A), but did not revoke
Revenue Procedure 86-42.
REGISTRATION STATEMENT
II-612
<PAGE>
September 13, 1996
Page
ACI Class A or B Stock and shares of GCI Class A Stock held by ACI
Shareholders or Distributee Partners and otherwise sold, redeemed, or
disposed of prior to, or with respect to which there is a plan or
intent to so sell, redeem or dispose of subsequent to, the transaction
will be considered in making this representation.
3. GCI Cable will acquire at least 90 percent of the fair value of the net
assets and at least 70 percent of the fair value of the gross assets
held by ACI immediately prior to the Merger. For purposes of this
representation, ACI assets used to pay its reorganization expenses and
all redemptions and distributions (except for regular, normal
dividends) made by ACI immediately preceding the Merger will be
included as assets of ACI held immediately prior to the Merger.
4. The liabilities of ACI assumed by GCI Cable and the liabilities to
which the transferred assets of ACI are subject were incurred by ACI in
the ordinary course of business.
5. Neither GCI nor GCI Cable will pay the expenses of ACI or the ACI
Shareholders incurred in connection with the Merger.
6. There is no intercorporate indebtedness existing between GCI and ACI or
between GCI Cable and ACI that was issued, acquired, or will be settled
at a discount.
7. ACI is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of Section 368(a)(3)(A).
8. The fair value of the assets of ACI transferred to GCI Cable will equal
or exceed the sum of the liabilities assumed by GCI Cable, plus the
amount of liabilities, if any, to which the transferred assets are
subject.
9. No stock of GCI Cable will be issued in the Merger.
10. The following representations pertain to the terms and conditions
associated with the Escrow Agreement and the Sellers' Escrow Agreement:
a. There is a valid business reason for establishing each such
escrow;
b. the Indemnity Shares will appear as issued and outstanding on
the balance sheet of GCI and such stock is legally outstanding
under applicable state law;
REGISTRATION STATEMENT
II-613
<PAGE>
September 13, 1996
Page
c. all dividends paid on the Indemnity Shares during the 180-day
period of the Escrow Agreement will be distributed to the ACI
Shareholders upon the expiration of such period to the extent
that the Indemnity Shares are then distributed to the ACI
Shareholders;
d. all dividends paid on the Indemnity Shares during the period of
the Sellers' Escrow Agreement will be distributed currently to
the ACI Shareholders;
e. all voting rights of the Indemnity Shares are exercisable by or
on behalf of the ACI Shareholders or their authorized agent;
f. no shares of the Indemnity Shares are subject to restrictions
requiring their return to GCI because of death, failure to
continue employment, or similar restrictions;
g. all Indemnity Shares will be released from each escrow within 5
years from the effective time (except where there is a bona
fide dispute as to whom the stock should be released);
h. the return of the Indemnity Shares will not be triggered by an
event the occurrence or nonoccurrence of which is within the
control of the ACI Shareholders;
i. the return of the Indemnity Shares will not be triggered by the
payment of additional tax or reduction in tax paid as a result
of a IRS audit of the ACI Shareholders or ACI with respect to
the Merger;
j. the mechanism for the calculation of the number of shares of
the Indemnity Shares to be returned is objective and readily
ascertainable; and
k. at least 50 percent of the number of shares of GCI Class A
Stock issued initially to the ACI Shareholders in the Merger is
not subject to any of such escrow arrangements.
In addition to the above factual representations, we have assumed the
existence of the following facts for purposes of rendering our opinion:
1. Prior to the Merger, GCI will be in control of GCI Cable within the
meaning of Section 368(c).
REGISTRATION STATEMENT
II-614
<PAGE>
September 13, 1996
Page
2. Following the transaction, GCI Cable will not issue additional shares
of its stock that would result in GCI losing control of GCI Cable
within the meaning of Section 368(c).
3. GCI has no plan or intention to reacquire any of the GCI Class A Stock
issued in the Merger except for Indemnity Shares reacquired by GCI
pursuant to the Escrow Agreement and the Sellers' Escrow Agreement.
4. GCI has no plan or intention to liquidate GCI Cable; to merge GCI Cable
with and into another corporation; to sell or otherwise dispose of the
GCI Cable stock; or to cause GCI Cable to sell or otherwise dispose of
any of the assets of ACI acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C).
5. Following the Merger, GCI Cable will continue the historic business of
ACI or use a significant part of ACI's historic business assets in a
business.
6. Neither ACI, GCI, nor GCI Cable is an investment company as defined in
Sections 368(a)(2)(F)(iii) and (iv).
7. Neither GCI nor GCI Cable own, nor has it owned during the past five
years, any shares of the ACI Stock.
8. The Merger will be carried out strictly in accordance with the terms of
the Purchase Agreement and the Plan.
9. The GCI Class A Stock exchanged by GCI Cable in the Merger will be
received by GCI Cable immediately prior to and in connection with the
Merger.
10. None of the ACI Shareholders will receive cash in lieu of fractional
shares of GCI in the Merger.
11. There are no other agreements, arrangements, or understandings among
any of ACI, the ACI Shareholders, GCI, and GCI Cable other than those
described or referenced in the Purchase Agreement or the Plan.
12. The Merger will constitute a statutory merger under the applicable laws
of the State of Alaska and the State of Delaware.
REGISTRATION STATEMENT
II-615
<PAGE>
September 13, 1996
Page
13. Neither the ACI Shareholders nor the Distributee Partners will dispose
of the GCI Class A Stock received by the ACI Shareholders in the Merger
to such extent as to cause the Merger to not satisfy the continuity of
proprietary interest requirement of Treasury Regulation Section
1.368-1(b).
LEGAL AUTHORITIES
Section 368(a)(1)(A) defines a "reorganization" to include a statutory
merger. Treasury Regulation Section 1.368-2(b)(1) provides that in order to
qualify as a reorganization under Section 368(a)(1)(A) the transaction must be a
merger effected pursuant to the corporation laws of the United States or a State
or Territory or the District of Columbia.
Section 368(a)(2)(D) provides that a transaction otherwise qualifying
under Section 368(a)(1)(A) shall not be disqualified by reason of the fact that
stock of a corporation which is in control, within the meaning of Section
368(c), of the acquiring corporation is used in the transaction if (i) the
acquiring corporation acquires "substantially all of the properties" of the
acquired corporation as a result of the transaction, and (ii) no stock of the
acquiring corporation is used in the transaction.
Control is defined in Section 368(c) as the ownership of stock
possessing at least 80 percent of the total combined voting power of all classes
of stock entitled to vote and at least 80 percent of the total number of shares
of all other classes of stock of the corporation.
Treasury Regulation Section 1.368-2(b)(2) provides that the term
"substantially all" under Section 368(a)(2)(D) has the same meaning as it has in
Section 368(a)(1)(c). The IRS provided in Revenue Ruling 57-518, 1957-2 C.B. 253
that the test for substantially all under Section 368(a)(1)(C) will depend on
the facts and circumstances in each case rather than upon any particular
percentage. For advance ruling purposes, the IRS indicated in Revenue Procedure
77-37, 1977-2 C.B. 568 that the "substantially all" requirement will be
satisfied if there is a transfer of assets representing at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by the acquired corporation immediately
prior to the transfer.
Treasury Regulation Section 1.368-1(b) provides that requisite to a
reorganization under Section 368(a) is a continuity of the business enterprise
under the modified corporate form. Treasury Regulation Section 1.368-1(d)(2)
provides that continuity of business enterprise requires that the acquiring
corporation either (i) continue the historic business of the acquired
corporation or (ii) use a significant portion of the acquired corporation's
historic business assets in a business.
REGISTRATION STATEMENT
II-616
<PAGE>
September 13, 1996
Page
Treasury Regulation Section 1.368-1(b) also provides that requisite to a
reorganization under Section 368(a)(1) is a continuity of interest in the
business enterprise on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization. In Revenue Ruling
84-30, 1984-1 C.B. 115, the IRS interpreted the phrase "directly or indirectly"
under Treasury Regulation Section 1.368-1(b). In Revenue Ruling 95-69, 1995-42
I.R.B. 4, the IRS ruled that the satisfaction of the continuity of interest
requirement was not affected by a partnership's distribution of stock received
in a reorganization to its partners in accordance with their interests in the
partnership. The distributee partners were considered an indirect owner of the
business enterprise under Treasury Regulation Section 1.368-1(b).
For advance ruling purposes, the IRS provided in Revenue Procedure
77-37, 1977-2 C.B. 568 that the continuity of interest requirement is satisfied
if there is a continuing interest through stock ownership in the acquiring
corporation (or a corporation in control thereof) on the part of the direct or
indirect former owners of the acquired corporation which is equal in value, as
of the effective date of the reorganization, to at least 50 percent of the value
of all of the formerly outstanding stock of the acquired corporation as of the
same date. Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the plan of reorganization will be considered in determining
whether there is a 50 percent continuing interest through stock ownership as of
the effective date of the reorganization. Revenue Procedure 77-37, by its terms,
does not define, as a matter of law, the lower limits of continuity of interest.
See, e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935); Helvering v.
Minnesota Tea Co., 296 U.S. 378 (1935); Miller v. Commissioner, 84 F.2d 415 (6th
Cir. 1936).
The direct or indirect owners of the acquired corporation must not plan
or intend, at the time of the reorganization, to sell, exchange or otherwise
dispose of a number of shares of the stock of the acquiring corporation (or the
corporation in control thereof) received in the reorganization that would negate
the required continuity of interest in the acquiring corporation under Treasury
Regulation Section 1.368-1(b); if they do have such a plan or intent, any
post-reorganization sales of such stock will be taken into account in
determining whether the continuity of interest requirement is satisfied. See
e.g., McDonald's Restaurants of Illinois v. Commissioner, 688 F.2d 520 (7th Cir.
1982); Penrod v. Commissioner, 88 T.C. 1415 (1987)
In Revenue Procedure 84-42, 1984-1 C.B. 521, the IRS stated that in
reorganization transactions a portion of the stock issued in exchange for the
requisite stock or property may be placed in escrow by the exchanging
shareholders for possible return to the issuing corporation under specified
conditions provided that: (i) there is a valid business reason for establishing
the arrangement; (ii) the stock subject to such arrangement appears as issued
and outstanding on the balance sheet of the issuing corporation and such stock
is legally outstanding under applicable state law; (iii) all dividends paid on
such stock will be distributed currently to the exchanging
REGISTRATION STATEMENT
II-617
<PAGE>
September 13, 1996
Page
shareholders; (iv) all voting rights of such stock are exercisable by or on
behalf of the shareholders or their authorized agent; (v) no shares of such
stock are subject to restrictions requiring their return to the issuing
corporation because of death, failure to continue employment, or similar
restrictions; (vi) all such stock is released from the arrangement within 5
years from the date of the consummation of the transaction (except where there
is a bona fide dispute as to whom the stock should be released); (vii) at least
50 percent of the number of shares of each class of stock issued initially to
the shareholders is not subject to the arrangement; (viii) the return of stock
will not be triggered by an event the occurrence or nonoccurrence of which is
within the control of the shareholders; (ix) the return of stock will not be
triggered by the payment of additional tax or reduction in tax paid as a result
of an audit by the IRS of the shareholders or the corporation; and (x) the
mechanism for the calculation of the number of shares of stock to be returned is
objective and readily ascertainable.
Section 354(a)(1) provides the general rule that no gain or loss shall
be recognized if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged solely
for stock or securities in such corporation or in another corporation a party to
the reorganization.
Section 368(b)(2) defines a party to a reorganization to include in the
case of a reorganization under Section 368(a)(2)(D) the acquired corporation,
the acquiring corporation, and the corporation in control of the acquiring
corporation.
Section 356(a)(1) provides that if Section 354 would apply to an
exchange but for the fact that the property received in the exchange consists
not only of property permitted by Section 354 but also other property or money,
then the gain, if any, to the recipient shall be recognized to the extent of the
sum of such money and the fair market value of such other property.
Section 358(a)(1) provides that in the case of an exchange to which
Section 354 applies, the basis of the property permitted to be received under
Section 354 without the recognition of gain or loss shall be the same as that of
the property exchanged.
Section 1223(1) provides that in determining the period for which the
taxpayer has held property received in an exchange, there shall be included the
period for which he held the property exchanged if the property has, for the
purpose of determining gain or loss from a sale or exchange, the same basis in
whole or part in his hands as the property exchanged and the property exchanged
at the time of such exchange was a capital asset as defined in Section 1221.
Section 361(a) provides the general rule that no gain or loss shall be
recognized to a corporation if such corporation is a party to a reorganization
and exchanges property, in
REGISTRATION STATEMENT
II-618
<PAGE>
September 13, 1996
Page
pursuance of the plan of reorganization, solely for stock or securities in
another corporation a party to the reorganization.
Section 361(b) provides that if Section 361(a) would apply to an
exchange but for the fact that the property received in the exchange consists
not only of property permitted by Section 361(a) but also other property or
money, then the recipient corporation shall not recognize any gain on the
exchange if it distributes the sum of such money and the fair market value of
such other property in pursuance of the plan of reorganization.
OPINIONS
Based upon the facts, representations, and assumptions set forth above,
the authorities and ruling policies of the IRS discussed above as applied to
those facts, representations, and assumptions and conditioned upon the initial
and continuing accuracy of the representations and assumptions set forth above,
it is our opinion that:
1. The Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and (2)(D), and ACI, GCI Cable, and GCI will each
be a party to the reorganization within the meaning of Section 368(b).
2. No gain or loss will be recognized by any of the ACI Shareholders upon
the receipt of shares of GCI Class A Stock in exchange for shares of
ACI Class A Stock pursuant to the Merger; an ACI Shareholder who
receives cash in exchange for its ACI Class B Stock will recognize gain
or loss equal to the difference between such cash and the basis of such
stock.
3. The tax basis of the shares of GCI Class A Stock received by each ACI
Shareholder in the Merger will be the same as the tax basis for its ACI
Class A Stock.
4. The holding period of the GCI Class A Stock received by each ACI
Shareholder in the Merger will include the holding period of the shares
of ACI Class A Stock exchanged therefor, provided the ACI Class A Stock
is held as a capital asset immediately before the Merger.
5. No gain or loss will be recognized by ACI upon the transfer of its
assets to GCI Cable pursuant to the Merger.
REGISTRATION STATEMENT
II-619
<PAGE>
September 13, 1996
Page
In rendering our opinion, we have considered and relied upon the
authorities and ruling policies of the IRS discussed above, all of which are
subject to change prospectively and retroactively. No assurance can be given
that the federal income tax consequences of the Merger under subsequent
legislation, Treasury Regulations, administrative rulings and interpretations,
or judicial decisions will be the same as the federal income tax consequences
stated in this opinion.
We have rendered the foregoing opinion as of the date hereof, and we do
not undertake to supplement our opinion with respect to factual matters or
changes in the law which may hereafter occur.
We express no opinion as to the tax treatment of the Merger under the
provisions of any other Sections of the Code which may also be applicable
thereto or to the tax treatment of any conditions existing at the time of, or
effects resulting from, the transactions which are not specifically addressed in
the foregoing opinion.
We also express no opinion as to the federal income tax consequences to
the Distributee Partners upon a distribution by an ACI Shareholder, all of which
are Partnerships, of all or a portion of the GCI Class A Stock received by such
ACI Shareholder in the Merger. Section 731(c) provides that the distribution by
a partnership of marketable securities shall be treated in the same manner as a
cash distribution, in which case the distributee partners would recognize gain
under Section 731(a)(1) to the extent that the fair market value of the
marketable securities received exceeds their adjusted basis in the partnership.
Proposed Treasury Regulation Section 1.731-2(d)(2), however, provides that
marketable securities will not be treated in the same manner as cash to the
extent that (i) the security was acquired in a nonrecognition transaction in
exchange for property other than money or marketable securities, (ii) the
distributed security is actively traded as of the date of distribution, and
(iii) the security is distributed within five years of either the date on which
the security was acquired by the partnership or, if later, the date on which the
security became actively traded. This Proposed Treasury Regulation applies to
distributions of marketable securities made after December 31, 1995 and is
subject to change and is not binding before being adopted either as a Temporary
or Final Treasury Regulation, and technically will not be effective until the
date specified in the Temporary or Final Regulations. Accordingly, it is not
certain that the treatment provided in Proposed Treasury Regulation Section
1.731-2(d)(2) will be appropriate or available unless and until Temporary or
Final Treasury Regulations become effective. Assuming that Temporary or Final
Treasury Regulations are issued adopting Proposed Treasury Regulation
1.731-2(d)(2), a distribution by an ACI Shareholder of the GCI Class A Stock to
the Distributee Partners after the effective date of such Temporary or Final
Treasury Regulations and within five years of the Merger would not be treated as
a distribution of money under Section 731(c). Thus, the Distributee Partners
would not recognize gain upon such distribution, and the Distributee Partner's
basis in the GCI Class A Stock would equal (i) if a non-
REGISTRATION STATEMENT
II-620
<PAGE>
September 13, 1996
Page
liquidating distribution, the ACI Shareholder's basis in the GCI Class A Stock
immediately before the distribution pursuant to Section 732(a) (e.g., a
carryover basis) or (ii) if a liquidating distribution, the Distributee
Partner's adjusted basis in its Partnership interest in the ACI Shareholder
reduced by any money received in liquidation and any basis allocated to other
property received in liquidation (e.g., a substituted basis). The Distributee
Partners would recognize gain or loss on a subsequent taxable disposition of the
GCI Class A Stock.
Our opinion expressed herein is given to you by us solely for your use
and is not to be quoted or otherwise referred to or furnished to any
governmental agency (other than to the Securities and Exchange Commission as an
exhibit to the Registration Statement or to the IRS in connection with an
examination of the Merger) or to other persons without our prior written
consent. We hereby consent to the use of our name under "Certain Federal Income
Tax Consequences" in the Registration Statement and the filing of a copy of this
opinion as an exhibit to the Registration Statement.
Sincerely,
/S/
JENKENS & GILCHRIST,
a Professional Corporation
REGISTRATION STATEMENT
II-621
EXHIBIT 9.1
NEW VOTING AGREEMENT
[see Exhibit C to Prime Purchase Agreement]
REGISTRATION STATEMENT
II-622
EXHIBIT 10.1
PRIME MANAGEMENT AGREEMENT
[see Exhibit D to Prime Purchase Agreement]
REGISTRATION STATEMENT
II-623
EXHIBIT 10.2
PRIME REGISTRATION RIGHTS AGREEMENT
[see Exhibit B to Prime Purchase Agreement]
REGISTRATION STATEMENT
II-624
EXHIBIT 10.3
ALASKAN CABLE REGISTRATION RIGHTS AGREEMENT
[see Exhibit A to Alaskan Cable Purchase Agreement]
REGISTRATION STATEMENT
II-625
EXHIBIT 21.1
<TABLE>
SUBSIDIARIES OF REGISTRANT
<CAPTION>
Jurisdiction of Name Under Which Subsidiary Does
Entity Organization Business
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Communication, Inc. Alaska GCI, General Communication, Inc.
GCI Communication Corp. Alaska GCC, GCI Communication Corp.
GCI Communication Services, Inc. Alaska GCI Communication Services
GCI Leasing Co., Inc. Alaska GCI Leasing, GCI Leasing Co.
GCI Cable, Inc. Alaska GCI Cable, GCI Cable, Inc.
</TABLE>
REGISTRATION STATEMENT
II-626
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors and Stockholders
General Communication, Inc.:
We consent to the use of our report dated March 15, 1996 on the financial
statements of General Communication, Inc. incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the Registration
Statement on Form S-4 of General Communication, Inc.
KPMG Peat Marwick LLP
/S/
Anchorage, Alaska
September 30, 1996
REGISTRATION STATEMENT
II-627
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
General Communication, Inc.:
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 18, 1996, except for the last paragraph of
Note 7, as to which the date is September 9, 1996, with respect to the financial
statements of Prime Cable of Alaska, L.P. included in the Proxy
Statement/Prospectus and Registration Statement on Form S-4 of General
Communication, Inc. for the registration of 14,723,077 shares of its Class A
common stock.
ERNST & YOUNG LLP
/S/
Austin, Texas
September 30, 1996
REGISTRATION STATEMENT
II-628
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4
for General Communication, Inc., of our report dated March 15, 1994, on our
audit of the statements of operations, changes in partners' capital deficiency,
and cash flows of Prime Cable of Alaska, L.P. for the year ended December 31,
1993. We also consent to the reference to our firm under the caption "Experts"
in the Registration Statement.
COOPERS & LYBRAND L.L.P.
/S/
Austin, Texas
September 30, 1996
REGISTRATION STATEMENT
II-629
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
General Communication, Inc.:
We hereby consent to the reference to our firm under the caption
"Experts" and to the use of our report dated February 9, 1996 (except for Note
13, as to which the date is March 14, 1996), with respect to the financial
statements of the Alaskan Cable Network included in the Proxy Statement of
General Communication, Inc. that is made a part of the Registration Statement
(Form S-4 No. 33- ) and Prospectus of General Communication, Inc. for
the registration of its common stock.
ERNST & YOUNG LLP
/S/
Woodland Hills, California
September 30, 1996
REGISTRATION STATEMENT
II-630
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
General Communication, Inc.:
We hereby consent to the use of our report dated February 27, 1996,
regarding Alaska Cablevision, Inc., and to the reference to our Firm under the
heading "Experts" in the Registration Statement on Form S-4 of General
Communication, Inc.
CARL & CARLSEN
/S/
Seattle, Washington
September 30, 1996
REGISTRATION STATEMENT
II-631
EXHIBIT 23.6
CONSENT OF LEGAL COUNSEL
We hereby consent to the use, in the Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of our name as
special legal counsel to General Communication, Inc. in the preparation of the
Proxy Statement/Prospectus and the rendering of certain opinions including an
opinion as to the legality of the shares to be issued by General Communication,
Inc.
WOHLFORTH, ARGETSINGER,
JOHNSON & BRECHT
A Professional Corporation
/S/
Anchorage, Alaska
October 4, 1996
REGISTRATION STATEMENT
II-632
EXHIBIT 23.7
CONSENT OF TAX COUNSEL
We hereby consent to the use, in the Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of our name as
special tax counsel to Prime Cable of Alaska, L.P. in the rendering of certain
opinions regarding the federal income tax treatment of security holders of Prime
Cable of Alaska, L.P. and the security holders of those security holders as set
forth in that Registration Statement of General Communication, Inc.
JENKENS & GILCHRIST, A
Professional Corporation
/S/
Austin, Texas
September 13, 1996
REGISTRATION STATEMENT
II-633
EXHIBIT 99.3
PROXY PROXY
GENERAL COMMUNICATION, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING
October 17, 1996
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement dated October 4, 1996 and holding Class A common stock or Class B
common stock of General Communication, Inc. ("Company") of record determined as
of August 19, 1996, hereby appoints Ronald A. Duncan, on behalf of the board of
directors of the Company, and each of them, the proxy of the undersigned, with
full power of substitution, to attend the annual meeting ("Annual Meeting") of
shareholders, to be held in the Denali Ballroom of the Regal Alaskan Hotel at
4800 Spenard Road in Anchorage, Alaska at 6:00 p.m. (Alaska Time) on October 17,
1996 and any adjournment or adjournments of the Annual Meeting, and at the
meeting to vote, as specified in this Proxy, all of the shares of common stock
of the undersigned in the Company which the undersigned would be entitled to
vote if personally present, as follows:
(1) To elect three directors, each for three-year terms,
as part of Class I of a seven member classified board
of directors, as identified in this Proxy:
( ) FOR all nominees ( ) WITHHOLD AUTHORITY
listed below (except as to vote for all
marked to the contrary) nominees listed
below
Class I: John W. Gerdelman
Carter F. Page
Robert M. Walp
INSTRUCTIONS:
To withhold authority under this Proxy to vote for one or more
individual nominees, draw a line through the name of the nominee for which
authority to vote will be withheld.
Should the undersigned choose to mark this proxy as withholding
authority to vote for one or more nominees as listed above, this Proxy will,
nevertheless, be used for purposes of establishing a quorum at the Meeting.
(2) To approve a plan ("Acquisition Plan") whereby the
Company will acquire all of the assets or securities
of seven cable companies (Prime Cable of Alaska,
L.P., Alaskan Cable Network/Fairbanks, Inc., Alaskan
Cable Network/Juneau, Inc., Alaskan Cable
Network/Ketchikan-Sitka, Inc., Alaska Cablevision,
Inc., McCaw/Rock Homer Cable Systems, J.V., and
McCaw/Rock Seward Cable Systems, J.V.) offering cable
television services in Alaska for a purchase price of
approximately $280.7 million to include the issuance
of 14,723,077 shares of Class A common stock (to be
issued to the security holders of four of the cable
REGISTRATION STATEMENT
II-634
<PAGE>
companies, i.e., Prime Cable of Alaska, L.P. and the
three corporations comprising the Alaskan Cable
companies) and whereby the Company will in addition
increase its capital by issuing 2,000,000 shares of
Class A common stock to MCI Telecommunications
Corporation for $13,000,000 ("MCI Company Stock") and
subject to other conditions:
( ) FOR ( ) AGAINST ( ) ABSTAIN
(3) To transact such other business as may properly come
before the Annual Meeting (including the adoption but
not the ratification of the minutes of the June 20,
1995 Annual Meeting of Shareholders of the Company)
and any adjournment or adjournments of the meeting.
The Company's board at present knows of no other
business to be presented by or on behalf of the
Company or the board at the Annual Meeting.
The undersigned hereby ratifies and confirms all that said proxy holder
or the holder's substitute will lawfully do or cause to be done by virtue of
this Proxy and hereby revokes any and all proxies heretofore given by the
undersigned to vote at the Annual Meeting or any adjournments of it. The
undersigned acknowledges receipt of the Notice of the Meeting and the Proxy
Statement accompanying the Notice.
DATED:
Signature of Shareholder
Print Name:
Signature of Shareholder
Print Name:
Please date this Proxy, sign it above as your name(s) appear(s) at the
beginning of this Proxy, and return it in the enclosed envelope which requires
no postage. Joint owners should each sign personally. When signing as attorney,
executor, trustee, guardian, administrator, or officer of a corporation, please
give that title.
Approval by the shareholders of the Acquisition Plan will constitute
approval of the issuance of (1) the Company Stock to the security holders of
Prime Cable of Alaska, L.P. and the three corporations comprising the Alaskan
Cable companies and (2) the MCI Company Stock to MCI.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NOS. (1) and (2). ALSO THE
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
MADE, IT WILL BE VOTED "FOR" PROPOSAL NOS. (1) and (2). IF ANY OTHER BUSINESS IS
PROPERLY PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE BEST JUDGMENT AND DISCRETION OF THE PROXY HOLDER. IN PARTICULAR, SHOULD
ANY NOMINEE FOR DIRECTOR AT THE TIME OF ELECTION BE UNABLE, UNAVAILABLE OR, FOR
GOOD CAUSE, UNWILLING TO SERVE AND, AS A CONSEQUENCE OTHER NOMINEES ARE
DESIGNATED, THE UNDERSIGNED GIVES TO AND THE PROXY HOLDER OR HIS SUBSTITUTE WILL
HAVE DISCRETION AND AUTHORITY TO VOTE OR REFRAIN FROM VOTING IN ACCORDANCE WITH
THE JUDGMENT OF THAT HOLDER WITH RESPECT TO OTHER NOMINEES.
REGISTRATION STATEMENT
II-635
EXHIBIT 99.4
PRIME CABLE OF ALASKA, L.P.
c/o Prime Cable Fund I, Inc.
One American Center
600 Congress Avenue, Suite 3000
Austin, Texas 78701
(512) 476-7888
October 7, 1996
TO: Limited Partners and Equity Participants of Prime Cable of Alaska, L.P.
Limited Partners of Prime Venture I Holdings, L.P.
Limited Partners of Prime Cable Growth Partners, L.P.
Limited Partners of Prime Cable Limited Partnership
Shareholders of Alaska Cable, Inc.
Limited Partners of Prime Venture II, L.P.
Shareholder of Prime Cable Fund I, Inc.:
Prime Cable Fund I, Inc. ("PCFI"), the sole general partner of Prime
Cable of Alaska, L.P. ("Prime"), respectfully invites and encourages you to
participate in and give your written consent and otherwise approval to a
proposed transaction ("Proposed Transaction") involving the direct or indirect
transfer of all of the limited and general partner interests and participation
interests in Prime to General Communication, Inc. ("Company") in exchange for
11.8 million shares of Company Class A common stock ("Prime Company Shares").
On May 2, 1996, the limited partners of Prime, PCFI, the three holders
of equity participation interests in Prime, and the shareholders of Alaska
Cable, Inc. executed a Securities Purchase and Sale Agreement with the Company,
subject to registration of the offering of the Prime Company Shares under the
Securities Act of 1933, as amended, and other appropriate state securities laws.
The Proposed Transaction, the distribution of the Prime Company Shares to the
limited partners of Prime and to their security holders, and to the
participation interest holders in Prime, and the Company's proposed acquisition
of assets of several other cable television companies providing services in
Alaska are described in the Proxy Statement/Prospectus dated October 4, 1996
("Proxy Statement/Prospectus").
As a part of the Proposed Transaction, Prime Cable Limited Partnership
("PCLP"), the sole shareholder of PCFI, has agreed to dispose of all of the
capital stock of PCFI to the Company, subject to the consent of limited partners
of PCLP owning more than 2/3 of the outstanding limited partner interests of
PCLP. Also, as a part of the Proposed Transaction, the shareholders of Alaska
Cable, Inc. ("ACI"), one of the limited partners of Prime, have agreed to
dispose of all of their stock in ACI to the Company. In order to effect the
disposition of the ACI shares in the merger, the consent of all of the
shareholders of ACI is required, subject to waiver of the unanimous consent
requirement by the Company. The disposition of the PCFI shares by PCLP will be
accomplished by means of a statutory merger of PCFI with and into a
newly-created, wholly-owned subsidiary of the Company. Similarly, the
disposition of the ACI shares by its shareholders will be accomplished through a
statutory merger of ACI with and into the Company's wholly-owned subsidiary. In
addition, as part of the Proposed Transaction, Prime Cable Growth Partners, L.P.
("Prime Growth") and Prime Venture I Holdings, L.P. ("Prime Holdings"), the
other two of the three limited partners of Prime, have agreed to sell to the
Company the limited partner interests in Prime held by them, as well as exchange
through a merger, their stock in ACI. The consent of the limited partners of
Prime Growth, who own at least 80% of the outstanding limited partner interests
of Prime Growth is required in order for Prime Growth to effect that sale,
excluding for purposes of calculating that 80% figure, interests held by Prime
Venture I, Inc. and its affiliates. Prime Venture I, Inc. is one of the general
partners of Prime Growth. The consent of limited partners of Prime Holdings who
own at least two-thirds of the outstanding limited partner interests is required
in order for Prime Holdings to effect that sale. Also as a part of the Proposed
Transaction, Prime Venture II, L.P. ("PVII") has agreed to exchange its stock in
ACI held by PVII, in a merger transaction. In order to effect the merger, the
consent of limited partners of PVII owning at least two-thirds of the
outstanding limited partner interests of PVII will be required.
The written consents of the limited partners of Prime, the security
holders of those limited partners and the participation interest holders in
Prime, and the limited partners of PCLP, as previously described, are being
sought by delivery to each such party of a copy of the Proxy
Statement/Prospectus along with a form Consent for that person to sign, date,
and return to Prime.
Copies of the following documents pertaining to the Proposed Transaction
are enclosed for your review and action on the appropriate form of Consent: (1)
the form of Consent; (2) the Proxy Statement/Prospectus prepared by the Company;
(3) the Annual Report to shareholders of the Company in the form of Form 10-K,
as amended by Form 10-K/A, for the year ended December 31, 1995; (4) the
unaudited quarterly report for the Company on Form 10-Q for the quarter ended
June 30, 1996; (5) the audited financial statements for Prime for the year ended
December 31, 1995; and (6) the unaudited quarterly statement for Prime for the
quarter ended June 30, 1996.
We request that you sign and date your Consent and return it to Prime,
care of the above identified address using the enclosed addressed and stamped
envelope, not later than October 17, 1996.
We look forward to receiving your response.
Sincerely,
PRIME CABLE OF ALASKA, L.P.
By: Its General Partner
PRIME CABLE FUND I,Inc.
By:
, President
REGISTRATION STATEMENT
II-636
EXHIBIT 99.5
ALASKAN CABLE NETWORK COMPANIES
Kent Farms
Middleburg, Virginia 20117
(540) 687-4000
October 7, 1996
Re: Consent to Sale of Assets of Alaskan Cable Network Companies
(Alaskan Cable Network/Fairbanks, Inc.; Alaskan Cable
Network/Juneau, Inc.; and Alaskan Cable
Network/Ketchikan-Sitka, Inc.)
Dear Shareholder:
The boards of directors of each of the three Alaskan Cable Network
companies (Alaskan Cable Network/Fairbanks, Inc., Alaskan Cable Network/Juneau,
Inc., and Alaskan Cable Network/Ketchikan-Sitka, Inc., collectively "Alaskan
Cable") respectfully invite and encourage you to participate in and give your
consent and otherwise approval to a proposed transaction ("Proposed
Transaction") involving the sale of all of the assets of each of the
corporations comprising Alaskan Cable to General Communication, Inc. ("Company")
for a purchase price in the aggregate for all three corporations of $70 million
payable at closing as $51 million in cash and 2,923,077 shares of Company Class
A common stock ("Alaskan Cable Company Shares").
On April 15, 1996 Alaskan Cable executed an Asset Purchase Agreement
with the Company, subject to registration of the offering of the Alaskan Cable
Company Shares referred to in it under the Securities Act of 1933, as amended
and other appropriate state securities law. The Proposed Transaction, the
distribution of the Alaskan Cable Company Shares to the shareholders of Alaskan
Cable and the Company's proposed acquisition of securities and assets of other
cable television companies providing services in Alaska are described in the
Proxy Statement/Prospectus dated October 4, 1996.
The consent of 100% of the shareholders of each of the corporations
comprising Alaskan Cable is being sought by the respective boards of directors
through delivery to each such shareholder of a copy of the Proxy
Statement/Prospectus along with a form Consent for that person to sign, date,
and return to the corresponding corporation. The respective boards of directors
of the corporations comprising Alaskan Cable have by separate resolutions
adopted the close of business on July 5, 1996 as the record date ("Cable Company
Record Date") for determining the shareholders entitled to participate in this
solicitation of consents to the Proposed Transaction. The respective lists of
shareholders of the corporations comprising Alaskan Cable as of the Cable
Company Record Date will be kept at the offices of the respective company at
Kent Farms in Middleburg, Virginia 20117 until August 19, 1996 and will be
subject to inspection by those shareholders of record at any time during normal
business hours.
Copies of the following documents pertaining to the Proposed Transaction
are enclosed for your review and action on the form Consent: (1) form of
Consent; (2) Proxy Statement/Prospectus prepared by the Company; (3) Annual
Report to shareholders of the Company in the form of Form 10-K, as amended by
Form 10-K/A, for the year ended December 31, 1995; (4) the unaudited quarterly
report for the Company on Form 10-Q for the quarter ended June 30, 1996; (5) the
audited financial statements for each of the three corporations comprising
Alaskan Cable for the year ended December 31, 1995; and (6) the unaudited
quarterly statements for each of those corporations comprising Alaskan Cable for
the quarter ended June 30, 1996.
We request that you sign and date your Consent in favor of the Proposed
Transaction and return it to the corresponding corporation care of the above
identified address in the enclosed addressed and stamped envelope, not later
than October 17, 1996. We look forward to receiving your consent.
Sincerely,
Jack Kent Cooke, President
REGISTRATION STATEMENT
II-637
EXHIBIT 99.6
Consent of the Partners of Prime Cable of Alaska, L.P.
This Consent ("Consent") of the partners of Prime Cable of Alaska, L.P.,
a Delaware limited partnership (the "Partnership"), is entered into as of
October 7, 1996 among Prime Cable Fund I, Inc., a Delaware corporation (the
"General Partner"), the undersigned holders of profit participation rights in
the Partnership (the "PPR Holders").
WHEREAS, the General Partners and the Limited Partners are parties to
that certain Amended and Restated Agreement of Limited Partnership of Prime
Cable of Alaska, L.P. dated as of June 30, 1989, as previously amended (as so
amended, the "Partnership Agreement"); and
WHEREAS, certain of the Partners of the Partnership and the PPR Holders
have agreed to sell all of their interests in the Partnership in exchange for
shares of voting Class A Common Stock ("GCI Class A Stock") of General
Communication, Inc., an Alaska corporation ("GCI"), pursuant to the terms of
that certain Securities Purchase and Sale Agreement dated May 2, 1996 (the "GCI
Purchase Agreement") entered into by and among the direct and indirect owners of
all of the equity interests and profit participation rights in the Partnership,
as sellers, GCI, as buyer, and Prime Management, subject to certain terms and
conditions including the condition that the GCI Class A Stock be registered
under the Securities Act of 1933, all as generally described in that certain
Proxy Statement/Prospectus of GCI dated October 4, 1996 (the "GCI Prospectus"),
a true and complete copy of which has been delivered to each of the undersigned;
and
WHEREAS, Section 7.1 of the Partnership Agreement restricts the transfer
of the interest of any Partner except in certain limited instances not relevant
to the GCI Purchase Agreement; and
WHEREAS, the undersigned desire to enter into this Consent in order to
consent to the transfer by the applicable Partners of the Partnership of their
Partnership interest as provided in the GCI Purchase Agreement and to consent
and waive such other requirements under the Partnership Agreement in order to
permit the transactions contemplated by the GCI Purchase Agreement to occur;
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the General Partners and the
Limited Partners agree that (capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Partnership Agreement):
1. Consent. The Partners and the PPR Holders hereby (i) consent
to the transfer, free of any restrictions of the Partnership Agreement, of all
the interests of such of the Partners of the Partnership and the PPR Holders as
have agreed to transfer such interests pursuant to and in accordance with the
GCI Purchase Agreement as in effect, from time to time, in exchange for shares
of GCI Class A Stock, as generally described in the GCI Prospectus, and (ii)
consent and waive such other requirements under the Partnership Agreement in
order to permit to occur the transactions contemplated by the GCI Purchase
Agreement and the other documents and agreements described therein.
2. No Other Consent or Amendment. Except for the consents,
waivers and approvals set forth or referred to above, the text of the
Partnership Agreement shall remain unchanged and in full force and effect.
REGISTRATION STATEMENT
II-638
<PAGE>
3. Effectiveness. This Consent shall become effective (the
"Effective Time") upon receipt of signed counterparts hereof from all the
Partners and the PPR Holders.
4. Successors and Assigns. Each of the undersigned, by its
execution and delivery of this Consent, hereby agrees with the Partnership that
it will (i) inform any successor or assignee to all or any portion of its
interest in the Partnership of its execution and delivery of this Consent and
(ii) as a condition precedent to any transfer of such interest, obligate such
successor or assignee in writing to be bound by the action of the undersigned in
executing and delivering this Consent.
5. Receipt of the GCI Prospectus. Each of the undersigned, by
its execution and delivery of this Consent, hereby acknowledges its receipt of a
copy of the GCI Prospectus.
6. Counterparts. To facilitate execution, this Consent may be
executed in any number of counterparts as may be convenient or necessary, and it
shall not be necessary that the signatures of all parties hereto or thereto be
contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Consent (i)
the signature pages taken from separate individually executed counterparts of
this Consent may be combined to form multiple fully executed counterparts and
(ii) a facsimile transmission shall be deemed to be an original signature. All
executed counterparts of this Consent shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
7. Law of Contract. The Consent shall be deemed to be made
pursuant to the laws of the State of Delaware with respect to agreements made
and to be performed wholly in the State of Delaware and shall be construed,
interpreted, performed and enforced in accordance therewith.
IN WITNESS WHEREOF, the parties hereby have caused their respective duly
authorized officers or representatives to execute and deliver this Consent as of
the day and year first above written, to be effective as of the Effective Time.
GENERAL PARTNER:
PRIME CABLE FUND I, INC.
By:
Its:
LIMITED PARTNERS:
PRIME CABLE GROWTH PARTNERS, L.P.
By: Prime Venture I, Inc., General
Partner, and as general partner of
Prime Venture I Holdings, L.P.,
General Partner
By:
Its:
REGISTRATION STATEMENT
II-639
<PAGE>
And Prime II Management Group, Inc., as
general partner of Prime Venture I
Holdings, L.P., General Partner
By:
Its:
PRIME VENTURE I HOLDINGS, L.P.
By: Its General Partners:
Prime Venture I, Inc.
By:
Its:
And
Prime II Management Group, Inc.
By:
Its:
ALASKA CABLE, INC.
By:
Its:
REGISTRATION STATEMENT
II-640
EXHIBIT 99.7
Consent of the Partners of
Prime Cable Growth Partners, L.P.
This Consent ("Consent") of the partners of Prime Cable Growth Partners,
L.P., a Delaware limited partnership (the "Partnership"), is entered into as of
October 7, 1996 among Prime Venture I, Inc., a Delaware corporation ("PVI"),
Prime Venture I Holdings, L.P., a Delaware limited partnership ("PVIH," and
together with PVI, the "General Partners"), and the undersigned Limited Partners
of the Partnership.
WHEREAS, the General Partners and the Limited Partners are parties to
that certain Amended and Restated Agreement of Limited Partnership of Prime
Cable Growth Partners, L.P. dated as of August 20, 1987, as amended pursuant to
those certain First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth
Amendments to Amended and Restated Agreement of Limited Partnership of Prime
Cable Growth Partners, L.P. dated as of January 15, 1988, on or about January
27, 1988, October 7, 1988, June 29, 1989, March 27, 1990, August 6, 1991, June
21, 1993 and on or about January 17, 1994, respectively (as amended therein, the
"Partnership Agreement"); and
WHEREAS, (i) Section 2.6 of the Partnership Agreement limits the purpose
of the Partnership to acquiring, managing, financing, investing in, selling and
exchanging cable television systems and, in certain circumstances, to engaging
in other activities that use non-cable television technologies to provide
entertainment, data transmission, educational and other services that are also
provided by cable television; and (ii) Section 4.13 of the Partnership Agreement
provides that no Partnership cable television system may be sold for a
consideration other than cash or marketable securities without the prior written
consent of the Limited Partners owning at least 80% of the Units outstanding;
and (iii) Section 6.5 of the Partnership Agreement provides for the distribution
by the Partnership to the Partners of the Partnership's Net Cash Flow, but not
for the in-kind distribution by the Partnership to the Partners of securities
held by the Partnership; and
WHEREAS, the Partnership owns (i) 11 shares of Class B common stock
("Class B Stock") of Alaska Cable, Inc., a Delaware corporation, and (ii) an
interest as a limited partner ("L.P. Interest" and together with the Class B
Stock, "Prime Alaska Interest") in Prime Cable of Alaska, L.P., a Delaware
limited partnership ("Prime Alaska") in which the General Partners hold
interests other than through their interests as general partners of the
Partnership; and
WHEREAS, the Partnership has agreed, subject to obtaining the consents
and approvals provided for herein, to sell all of the Prime Alaska Interest in
exchange for (i) shares of voting Class A Common Stock ("GCI Class A Stock") of
General Communication, Inc., an Alaska corporation ("GCI") and (ii) $1.00 per
share in cash for each such share of Class B Stock pursuant to the terms of that
certain Securities Purchase and Sale Agreement dated May 2, 1996 (the "GCI
Purchase Agreement") entered into by and among the Partnership and the other
direct and indirect owners of all of the other equity interests in Prime Alaska,
as sellers, GCI, as buyer, and Prime Management, all as generally described in
that certain Proxy Statement/Prospectus of General Communication, Inc. dated
October 4, 1996 (the "GCI Prospectus"), a true and complete copy of which has
been delivered to each of the undersigned; and
WHEREAS, the undersigned desire to enter into this Consent in order to
approve of (i) the execution, delivery and performance by the Partnership of the
GCI Purchase Agreement, (ii) the sale by the Partnership of the Prime Alaska
Interest in exchange for shares of GCI Class A Stock, and (iii) the distribution
by the Partnership to the Partners of such shares of GCI Class A Stock;
REGISTRATION STATEMENT
II-641
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the General Partners and the
Limited Partners agree that (capitalized terms used herein and not otherwise
defined shall have the meaning ascribed to them in the Partnership Agreement):
1. Consent. The Limited Partners hereby (i) consent to the sale of the
Partnership's Prime Alaska Interest in exchange for shares of GCI Class A Stock,
as generally described in the GCI Prospectus, and on such other terms as the
General Partners in their reasonable discretion deem necessary or advisable, and
(ii) approve of the Partnership's execution and delivery of, and the performance
by the Partnership of its obligations under, the GCI Purchase Agreement and the
other documents and agreements described therein, and to otherwise consummate
the transactions contemplated thereby; (iii) agree that the Partnership shall be
entitled to distribute in-kind to the Partners the shares of GCI Class A Stock
received by the Partnership in exchange for the LP Interest in accordance with
the provisions of Sections 6.5(c) and (d) of the Partnership Agreement; (iv)
agree that the fair market value of such shares of GCI Class A Stock on the date
of each distribution thereof by the Partnership to the Partners shall be deemed
to be equal to the average closing price for a share of GCI Class A Stock for
the five trading days immediately preceding the date on which shares of GCI
Class A Stock are distributed to the Partners by the Partnership; and (v) agree
that the shares of GCI Class A Stock to be distributed to the Special Limited
Partner as provided herein shall (A) constitute all distributions to which the
Special Limited Partner is entitled under Section 6.5(c) of the Partnership
Agreement and (B) constitute all distributions to which the Special Limited
Partner is entitled under Section 6.5(d) of the Partnership Agreement with
respect to such distribution in-kind of such shares of GCI Class A Stock.
2. No Other Consent or Amendment. Except for the consents and approvals
set forth or referred to above, the text of the Partnership Agreement shall
remain unchanged and in full force and effect.
3. Effectiveness. This Consent shall become effective (the "Effective
Time") upon receipt of signed counterparts hereof from Limited Partners who own
at least eighty percent (80%) of the Units outstanding on the date hereof (other
than Units held by the General Partners and their Affiliates).
4. Successors and Assigns. The undersigned, by its execution and
delivery of this Consent, hereby agrees with the Partnership and the General
Partners that it will (i) inform any successor or assign to all or any portion
of its interest in the Partnership of its execution and delivery of this Consent
and (ii) as a condition precedent to any transfer of such interest, obligate
such successor or assignee in writing to be bound by the action of the
undersigned in executing and delivering this Consent.
5. Receipt of the GCI Prospectus. Each of the undersigned, by its
execution and delivery of this Consent, hereby acknowledge its receipt of a copy
of the GCI Prospectus.
6. Counterparts. To facilitate execution, this Consent may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the signatures of all parties hereto or thereto be
contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Consent (i)
the signature pages taken from separate individually executed counterparts of
this Consent may be combined to form multiple fully executed counterparts and
(ii) a facsimile transmission shall be deemed to be an original signature. All
executed counterparts of this Consent shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
7. Law of Contract. This Consent and amendment shall be deemed to be
made pursuant to the laws of the State of Delaware with respect to agreements
made and to be performed wholly in the State of Delaware and shall be construed,
interpreted, performed and enforced in accordance therewith.
REGISTRATION STATEMENT
II-642
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused their respective duly
authorized officers or representatives to execute and deliver this Consent as of
the day and year first above written, to be effective as of the Effective Time.
GENERAL PARTNERS:
PRIME VENTURE I, INC.
By:
Its:
REGISTRATION STATEMENT
II-643
<PAGE>
PRIME VENTURE I HOLDINGS, L.P.
By: Its General Partners:
Prime Venture I, Inc.
By:
Its:
and
Prime II Management
Group, Inc.
By:
Its:
LIMITED PARTNERS:
PCGP, INC.
By:
Its:
TORONTO-DOMINION INVESTMENTS, INC.
By:
Its:
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
By:
Its:
BANCAL TRI-STATE CORPORATION
By:
Its:
REGISTRATION STATEMENT
II-644
<PAGE>
VCFA VENTURE PARTNERS, L.P.
By: VCFA Partners, L.P.
Its: General Partner
By:
Its:
The Hughes Family Partnership, L.P.
By: The Hughes Management Trust
Its: General Partner
By:
Trustee
MORGAN STANLEY GROUP, INC.
By:
Its:
REGISTRATION STATEMENT
II-645
EXHIBIT 99.8
Consent of the Partners of
Prime Venture I Holdings, L.P.
This Consent ("Consent") of the partners of Prime Venture I Holdings,
L.P., a Delaware limited partnership (the "Partnership"), is entered into as of
October 7, 1996 among Prime Venture I, Inc., a Delaware corporation ("PVI"),
Prime II Management Group, Inc., a Texas corporation ("PIIMG," and together with
PVI, the "General Partners"), and the undersigned Limited Partners of the
Partnership.
WHEREAS, the General Partners and the Limited Partners are parties to
that certain Amended and Restated Agreement of Limited Partnership of Prime
Venture I Holdings, L.P. dated as of June 29, 1989, as amended pursuant to that
certain Letter Agreement dated July 28, 1989 and those certain Amendments No. 2,
3, and 4 to Amended and Restated Agreement of Limited Partnership of Prime
Venture I Holdings, L.P. dated September 15, 1989, June 30, 1989 and October 17,
1991, respectively (as amended therein, the "Partnership Agreement"); and
WHEREAS, Section 1.6 of the Partnership Agreement limits the purpose of
the Partnership to investing in the cable television industry and investing in
entities which engage in other activities that use non-cable television
technologies to provide entertainment, data transmission, educational and other
similar or related services that may or may not also be provided by cable
television; and
WHEREAS, the Partnership owns (i) an interest as a limited partner (the
"LP Interest") in Prime Cable of Alaska, L.P., a Delaware limited partnership
("Prime Alaska"), (ii) five shares of Class B Common Stock (the "Class B Stock")
of Alaska Cable, Inc., a Delaware corporation ("Alaska Cable"), and (iii) 600
shares of Class A, Series One Common Stock (the "Class A Stock," and together
with the LP Interest and the Class B Stock, the "Prime Alaska Interests"); and
Alaska Cable owns an approximately 51.11% interest as a limited partner of Prime
Alaska; and
WHEREAS, the Partnership has agreed, subject to obtaining the consents
and approvals provided for herein, to sell all of the Prime Alaska Interests in
exchange for (i) shares of voting Class A Common Stock ("GCI Class A Stock") of
General Communication, Inc., an Alaska corporation ("GCI"), and (ii) $1.00 per
share in cash for each such share of Class B Stock, pursuant to the terms of
that certain Securities Purchase and Sale Agreement dated May 2, 1996 (the "GCI
Purchase Agreement") entered into by and among the Partnership and the other
direct and indirect owners of all of the other equity interests in Prime Alaska,
as sellers, GCI, as buyer, and Prime II Management, L.P., all as generally
described in that certain Proxy Statement/Prospectus of General Communication,
Inc. dated October 4, 1996 (the "GCI Prospectus"), a true and complete copy of
which has been delivered to each of the undersigned; and
WHEREAS, the undersigned desire to enter into this Consent in order to
approve of the execution, delivery and performance by the Partnership of the GCI
Purchase Agreement and the sale by the Partnership of all of the Prime Alaska
Interests in exchange for shares of GCI Class A Stock:
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the General Partners and the
Limited Partners agree that (capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Partnership Agreement):
1. Consent. The Limited Partners hereby (i) consent to the sale of all
of the Prime Alaska Interests by the Partnership in exchange for shares of GCI
Class A Stock, as generally described in the GCI Prospectus, and on such other
terms as the General Partners in their reasonable discretion deem necessary
REGISTRATION STATEMENT
II-646
<PAGE>
or advisable, and (ii) approve of the Partnership's execution and delivery of,
and the performance by the Partnership of its obligations under, the GCI
Purchase Agreement and the other documents and agreements described therein, and
to otherwise consummate the transactions contemplated thereby.
2. No Other Consent or Amendment. Except for the consents and approvals
set forth or referred to above, the text of the Partnership Agreement shall
remain unchanged and in full force and effect.
3. Effectiveness. This Consent shall become effective (the "Effective
Time") upon receipt of signed counterparts hereof from Limited Partners who own
at least sixty-six and two thirds percent (66 2/3%) in interest of the Limited
Partners on the date hereof (based upon the relative percentage interests as set
forth on Exhibit A attached hereto).
4. Successors and Assigns. The undersigned, by its execution and
delivery of this Consent, hereby agrees with the Partnership and the General
Partners that it will (i) inform any successor or assignee to all or any portion
of its interest in the Partnership of its execution and delivery of this Consent
and (ii) as a condition precedent to any transfer of such interest, obligate
such successor or assignee in writing to be bound by the action of the
undersigned in executing and delivering this Consent.
5. Receipt of GCI Prospectus. Each of the undersigned, by its execution
and delivery of this Consent, hereby acknowledges its receipt of a copy of the
GCI Prospectus.
6. Counterparts. To facilitate execution, this Consent may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the signatures of all parties hereto or thereto be
contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Consent (i)
the signature pages taken from separate individually executed counterparts of
this Consent may be combined to form multiple fully executed counterparts and
(ii) a facsimile transmission shall be deemed to be an original signature. All
executed counterparts of this Consent shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
7. Law of Contract. This Consent and amendment shall be deemed to be
made pursuant to the laws of the State of Delaware with respect to agreements
made and to be performed wholly in the State of Delaware and shall be construed,
interpreted, performed and enforced in accordance therewith.
IN WITNESS WHEREOF, the parties hereby have caused their respective duly
authorized officers or representatives to execute and deliver this Consent as of
the day and year first above written, to be effective as of the Effective Time.
GENERAL PARTNERS:
Prime Venture I, Inc.
By:
Its:
Prime II Management Group, Inc.
By:
Its:
REGISTRATION STATEMENT
II-647
<PAGE>
LIMITED PARTNER:
[insert name of limited partner]
By:
Its:
Number of Units Held:
Date: , 1996
REGISTRATION STATEMENT
II-648
EXHIBIT 99.9
Consent of Shareholders
of Alaska Cable, Inc.
UNANIMOUS WRITTEN CONSENT
OF THE STOCKHOLDERS OF
ALASKA CABLE, INC.
Section 228 of the Delaware General Corporation Law provides that unless
otherwise provided by the Certificate of Incorporation, any action required by
this chapter to be taken at any annual meeting or special meeting of
stockholders of a corporation or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing sets forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Accordingly, pursuant to such statutory authority, the
undersigned, being all of the stockholders of Alaska Cable, Inc. (the
"Corporation"), hereby consent to the adoption of the following resolutions by
unanimous written consent of such stockholders of the Corporation:
RESOLVED, that the form, terms and provisions of the Agreement and Plan
of Merger (the "Plan of Merger"), to be entered into by the Corporation
providing, among other things, for the merger of the Corporation with
and into GCI Cable, Inc., an Alaska corporation, as the same was
presented to, and explained to, the stockholders of the Corporation be,
and the same hereby are,in all respects, approved; and be it further
RESOLVED, that to facilitate execution, this consent certificate may be
executed in any number of counterparts as may be convenient or
necessary, and it shall not be necessary that the signatures of all
parties hereto or thereto be contained on any one counterpart hereof or
thereof; and that additionally, the stockholders agree that for
purposes of facilitating the execution of this consent certificate (1)
a facsimile transmission shall be deemed to be an original signature,
(2) all executed counterparts of this consent certificate shall be
deemed to be an original signature, and (3) all executed counterparts
of this consent certificate shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be,
shall constitute one and the same consent certificate.
Dated as of , 1996. STOCKHOLDERS:
PRIME CABLE GROWTH PARTNERS, L.P.
By: Its General Partners
Prime Venture I, Inc.
By:
Name:
Title:
REGISTRATION STATEMENT
II-649
<PAGE>
and
Prime Venture I Holdings, L.P.
By: Its General Partners
Prime Venture I, Inc.
By:
Name:
Title:
Prime II Management Group,
Inc.
By:
Name:
Title:
PRIME VENTURE II, L.P.
By: Its General Partner
Prime Investors, L.P.
By:
Name:
Title:
By: Its General Partner
Prime II Management, L.P.
By:
Name:
Title:
By: Its General Partner
Prime II Management,
Inc.
By:
Name:
Title:
REGISTRATION STATEMENT
II-650
<PAGE>
AUSTIN VENTURES, L.P.
By: Its General Partner
AV Partners, L.P.
By:
Name:
Title:
WILLIAM BLAIR VENTURE PARTNERS III
LIMITED PARTNERSHIP
By: Its General Partner
William Blair Venture Management
Company
By:
Name:
Title: General Partner
CENTENNIAL FUND II, L.P.
By: Its General Partner
Centennial Holdings, II, L.P.
By:
Name:
Title: General Partner
CENTENNIAL FUND III, L.P.
By: Its General Partner
Centennial Holdings III, L.P.
By:
Name:
Title: General Partner
REGISTRATION STATEMENT
II-651
<PAGE>
CENTENNIAL BUSINESS DEVELOPMENT
FUND, LTD.
By: Its General Partner
Centennial Business Development
Company
By:
Name:
Title: General Partner
REGISTRATION STATEMENT
II-652
EXHIBIT 99.10
Consent of the Partners of
Prime Venture II, L.P.
This Consent ("Consent") of the partners of Prime Venture II, L.P., a
Delaware limited partnership (the "Partnership"), is entered into as of October
7, 1996 among Prime Investors, L.P., a Delaware limited partnership (the
"General Partner"), the undersigned members of the Partnership's Advisory Board,
and the undersigned Limited Partners of the Partnership.
WHEREAS, the General Partner and the Limited Partners are parties to
that certain Amended and Restated Agreement of Limited Partnership of Prime
Venture II, L.P. dated as of May 24, 1989, as amended pursuant to those certain
First, Second, Third, Fourth and Fifth Amendments to Amended and Restated
Agreement of Limited Partnership of Prime Venture II, L.P. dated as of December
8, 1989, August 6, 1991, February 25, 1993, August 30, 1995 and February 29,
1996, respectively (as amended therein, the "Partnership Agreement"); and
WHEREAS, Section 2.4 of the Partnership Agreement limits the purpose of
the Partnership to making investments in the cable television industry and, in
certain circumstances, to invest certain amounts in communications and
entertainment companies who businesses are related to that of the Partnership or
that the General Partner believes will enhance the value of the Partnership's
assets; and
WHEREAS, the Partnership owns (i) five shares of Class B Common Stock
(the "Class B Stock") of Alaska Cable, Inc., a Delaware corporation ("Alaska
Cable") and (ii) 1,000 shares of Class A, Series One Common Stock (the "Class A
Stock," and together with the Class B Stock, the "ACI Stock") of Alaska Cable;
and Alaska Cable owns an approximately 51.11% interest as a limited partner of
Prime Cable of Alaska, L.P., a Delaware limited partnership ("Prime Alaska");
and
WHEREAS, the Partnership has agreed, subject to obtaining the consents
and approvals provided for herein, to sell all of the ACI Stock in exchange for
(i) shares of voting Class A Common Stock ("GCI Class A Stock") of General
Communication, Inc., an Alaska corporation ("GCI"), and (ii) $1.00 per share in
cash for each such share of Class B Stock, pursuant to the terms of that certain
Securities Purchase and Sale Agreement dated May 2, 1996 (the "Purchase
Agreement") entered into by and among the Partnership and the other direct and
indirect owners of all of the other equity interests in Prime Alaska, as
sellers, GCI, as buyer, and the Management Company, all as generally described
in that certain Proxy Statement/Prospectus of General Communication, Inc. dated
October 4, 1996 (the "GCI Prospectus"), a true and complete copy of which has
been delivered to each of the undersigned; and
WHEREAS, the undersigned desire to enter into this Consent in order to
approve of the execution, delivery and performance by the Partnership of the GCI
Purchase Agreement and the sale by the Partnership of all of the ACI Stock in
exchange for shares of GCI Class A Stock;
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the General Partner and the
Limited Partners agree that (capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Partnership Agreement):
1. Consent. The Limited Partners hereby (i) consent to the sale of all
of the ACI Stock by the Partnership in exchange for shares of GCI Class A Stock,
as generally described in the GCI Prospectus, and on such other terms as the
General Partner in its reasonable discretion deems
REGISTRATION STATEMENT
II-653
<PAGE>
necessary or advisable, and (ii) approve of the Partnership's execution and
delivery of, and the performance by the Partnership of its obligations under,
the GCI Purchase Agreement and the other documents and agreements described
therein, and to otherwise consummate the transactions contemplated thereby.
2. No Other Consent or Amendment. Except for the consents and approvals
set forth or referred to above, the text of the Partnership Agreement shall
remain unchanged and in full force and effect.
3. Effectiveness. This Consent shall become effective (the "Effective
Time") upon receipt of signed counterparts hereof from (i) the General Partner,
(ii) a majority of the members of the Advisory Board, and (iii) Limited Partners
who own at least sixty-six and two-thirds percent (66 2/3%) in Interest of the
Limited Partners on the date hereof (including the holder of General Partner
Interests).
4. Successors and Assigns. The undersigned, by its execution and
delivery of this Consent, hereby agrees with the Partnership and the General
Partners that it will (i) inform any successor or assignee to all or any portion
of its interest in the Partnership of its execution and delivery of this Consent
and (ii) as a condition precedent to any transfer of such interest, obligate
such successor or assignee in writing to be bound by the action of the
undersigned in executing and delivering this Consent.
5. Receipt of GCI Prospectus. Each of the undersigned, by its execution
and delivery of this Consent, hereby acknowledges its receipt of a copy of the
GCI Prospectus.
6. Counterparts. To facilitate execution, this Consent may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the signatures of all parties hereto or thereto be
contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Consent (i)
the signature pages taken from separate individually executed counterparts of
this Consent may be combined to form multiple fully executed counterparts and
(ii) a facsimile transmission shall be deemed to be an original signature. All
executed counterparts of this Consent shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
7. Law of Contract. This Consent and amendment shall be deemed to be
made pursuant to the laws of the State of Delaware with respect to agreements
made and to be performed wholly in the State of Delaware and shall be construed,
interpreted, performed and enforced in accordance therewith.
IN WITNESS WHEREOF, the parties hereby have caused their respective duly
authorized officers or representatives to execute and deliver this Consent as of
the day and year first above written, to be effective as of the Effective Time.
GENERAL PARTNER:
PRIME INVESTORS, L.P.
By: Prime II Management, L.P.
Its: General Partner
By: Prime II Management, Inc.
Its: General Partner
By:
Its:
REGISTRATION STATEMENT
II-654
<PAGE>
LIMITED PARTNER:
[insert name of limited partner]
By:
Its:
Number of Units Held:
Date: , 1996.
REGISTRATION STATEMENT
II-655
EXHIBIT 99.11
Consent of the Partners of
Prime Cable Limited Partnership
This Consent ("Consent") of the partners of Prime Cable Limited
Partnership, a Delaware limited partnership (the "Partnership"), is entered into
as of October 7, 1996 among Prime Cable GP, Inc., a Delaware corporation (the
"General Partner"), and the undersigned Limited Partners of the Partnership.
WHEREAS, the General Partner and the Limited Partners are parties to
that certain Amended and Restated Agreement of Limited Partnership of Prime
Cable Limited Partnership dated as of February 17, 1987, as amended pursuant to
that certain First Amendment to Amended and Restated Agreement of Limited
Partnership of Prime Cable Limited Partnership dated as of November 16, 1988 (as
amended therein, the "Partnership Agreement"); and
WHEREAS, (i) Section 3.01 of the Partnership Agreement limits the
purpose of the Partnership to acquiring, managing, selling and exchanging cable
television systems; (ii) Section 7.03(b) of the Partnership Agreement provides
that the General Partner shall not without prior approval by Majority Vote sell
all or substantially all of the Partnership's assets (except in connection with
the dissolution and liquidation of the Partnership); (iii) Section 14.02(f) of
the Partnership Agreement provides that the Partnership shall be dissolved and
its affairs wound up upon the sale by the Partnership of all or substantially
all of the Partnership Assets; and (iv) Section 15.12 of the Partnership
Agreement provides that any action that may be taken at a meeting of Limited
Partners may be taken without a meeting if one or more consents in writing
setting forth the approval of the actions so taken are signed by Record Holders
as of the Record Date owning not less than the minimum number of Units required;
and
WHEREAS, the Partnership owns one hundred percent (100%) of the
outstanding capital stock (the "PCFI Stock") of Prime Cable Fund I, Inc., a
Delaware corporation ("PCFI") which is the sole general partner of Prime Cable
of Alaska, L.P., a Delaware limited partnership ("Prime Alaska"); and
WHEREAS, the PCFI Stock represents all or substantially all of the
Partnership Assets; and
WHEREAS, the Partnership has agreed, subject to obtaining the consents
and approvals provided for herein, to sell all of the PCFI Stock in exchange for
shares of voting Class A Common Stock ("GCI Class A Stock") of General
Communication, Inc., an Alaska corporation ("GCI"), pursuant to the terms of
that certain Securities Purchase and Sale Agreement dated May 2, 1996 (the "GCI
Purchase Agreement"), entered into by and among the Partnership and the other
direct and indirect owners of all of the other equity interests in Prime Alaska,
as Sellers, GCI, as buyer, and Prime II Management, L.P., all as generally
described in that certain Proxy Statement/Prospectus of General Communication,
Inc. dated October 4, 1996 (the "GCI Prospectus"), a true and complete copy of
which has been delivered to each of the undersigned; and
WHEREAS, the General Partner has, pursuant to Section 15.06 of the
Partnership Agreement, set August 19, 1996 as the Record Date for purposes of
determining the Record Holders entitled to give a written consent pursuant to
Section 15.12 of the Partnership Agreement with respect to the matters set forth
herein; and
WHEREAS, the undersigned Record Holders of more than sixty-six and
two-thirds percent (66 2/3%) of the total number of outstanding Units entitled
to vote (the "Majority Holders") desire to enter into this Consent in order to
approve of the execution, delivery and performance by the Partnership of
REGISTRATION STATEMENT
II-656
<PAGE>
the GCI Purchase Agreement and the sale by the Partnership of the PCFI Stock in
exchange for shares of GCI Class A Stock;
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the General Partner and the
undersigned Limited Partners constituting Majority Holders agree that
(capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Partnership Agreement):
1. Consent. The Majority Holders hereby (i) consent to the sale of the
PCFI Stock in exchange for shares of GCI Class A Stock (the "GCI Shares") as
generally described in the GCI Prospectus, and on such other terms as the
General Partner in its reasonable discretion deems necessary or advisable; and
(ii) approve of the Partnership's execution and delivery of, and the performance
by the Partnership of its obligations under, the GCI Purchase Agreement and the
other documents and agreements described therein, and to otherwise consummate
the transactions contemplated.
2. No Other Consent or Amendment. Except for the consents and approvals
set forth or referred to above, the text of the Partnership Agreement shall
remain unchanged and in full force and effect.
3. Effectiveness. This Consent shall become effective (the "Effective
Time") upon receipt of signed counterparts hereof from Limited Partners who are
Record Holders of sixty-six and two-thirds percent (66 2/3%) of the Units
outstanding on the Record Date.
4. Successors and Assigns. The undersigned, by its execution and
delivery of this Consent, hereby agrees with the Partnership and the General
Partners that it will (i) inform any successor or assignee to all or any portion
of its interest in the Partnership of its execution and delivery of this Consent
and (ii) as a condition precedent to any transfer of such interest, obligate
such successor or assignee in writing to be bound by the action of the
undersigned in executing and delivering this Consent.
5. Receipt of GCI Prospectus. Each of the undersigned, by its execution
and delivery of this Consent, hereby acknowledges its receipt of a copy of the
GCI Prospectus.
6. Counterparts. To facilitate execution, this Consent may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the signatures of all parties hereto or thereto be
contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Consent (i)
the signature pages taken from separate individually executed counterparts of
this Consent may be combined to form multiple fully executed counterparts and
(ii) a facsimile transmission shall be deemed to be an original signature. All
executed counterparts of this Consent shall be deemed to be originals, but all
such counterparts taken together or collectively, as the case may be, shall
constitute one and the same agreement.
7. Law of Contract. This Consent and amendment shall be deemed to be
made pursuant to the laws of the State of Delaware with respect to agreements
made and to be performed wholly in the State of Delaware and shall be construed,
interpreted, performed and enforced in accordance therewith.
REGISTRATION STATEMENT
II-657
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused their respective duly
authorized officers or representative to execute and deliver this Consent as of
the day and year first above written, to be effective as of the Effective Time.
GENERAL PARTNER:
PRIME CABLE GP, INC.
By:
Its:
LIMITED PARTNER:
[insert name of limited partner]*
By:
Its:
Number of Units Held:
Date: October , 1996.
* When signing as attorney, as executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in full partnership name by authorized person.
REGISTRATION STATEMENT
II-658
EXHIBIT 99.12
CONSENT OF PCLP (SOLE SHAREHOLDER OF PCFI)
WRITTEN CONSENT
OF THE SOLE STOCKHOLDER OF
PRIME CABLE FUND I, INC.
Section 228 of the Delaware General Corporation Law provides that unless
otherwise provided by the Certificate of Incorporation, any action required by
this chapter to be taken at any annual meeting of stockholders of a corporation
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Accordingly,
pursuant to such statutory authority, the undersigned, being the sole
stockholder of Prime Cable Fund I, Inc. (the "Corporation"), hereby consents to
the adoption of the following resolutions by written consent:
RESOLVED, that the form, terms and provisions of the Agreement
and Plan of Merger (the "Plan of Merger"), to be entered into
by the Corporation providing, among other things, for the
merger of the Corporation with and into GCI Cable, Inc., an
Alaska corporation, as the same was presented to, and
explained to, the sole stockholder of the Corporation be, and
the same hereby are, in all respects, approved.
Dated as of , 1996.
SOLE STOCKHOLDER:
PRIME CABLE LIMITED PARTNERSHIP
By: Prime Cable GP, Inc.
Its: General Partner
By:
Name:
Title:
REGISTRATION STATEMENT
II-659
EXHIBIT 99.13
ALASKAN CABLE NETWORK/FAIRBANKS, INC.
Kent Farms
Middleburg, Virginia 20117
CONSENT SOLICITED BY
THE BOARD OF DIRECTORS
IN LIEU OF SPECIAL MEETING
OF SHAREHOLDERS OF
ALASKAN CABLE NETWORK/FAIRBANKS, INC.
THE UNDERSIGNED HEREBY CONSENTS to and otherwise approves the Asset
Purchase Agreement dated April 15, 1996 ("Proposed Transaction") between Alaskan
Cable Network/Fairbanks, Inc. ("Alaska Cable"), General Communication, Inc.
("Company"), and others (Alaskan Cable Network/Juneau, Inc. and Alaskan Cable
Network/Ketchikan-Sitka, Inc., collectively, "Other Alaskan Cable Companies"),
whereby the Company is to acquire substantially all of the assets of Alaskan
Cable and the Other Alaskan Cable Companies for an aggregate purchase price of
$51 million in cash and 2,923,077 shares of Company Class A common stock, both
portions of the purchase price of which are to be distributed amongst the
shareholders of Alaskan Cable and the Other Alaskan Cable Companies as those
companies and the Company are to agree.
Please sign exactly as When shares are held by joint tenants,
name appears below. should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title. If shareholder is a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
(Signature)
DATED: , 1996
Please sign, date and mail this Consent
promptly using the return envelope.
REGISTRATION STATEMENT
II-660
EXHIBIT 99.14
ALASKAN CABLE NETWORK/JUNEAU, INC.
Kent Farms
Middleburg, Virginia 20117
CONSENT SOLICITED BY
THE BOARD OF DIRECTORS
IN LIEU OF SPECIAL MEETING OF SHAREHOLDERS
OF ALASKAN CABLE NETWORK/JUNEAU, INC.
The UNDERSIGNED HEREBY CONSENTS to and otherwise approves the Asset
Purchase Agreement dated April 15, 1996 ("Proposed Transaction") between Alaskan
Cable Network/Juneau, Inc. ("Alaska Cable"), General Communication, Inc.
("Company"), and others (Alaskan Cable Network Fairbanks, Inc. and Alaskan Cable
Network/Ketchikan-Sitka, Inc., collectively, "Other Alaskan Cable Companies"),
whereby the Company is to acquire substantially all of the assets of Alaskan
Cable and the Other Alaskan Cable Companies for an aggregate purchase price of
$51 million in cash and 2,923,077 shares of Company Class A common stock, both
portions of the purchase price of which are to be distributed amongst the
shareholders of Alaskan Cable and Other Alaskan Cable Companies as those
companies and the Company are to agree.
Please sign exactly as When shares are held by joint tenants,
name appears below. should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title. If shareholder is a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
(Signature)
DATED: , 1996
Please sign, date and mail this Consent
promptly using the return envelope.
REGISTRATION STATEMENT
II-661
EXHIBIT 99.15
ALASKAN CABLE NETWORK/KETCHIKAN-SITKA, INC.
Kent Farms
Middleburg, Virginia 20117
CONSENT SOLICITED BY
THE BOARD OF DIRECTORS IN LIEU
OF SPECIAL MEETING OF SHAREHOLDERS OF
ALASKAN CABLE NETWORK/KETCHIKAN-SITKA, INC.
The UNDERSIGNED HEREBY CONSENTS to and otherwise approves the Asset
Purchase Agreement dated April 15, 1996 ("Proposed Transaction") between Alaskan
Cable Network/Ketchikan-Sitka, Inc. ("Alaska Cable"), General Communication,
Inc. ("Company"), and others (Alaskan Cable Network Fairbanks, Inc. and Alaskan
Cable Network/Juneau, Inc., collectively, "Other Alaskan Cable Companies"),
whereby the Company is to acquire substantially all of the assets of Alaskan
Cable and the Other Alaskan Cable Companies for an aggregate purchase price of
$51 million in cash and 2,923,077 shares of Company Class A common stock, both
portions of the purchase price of which are to be distributed amongst the
shareholders of Alaskan Cable and Other Alaskan Cable Companies as those
companies and the Company are to agree.
Please sign exactly as When shares are held by joint tenants,
name appears below. should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title. If shareholder is a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
(Signature)
DATED: , 1996
Please sign, date and mail this Consent
promptly using the return envelope.
REGISTRATION STATEMENT
II-662
<PAGE>
EXHIBIT 99.17
ACCELERATION REQUEST
The Registrant (General Communication, Inc.) hereby amends the Form S-4
Registration Statement filed by the Registrant on October 4, 1996 to request
acceleration of the effective date such that this Registration Statement shall
be effective on October 4, 1996, pursuant to Rule 461.
REGISTRATION STATEMENT
II-663
