AMENDED AND RESTATED
MEMORANDUM OF UNDERSTANDING
This amended and restated memorandum of understanding (the "Memorandum of
Understanding") dated effective as of January [ ], 2006 (the "Effective Date")
sets forth the principal terms and conditions of transactions (collectively, the
"Transactions") proposed to be consummated among Alaska DigiTel, LLC, an Alaska
limited liability company ("AKD"), all of the members of AKD, all of the members
of Denali PCS, LLC, an Alaska limited liability company ("Denali"), and General
Communication, Inc., an Alaska corporation ("GCI").
Guiding Principles
AKD operates a wireless telecommunications business within the State of Alaska
and currently owns all of Pacificom Properties, LLC ("Properties"), an Alaska
limited liability company that owns AKD's headquarters building subject to a
mortgage at Northrim Bank.
Denali, an Alaska limited liability company under common control with AKD, holds
additional spectrum capacity.
GCI desires to acquire 100% of the Denali membership interests and to contribute
such interests so acquired together with additional capital in exchange for AKD
Units (hereinafter defined) based upon an agreed equity value of AKD and Denali
of $26MM, in the aggregate.
This Memorandum of Understanding shall be binding on all parties hereto.
The Understandings
1. Pre-Closing Arrangements.
a. Within a commercially reasonable period of time following execution of
this Memorandum of Understanding, GCI and AKD will enter into an agreement
("Interim Loan Agreement") providing for secured loans ("Interim Capital
Loans") to be advanced to AKD prior to the closing of the Transactions
(the "Closing") by GCI, directly, or by a financial institution enhanced
by GCI's guaranty and to be repaid upon the earlier of the funding of the
credit facility described in Section 8 below or [nine months from the
first advance under the Interim Loan Agreement], together with interest on
the unpaid balance accruing at the same rate as paid by GCI Holdings, Inc.
on its then-outstanding senior credit facility. The Interim Capital Loans
will not exceed $3MM and will be used for capital improvements to be made
by AKD as approved by GCI, which approval is not to be unreasonably
withheld or delayed. GCI hereby approves the capital improvements
described on Annex A to be funded with the first draw upon the Interim
Capital Loans covering AKD's capital improvement expenditures forecasted
through April 30, 2006.
The obligation to make advances pursuant to the Interim Loan Agreement
will terminate upon the Closing. The Interim Loan Agreement and the
Interim Capital Loans will be subject to the prior approval of Co-Bank.
GCI will use all reasonable efforts to assist AKD in obtaining any such
approval from Co-Bank. AKD authorizes GCI and Co-Bank to have direct
discussions for the foregoing purposes.
b. In advance of the Closing:
i. The existing members of AKD will transfer all, except for a
to-be-determined nominal portion thereof (the "Nominal Interest
Holders"), of their respective membership interests in AKD to a
to-be-formed limited liability company ("Parent AKD").
ii. Parent AKD will approve the modifications of AKD's operating
agreement in accordance with the provisions of paragraph 3 below.
Following such modifications, AKD will have only one class of
membership interests having an allocated value of $20MM,
represented by 1999 units then issued to Parent AKD and one (1)
unit issued to Nominal Interest Holders.
iii. All cash and equivalents in which AKD has an interest on the day
prior to the Closing shall be distributed by AKD to Parent AKD and
the Nominal Interest Holders, as their interest may appear.
2. Transfer of Denali Membership Interests to GCI. At the Closing, Denali's
members will transfer to GCI all issued and outstanding Denali membership
interests in exchange for $6MM in readily available funds. The transfers of
such interests, and/or the underlying spectrum license(s), will be subject to
all necessary regulatory approvals.
3. Reorganization of AKD. At the Closing:
a. AKD will amend and restate its operating agreement (the "AKD Operating
Agreement") to (i) provide that the interest of its members will consist
of one class of membership interests represented by units (the "AKD
Units"), (1) (ii) provide that all operating and capital distributions
will be made to the members in proportion to the number of AKD Units held
by each member, and (iii) contain such other terms and conditions to
conform to this Memorandum of Understanding. AKD will continue to be taxed
as a partnership for federal income tax purposes.
b. Except for cash and equivalents, which will be distributed to AKD's
members in advance of the Closing, AKD will retain at the Closing all of
its assets (including, without limitation, all real and personal property,
tangibles and intangibles, goods, contract rights, documents, instruments,
general intangibles, goodwill, equipment, machinery, inventory,
copyrights, trademarks, trade names, licenses, and its membership
interests in Properties).
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1. Prior the Closing, all AKD Units will be issued to and held by Parent AKD and
the Nominal Interest Holders.
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c. At Closing, AKD will retain and pay in accordance with the terms thereof
all Current Liabilities (defined below) and the indebtedness set forth on
Annex B. AKD will have accounts receivable and other current assets
(excluding cash and its equivalents) (collectively, the "Current Assets")
expected to equal or exceed accounts payable, accrued expenses, property
taxes and other current non-interest bearing obligations (collectively,
the "Current Liabilities"). Exclusive of the Current Liabilities, the
aggregate of all interest bearing obligations owed by AKD and Properties
is expected to approximate $12,517,725, as detailed on Annex B hereto.
d. The applicable transaction documents shall provide for an adjustment in
the number of AKD Units to be issued to GCI pursuant to Section 4 below to
the extent that (i) the interest-bearing obligations of AKD are greater or
less than $12,517,725 as of the Closing date and/or (ii) the net working
capital (Current Assets less non-interest bearing liabilities) is greater
or less than zero.
4. GCI Contributions. At the Closing:
a. GCI will contribute $10MM in readily available funds to AKD's capital in
exchange for 1,000 AKD Units.
b. GCI will contribute to AKD all of the Denali membership interests acquired
pursuant to Section 2 in exchange for 600 AKD Units. Subsequent to
Closing, AKD will re-merge under FCC law and regulations the AKD spectrum
and the Denali spectrum capacity such that the combined spectrum
effectively reconstitutes the original FCC "A" block PCS 30 MHz spectrum,
no longer disaggregated.
5. GCI's Purchase of AKD Units. At the Closing, GCI will, at the request of AKD,
purchase up to an additional 2,000 AKD Units from AKD at a price equal to
$1MM in readily available funds for each 100 AKD Units so acquired. The
proceeds from the issuance of such additional AKD Units will be used by AKD
to redeem an equal number of AKD Units from Parent AKD and Nominal Interest
Holders.(2) If GCI is requested to purchase more than an additional 1,350 AKD
Units from AKD, GCI will have the option to purchase all 2,000 AKD Units at
the same $1MM in readily available funds for each 100 AKD Units. In the event
GCI exercises such latter option, then AKD will redeem all remaining AKD
Units from Parent AKD and the Nominal Interest Holders, GCI will thereafter
own all issued and outstanding AKD Units, Sections 6 through 15 will be
inoperative and of no further force or effect and the Management Agreement
between AKD and Poplar Associates LLC shall be terminated without any cost or
liability to AKD or GCI.
6. Formation of MBO-CO.
a. At Closing, AKD will grant a 6% interest in the future profits of AKD (as
adjusted pursuant to Section 6.c and Section 10 below, the "MBO-CO Profits
Interest") to a limited liability company to be formed by certain members
of AKD senior management ("MBO-CO").
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2. The AKD Units held by the Nominal Interest Holders shall be redeemed first,
so that following such redemption the Nominal Interest Holders will have no
further membership interests in AKD.
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b. AKD shall enter into a management agreement ("Management Agreement") with
MBO-CO that is substantially similar to the existing management agreement
between AKD and Poplar Associates, LLC, with an initial 5 year term and
automatic 1 year renewal terms thereafter, unless either party gives
written notice of termination for material cause or without cause as long
as such termination is accompanied by payment of the Break-Up Fee. The
Management Agreement will contain a break-up fee (the "Break-Up Fee") that
will be payable in the event that the agreement terminates for any reason,
or in the event that GCI exercises a call option pursuant to Section 10.a
below, or if AKD is sold to a party unaffiliated with any AKD member. The
amount of the Break-Up Fee will equal $1.8MM in readily available funds
multiplied by the EBITDA Multiplier (as defined below). The existing
management agreement between AKD and Poplar Associates will be terminated
without cost or liability to AKD, unless otherwise approved by GCI in its
sole discretion.
c. In the event that the Management Agreement terminates for any reason, GCI
exercises its call option pursuant to Section 10 below or if AKD is sold
to a party unaffiliated with any AKD member, then the amount of the MBO-CO
Profits Interest shall be adjusted to equal the amount obtained after
multiplying 6% by the applicable EBITDA Multiplier (subject to any
adjustments specified in Section 10). By way of example, if the EBITDA
Multiplier is equal to 1.5, then the MBO-CO Profits Interest will
represent a total of 9% in the future profits of AKD following its
formation.
d. The EBITDA Multiplier shall equal the quotient of (i) the earnings before
interest, taxes, depreciation and amortization of AKD determined in
accordance with U.S. generally accepted accounting principles ("EBITDA")
for the calendar quarter in which GCI gives notice of its exercise of its
call option, divided by (ii) the forecasted amount of EBITDA for the same
quarter as set forth in Annex C hereto; provided, that if such calculation
yields a number lower than one, the EBITDA Multiplier will equal one, and
if such calculation yields a number higher than two, the EBITDA Multiplier
will equal two. If it is determined that the managers have taken any
extraordinary actions not in the ordinary course of business or consistent
with past practice (and which actions have not been approved by a
unanimous consent of the AKD Board) for the purpose of increasing EBITDA
for any particular calendar quarter with respect to which the EBITDA
Multiplier is calculated, then appropriate adjustments will be made to
EBITDA for such quarter in order to negate the impact of such
extraordinary actions. Notwithstanding the foregoing, the parties shall
mutually negotiate any appropriate adjustment to the EBITDA Multiplier to
negate the impact of any extraordinary costs incurred in such period for
AKD Board, such as for approved marketing costs and/or integration
activities.
7. AKD Governance.
a. AKD will be governed by a board of managers (the "AKD Board") that will
operate in a manner that is the functional equivalent of a corporate board
of
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*** CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential
treatment by the Company to, and the material has been separately filed with,
the SEC. Each omitted Confidential Portion is marked by three Asterisks.
directors. The AKD Board will consist of between 4 and 8 members. The
parties agree that AKD shall comply with any requirement for independent
board member(s) under the Xxxxxxxx-Xxxxx Act, which may arise because of
GCI's ownership of AKD Units.
b. GCI will have the right to designate one person to serve on the AKD Board.
Parent AKD will have the right to designate up to seven persons to serve
on the AKD Board. GCI's board member shall have the right to have a GCI
employee or agent accompany him/her to meetings, to serve in an advisory
capacity.
c. Each year the AKD Board will approve the annual AKD operating and capital
budget including the types of equipment to be purchased and implemented
into the AKD network. Such actions will require unanimous approval, not to
be unreasonably withheld or delayed.
d. GCI will have customary minority protection rights, including but not
limited to the right to approve any new businesses, acquisitions,
dispositions, mergers, admission of new members, distribution of new
units, capital calls, debt incurrence, related party transactions, winding
up or dissolution of AKD, amendment of the AKD Operating Agreement, annual
operating and capital budgets, bankruptcy, redemption of AKD Units or
extraordinary distributions thereon, or change in the organizational form
of AKD.
e. To the extent that the GCI interests in AKD exceed any allowable control
requirements for ownership of wireless carriers under any agreement or
understanding to which GCI may be bound, the AKD Operating Agreement will
include curative provisions regarding voting and economic interests.
8. AKD Refinancing. As soon as practicable after the Closing, but not more than
90 days after the Closing, AKD will refinance its obligations (except as set
forth in Section 3.c) with a lender and upon terms and conditions which shall
require unanimous approval of the AKD Board, which shall not be unreasonably
withheld or delayed. GCI shall agree to provide reasonable cooperation with
the AKD Refinancing. The senior facility will provide a term component and a
revolving line component aggregating no more than $15 million but sufficient
to fund AKD's business plan as approved pursuant to Section 7.c.
9. Tax Distributions. AKD shall make annual tax distributions to its members in
proportion to their respective ownership interests in AKD.
10. ***.
a. ***.
i. Within *** following the Closing, *** will have the *** for *** of
(x) the *** (***, with such *** in the AKD Operating Agreement, or
(y) the ***, as set forth in the AKD Operating Agreement ***. Upon
the closing of such *** of only the applicable Break-Up Fee, the
MBO-CO Profits Interest ***.
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*** CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential
treatment by the Company to, and the material has been separately filed with,
the SEC. Each omitted Confidential Portion is marked by three Asterisks.
ii. After *** but before *** Closing, *** will have the *** for the ***
(x) the *** as determined by *** the AKD Operating Agreement, or (y)
the ***, as set forth in the AKD Operating Agreement ***. Upon the
closing of a *** subclause (x) of this paragraph and *** Break-Up
Fee *** MBO-CO Profits Interest ***, the MBO-CO Profits Interest
***. Upon the closing of a *** subclause (y) of this paragraph and
*** Break-Up Fee, the MBO-CO Profits Interest ***.
iii. After *** following Closing, *** will have the *** as determined by
an *** in accordance with the procedures specified in the AKD
Operating Agreement. Upon the closing of such *** Break-Up Fee ***
MBO-CO Profits Interest ***, the MBO-CO Profits Interest ***.
iv. *** shall be determined ***, but *** MBO-CO Profits Interest. The
*** (including, without limitation, ***), and which ***.
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*** CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential
treatment by the Company to, and the material has been separately filed with,
the SEC. Each omitted Confidential Portion is marked by three Asterisks.
b. ***.
i. Before *** Closing, *** will have *** for *** in accordance with
procedures to be specified in the AKD Operating Agreement. *** at
the closing ***.
ii. If *** in Section 10.b(i), *** set forth in Section 10.a (*** MBO-CO
Profits Interest), which shall *** Section 10.b(i) above.
11. ***.
a. ***. Any time *** based on *** with the *** in the AKD Operating
Agreement. At ***, upon the closing *** Break-Up Fee *** MBO-CO Profits
Interest ***, the MBO-CO Profits Interest ***.
b. ***. Beginning *** based on *** with *** in the AKD Operating Agreement.
*** at the closing ***.
12. Transferability. The AKD Units will not be transferable without the
unanimous approval of the AKD Board committee, except to affiliates who
agree to be bound by the terms and conditions of the AKD Operating
Agreement. Any indirect transfer by virtue of a change in control of AKD
member will not constitute a transfer of the underlying AKD Units. The
MBO-CO Profits Interest will not be transferable.
13. GCI Arranged Bridge Loan. GCI shall, prior to Closing, arrange a secured
bridge loan for AKD of $2.0MM (or at the request of AKD up to $2.5MM as
mutually agreed to by AKD and GCI) which shall be repaid immediately upon
the earlier of the funding of the senior facility described in Section 8 or
90 days following the Closing. Interest on the unpaid principal balance of
such bridge loan shall accrue at a rate equal to that variable
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*** CONFIDENTIAL PORTION has been omitted pursuant to a request for confidential
treatment by the Company to, and the material has been separately filed with,
the SEC. Each omitted Confidential Portion is marked by three Asterisks.
rate paid by GCI Holdings, Inc. on its then-existing senior credit facility.
The bridge loan subject to this Section 13 is in addition to the Interim
Capital Loans described in Section 1.a. above.
14. Nonsolicitation of Offers. Neither Parent AKD nor AKD shall solicit the sale
of its business nor shall it entertain offers from third parties to purchase
its business, from the Effective Date until the Closing, and for a period of
*** following the Closing.
15. Capital Calls/Loans by Members. The AKD Operating Agreement shall not
contemplate any further capital calls or loans by members. Any requirement
for a capital call or a member loan shall be the subject of a subsequent
negotiation.
16. Time is of the Essence. In order to proceed, all parties must execute this
binding Memorandum of Understanding regarding the Transactions no later than
11:59 p.m.(Central Standard Time) on January [ ], 2006, or this Memorandum
of Understanding shall be of no further force or effect. The parties shall
use all reasonable efforts to close the Transactions as promptly as
practicable after the execution of this binding Memorandum of Understanding.
17. Regulatory Approvals. The Transactions are subject to all necessary
governmental regulatory approvals. AKD and Denali shall be responsible for
obtaining all such approvals. GCI agrees to use all commercially reasonable
efforts to support and assist AKD and Denali in such efforts. Should any
necessary material governmental approval for any of the Transactions not be
granted, all of the Transactions shall be cancelled, and the parties shall
have no further obligation to proceed to Closing.
18. Expenses. Each party shall bear its own costs and expenses relating to this
Memorandum of Understanding, the Closing and transaction documents, and the
Transactions, including without limitation, accountant and attorneys' fees.
19. Cooperation. The parties agree to cooperate in good faith in negotiating and
finalizing the purchase and sale agreements, the AKD Operating Agreement,
and all related documents, which shall contain such representations,
warranties, covenants, conditions and indemnifications as are customary for
transactions of this size and nature, and which shall survive the Closing of
the Transactions. If after good faith negotiations the parties cannot
resolve an issue in any of the final transaction documents, then the matter
shall be submitted to arbitration under Section 22 for resolution in
accordance with the intent of the parties as set forth in this Memorandum of
Understanding.
20 No Finders' Fees. Except to the extent payment may be due to Xxxxxxxxxx
Capital by AKD, which shall be the sole responsibility of AKD, no party
shall have any obligation to pay any finders', brokers' or agents' fees as a
result of the execution of this Memorandum of Understanding, the related
documents, or the consummation of the Transactions.
21. Confidentiality. The parties agree that the terms of this Memorandum of
Understanding are confidential and may not be disclosed, except as may be
required by law or as contemplated by the final agreements, and except as to
disclosure to the parties' boards of managers, boards of directors,
investors whose interests shall be acquired by AKD and/or GCI, advisors and
financial institutions, without the consent of the parties, which shall not
be unreasonably withheld or delayed. All such persons and parties must
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be bound to hold the terms of this Memorandum of Understanding confidential.
Notwithstanding the foregoing, the parties acknowledge that GCI will make
such disclosures regarding the general terms of the proposed Transactions as
required by the securities disclosure laws, rules and regulations. Each
party may disclose to its employees the information contained in the GCI
disclosures that are mandated by such securities laws, rules and
regulations.
22. Governing Law; Arbitration. This Memorandum of Understanding shall be
governed by the laws of the State of Alaska and the Commercial Arbitration
Rules of the American Arbitration Association. The parties will attempt in
good faith to resolve any controversy or claim arising out of or relating to
this Memorandum of Understanding through discussions between the senior
management of GCI, Denali, and AKD, as applicable. If these discussions are
unsuccessful, the parties agree that any action asserting a claim by one
party against another party hereto arising out of or relating to this
Memorandum of Understanding shall, on the written notice by one party to the
other (as applicable), be submitted to binding arbitration to be held in
Seattle, Washington. The parties shall hold an initial meeting within thirty
(30) days from receipt of notice from the requesting party of a request for
arbitration. Unless otherwise agreed in writing, they will jointly appoint a
mutually acceptable arbitrator not affiliated with either party. If they are
unable to agree upon such appointment within thirty (30) days of the initial
meeting, the parties shall obtain an odd numbered list of not less than five
(5) potential arbitrators from the Superior Court for the Third Judicial
District, State of Alaska. Each party shall alternatively strike a single
name from the list until only one name remains, with such person to be the
arbitrator. The party requesting the arbitration shall strike the first
name. Each party shall pay one-half (1/2) of the costs related to the
arbitration, unless the arbitrator's decision provides otherwise. Each party
shall bear its own costs to prepare for and participate in the arbitration.
Each party shall produce at the request of the other party, at least thirty
(30) days in advance of the hearing, all documents to be submitted at the
hearing and such other documents as are relevant to the issues or likely to
lead to relevant information. The arbitrator shall promptly render a written
decision, in accordance with Alaska law and supported by substantial
evidence in the record. The prevailing party shall be entitled to recover
reasonable attorneys' fees, costs, charges and expended or incurred therein,
if the arbitrator's decision so provides. Failure to apply Alaska law, or
entry of a decision that is not based on substantial evidence in the record,
shall be additional grounds for modifying or vacating an arbitration
decision. Judgment on any arbitration award shall be entered in any court of
competent jurisdiction. In any subsequent arbitration, the decision in any
prior arbitration of this Memorandum of Understanding shall not be deemed
conclusive of the rights among the parties hereunder.
23. No Material Adverse Change. No material adverse change shall have occurred
from the Effective Date through the Closing in AKD's financial condition or
its business prospects.
24. Risk of Loss. The risk of loss due to acts of God or other casualty between
the Effective Date and the Closing shall be borne by AKD and Denali.
25. Specific Performance. The parties agree that the Transactions are unique, it
would be difficult to calculate the damages that would result from the
failure to Close, and that monetary damages would not be an adequate remedy.
The parties agree that any
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party may seek an order for specific performance from any court of competent
jurisdiction to enforce the Transactions.
26. Former Memorandum of Understanding. This Memorandum of Understanding will
become effective upon the Effective Date and as of such date, amends and
restates in its entirety the memorandum of understanding dated effective as
of December 4, 2005 among AKD, Denali and GCI, which shall thereafter become
null, void and of no further force or effect.
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The parties' authorized representatives each hereby execute this Amended and
Restated Memorandum of Understanding as of the Effective Date.
Alaska DigiTel, LLC General Communication, Inc.
By: /s/ By: /s/
Name: Xxxxxxx X. Xxxxxxx, III Name: Xxxxxxx X. Xxxxxx
Its: President Its: Senior Vice President
Denali PCS, LLC PacifiCom Holdings, LLC
By: /s/ By: /s/
Name: Xxxxxxx X. Xxxxxxx, III Name: Xxxxxxx X. Xxxxxxx,
III
Its: Chief Manager Its: Chief Manager
Red River Wireless, LLC Graystone Holdings, LLC
By: /s/ By: /s/
Name: Xxxxxxx X. Xxxxxxx, III Name: J. Xxxxxxx Xxxxxx
Its: Chief Manager Its: Exec. Vice President
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