|
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).
|
|
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”).
|
|
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 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 Sarbanes-Oxley 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.
|
Call Options.
|
|
a.
|
GCI.
|
|
i.
|
Within eighteen months following the Closing, GCI will have the option to purchase all AKD Units held by Parent AKD for the higher of (x) the Appraised Unit Value (as defined in Section 10.a(iv), with such appraisal at Parent AKD’s sole option and expense) as determined by an independent third party appraiser in accordance with procedures to be specified in the AKD Operating Agreement, or (y) the amount equal to Parent AKD’s initial capital account, as set forth in the AKD Operating Agreement immediately following the Closing plus 15% multiplied by that initial capital account amount (a “15% Coupon”). Upon the closing of such purchase and upon payment of only the applicable Break-Up Fee, the MBO-CO Profits Interest shall be completely terminated and shall have no additional value.
|
|
ii.
|
After eighteen months but before the end of the thirtieth month following Closing, GCI will have the option to purchase all AKD Units held by Parent AKD for the higher of (x) the Appraised Unit Value as determined by an independent third party appraiser in accordance with procedures to be specified in the AKD Operating Agreement, or (y) the amount equal to Parent AKD’s initial capital account, as set forth in the AKD Operating Agreement immediately following the Closing plus a 15% Coupon. Upon the closing of a purchase under subclause (x) of this paragraph and upon payment of the applicable Break-Up Fee and the value of the MBO-CO Profits Interest as determined in the appraisal, the MBO-CO Profits Interest shall be completely terminated and shall have no additional value. Upon the closing of a purchase under subclause (y) of this paragraph and upon payment only of the applicable Break-Up Fee, the MBO-CO Profits Interest shall be completely terminated and shall have no additional value.
|
|
iii.
|
After the end of the thirtieth month following Closing, GCI will have the option to purchase the AKD Units held by Parent AKD at their Appraised Unit Value as determined by an independent third party appraiser in accordance with the procedures specified in the AKD Operating Agreement. Upon the closing of such purchase and upon payment of the applicable Break-Up Fee plus the value of the MBO-CO Profits Interest as determined in the appraisal, the MBO-CO Profits Interest shall be completely terminated and shall have no additional value.
|
|
iv.
|
“Appraised Unit Value” shall be determined by subtracting all AKD interest-bearing liabilities from the fair market value of AKD as a going business and then dividing the result by the number of AKD Units outstanding as of the date of valuation without the use of any minority discount or control premium, but with an appropriate adjustment to reflect the value of the MBO-CO Profits Interest. The fair market value of AKD as a going business shall equal the gross cash price, without deduction for any liabilities, liens or encumbrances, that a seller, willing but not obligated to sell, would accept for AKD as a going business (including, without limitation, all of AKD’s assets, business and goodwill), and which a buyer, willing but not obligated to buy, would pay therefore, free and clear of all liens, encumbrances and liabilities in a single arm’s length transaction.
|
|
b.
|
Parent AKD.
|
|
i.
|
Before the end of the forty-ninth month following the Closing, Parent AKD will have the option to purchase all AKD Units held by GCI for the Appraised Unit Value as determined by an independent third party appraiser in accordance with procedures to be specified in the AKD Operating Agreement. Parent AKD’s right to exercise this call option is contingent upon Parent AKD’s or AKD’s demonstrated financial ability to make such a payment or its demonstrated ability to find a third party lender to finance payment in full to GCI at the closing of such sale of AKD Units.
|
|
ii.
|
If Parent AKD exercises the call option set forth in Section 10.b(i), GCI may, within 7 days of its receipt of written notice thereof, exercise any applicable call option set forth in Section 10.a (including all accompanying rights with respect to the MBO-CO Profits Interest), which shall preempt Parent AKD’s right to utilize the option set forth in Section 10.b(i) above.
|