AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2004
REGISTRATION NO. 333-109927
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- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 6719 91-1921377
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</Table>
---------------------
600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
LEONARD A. STEINBERG, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
600 TELEPHONE AVENUE
ANCHORAGE, ALASKA 99503
(907) 297-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES OF ALL COMMUNICATIONS TO:
MITCHELL S. PRESSER, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
If the 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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*TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
STATE OR OTHER PRIMARY STANDARD I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYEE
INCORPORATION CLASSIFICATION IDENTIFICATION
NAME* OR ORGANIZATION CODE NUMBER NUMBER
- ----- ---------------- ---------------- --------------
Alaska Communications Systems Group, Inc. ......... Delaware 6719 52-2126573
ACS of the Northland, Inc. ........................ Alaska 4813 91-1336980
ACS of Alaska, Inc. ............................... Alaska 4813 91-1112844
ACS of Fairbanks, Inc. ............................ Alaska 4813 91-1557266
ACS of Anchorage, Inc. ............................ Delaware 4813 52-2124846
ACS Wireless, Inc. ................................ Alaska 4812 92-0156992
ACS Long Distance, Inc. ........................... Alaska 4813 92-0158899
ACS Internet, Inc. ................................ Delaware 4899 92-0153253
ACS Messaging, Inc. ............................... Alaska 4813 92-0173636
ACS Infosource, Inc. .............................. Alaska 2741 92-1073635
ACS Television, L.L.C. ............................ Utah 4841 92-0156334
ACS of Alaska License Sub, Inc. ................... Alaska 4812 92-0173072
ACS of the Northland License Sub, Inc. ............ Alaska 4812 92-0173071
ACS of Fairbanks License Sub, Inc. ................ Alaska 4812 92-0173074
ACS of Anchorage License Sub, Inc. ................ Alaska 4812 92-0173073
ACS Wireless License Sub, Inc. .................... Alaska 4812 92-0173075
ACS Long Distance License Sub, Inc. ............... Alaska 4812 92-0173076
ACS Television License Sub, Inc. .................. Alaska 4812 92-0173077
ACS Services, Inc. ................................ Alaska 9999 92-0176176
</Table>
- ---------------
* The address, including zip code and telephone number, including area code, of
the principal executive offices of these additional registrants is 600
Telephone Avenue, Anchorage, Alaska 99503, (907) 297-3000.
Prospectus
(ACS LOGO)
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
OFFER TO EXCHANGE
$182,000,000 AGGREGATE PRINCIPAL AMOUNT
OF ITS REGISTERED 9 7/8% SENIOR NOTES DUE 2011,
FOR
ANY AND ALL OUTSTANDING UNREGISTERED
9 7/8% SENIOR NOTES DUE 2011
We are offering, upon the terms and subject to the conditions set forth in this
prospectus and the accompanying letter of transmittal, to exchange up to
$182,000,000 aggregate principal amount of our 9 7/8% Senior Notes due 2011 that
we have registered under the Securities Act of 1933, or exchange notes, for an
equal principal amount of our currently outstanding 9 7/8% Senior Notes due
2011, or old notes. The exchange notes will represent the same debt as the old
notes, and we will issue the exchange notes under the same indenture.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 23,
2004, UNLESS EXTENDED.
TERMS OF THE EXCHANGE OFFER
- We will exchange all old notes that are validly tendered and not
validly withdrawn prior to the expiration of the exchange offer.
- You may withdraw tendered old notes at any time prior to the expiration
of the exchange offer.
- We believe the exchange of old notes for exchange notes pursuant to the
exchange offer will not be a taxable event for U.S. federal income tax
purposes, but you should read "Certain federal income tax
considerations" beginning on page 153 for more information.
- The terms of the exchange notes are identical in all material respects
(including principal amount, interest rate, maturity and redemption
rights) to the old notes for which they may be exchanged, except that
the exchange notes generally will not be subject to transfer
restrictions or be entitled to registration rights, and the exchange
notes will not have the right to earn additional interest under
circumstances relating to our registration obligations.
- We will not receive any cash proceeds from the exchange offer.
- There is no existing market for the exchange notes to be issued, and we
do not intend to apply for their listing or quotation on any securities
exchange or market.
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for old notes where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
consummation of the exchange offer, we will make this prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF FACTORS THAT YOU
SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES TO BE DISTRIBUTED IN
THE EXCHANGE OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is January , 2004.
ADDITIONAL INFORMATION
We have filed with the United States Securities and Exchange Commission, or SEC,
a registration statement on Form S-4, pursuant to the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or Securities Act, covering
the exchange notes being offered. The registration statement incorporates
important business and financial information about us that is not included in or
delivered with this prospectus. This information is available from us, subject
to the informational reporting requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, or Exchange Act,
without charge to holders of the old notes as specified below. If we have made
references in this prospectus to any contracts, agreements, or other documents
and also filed any of those contracts, agreements, or other documents as
exhibits to the registration statement, you should read the relevant exhibit for
a more complete understanding of the document or the matter involved.
You may obtain copies of any of our filings with the SEC, including the
documents incorporated by reference in this prospectus, at no charge, by writing
or telephoning us at the following address or telephone number: Alaska
Communications Systems Holdings, Inc., 600 Telephone Avenue, Anchorage, Alaska
99503, Attention: Investor Relations, telephone number (907) 297-3000.
TO OBTAIN TIMELY DELIVERY OF ANY OF OUR FILINGS, AGREEMENTS, OR OTHER DOCUMENTS,
YOU MUST MAKE YOUR REQUEST TO US NO LATER THAN FEBRUARY 13, 2004. IN THE EVENT
THAT WE EXTEND THE EXCHANGE OFFER, YOU MUST SUBMIT YOUR REQUEST AT LEAST FIVE
BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER, AS EXTENDED. WE
MAY EXTEND THE EXCHANGE OFFER IN OUR SOLE DISCRETION. SEE "THE EXCHANGE OFFER"
FOR MORE DETAILED INFORMATION.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized any person to provide you with
additional, different, or inconsistent information. If anyone provides you with
additional, different, or inconsistent information, you should not rely on it.
You should assume that the information contained or incorporated by reference in
this prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations, and
prospects may have changed since that date.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Industry and other information........ i
Cautionary notice regarding forward-
looking statements.................. ii
Prospectus summary.................... 1
Risk factors.......................... 20
The exchange offer.................... 37
Use of proceeds....................... 48
Capitalization........................ 49
Selected historical financial data.... 50
Unaudited pro forma condensed
consolidated statements of
operations.......................... 56
Business.............................. 61
Regulation............................ 78
Management............................ 92
</Table>
<Table>
<Caption>
PAGE
----
Principal stockholders................ 98
Certain relationships and
transactions........................ 100
Description of other indebtedness..... 101
Description of the exchange notes..... 106
Certain federal income tax
considerations...................... 153
Book-entry settlement and clearance... 159
Plan of distribution.................. 161
Legal matters......................... 161
Experts............................... 161
Certain documents incorporated by
reference........................... 162
Available information................. 162
Glossary.............................. 163
</Table>
------------------------
In this prospectus, except where the context otherwise requires, "we," "us,"
"our," "ACS Holdings," and the "Company" refer to Alaska Communications Systems
Holdings, Inc. and its consolidated subsidiaries, the "Issuer" refers only to
Alaska Communications Systems Holdings, Inc., and "Parent" refers only to Alaska
Communications Systems Group, Inc., our parent company.
INDUSTRY AND OTHER INFORMATION
Unless otherwise indicated, information contained in, or incorporated by
reference in, this prospectus concerning the telecommunications industry, our
general expectations concerning this industry and our market position and market
shares within this industry are based on estimates prepared by us using data
from industry sources, and on assumptions made by us, based on such data and our
knowledge of the telecommunications industry. We have not independently verified
data from industry sources and cannot guarantee its accuracy or completeness. In
addition, we believe that data regarding the telecommunications industry and our
market positions and market shares within such industry provide general guidance
but are inherently imprecise. Further, our estimates involve risks and
uncertainties and are subject to change based on various factors, including
those discussed under "Risk factors" in this prospectus. Information herein
which is based on or calculated from our 1998 historical financial information
is based on the 1998 historical financial information of our predecessors, the
Alaska telecommunications properties of Century Telephone Enterprises, Inc., or
CenturyTel, and Anchorage Telephone Utility, or ATU.
i
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact are "forward-looking
statements" for purposes of federal and state securities laws, including
statements about anticipated future operating and financial performance,
financial position and liquidity, growth opportunities and growth rates, pricing
plans, acquisition and divestiture opportunities, business prospects, strategic
alternatives, business strategies, regulatory and competitive outlook,
investment and expenditure plans, financing needs and availability, and other
similar forecasts and statements of expectation, and statements of assumptions
underlying any of the foregoing. Words such as "aims," "anticipates,"
"believes," "could," "estimates," "expects," "hopes," "intends," "may," "plans,"
"projects," "seeks," "should," and "will," and variations of these words and
similar expressions, are intended to identify these forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from our historical
experience and our present expectations or projections. Forward-looking
statements by us are based on estimates, projections, beliefs and assumptions of
management and are not guarantees of future performance. We disclaim any
obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information, or otherwise. Such
forward-looking statements may be contained in this prospectus under "Prospectus
summary," "Risk factors," and "Business," among other places.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by us as a result of a number of
important factors. Examples of these factors include (without limitation):
- rapid technological developments and changes in the telecommunications
industries;
- ongoing deregulation (and the resulting likelihood of significantly
increased price and product/service competition) in the
telecommunications industry as a result of the Telecommunications Act
of 1996, or the 1996 Act, and other similar federal and state
legislation and the federal and state rules and regulations enacted
pursuant to that legislation;
- regulatory limitations on our ability to change our pricing for
communications services;
- the possible future unavailability of Statement of Financial Accounting
Standards, or SFAS, No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES
OF REGULATION, to our wireline subsidiaries;
- possible changes in the demand for our products and services; and
- the matters described under "Risk factors."
In addition to these factors, actual future performance, outcomes and results
may differ materially because of other, more general factors, including (without
limitation):
- changes in general industry and market conditions and growth rates;
- changes in interest rates or other general national, regional or local
economic conditions;
- governmental and public policy changes;
ii
- changes in accounting policies or practices adopted voluntarily or as
required by accounting principles generally accepted in the United
States; and
- the continued availability of financing in the amounts, at the terms,
and subject to the conditions necessary to support our future business.
Investors should also be aware that while we do, at various times, communicate
with securities analysts, it is against our policy to disclose to them any
material non-public information or other confidential information. Accordingly,
investors should not assume that we agree with any statement or report issued by
an analyst irrespective of the content of the statement or report. To the extent
that reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
iii
PROSPECTUS SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US. IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ THE FOLLOWING SUMMARY
TOGETHER WITH THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS, AS DESCRIBED IN
"CERTAIN DOCUMENTS INCORPORATED BY REFERENCE." TO FULLY UNDERSTAND THIS OFFER TO
EXCHANGE, YOU SHOULD READ ALL OF THESE DOCUMENTS. STATEMENT OF OPERATIONS
INFORMATION PRESENTED HEREIN ON A PRO FORMA BASIS GIVES EFFECT TO THE ISSUANCE
OF THE OLD NOTES, THE BORROWINGS UNDER OUR NEW BANK CREDIT FACILITIES DESCRIBED
HEREIN, AND THE REPAYMENT OF OUR OLD BANK CREDIT FACILITIES, ALL OF WHICH WERE
COMPLETED ON AUGUST 26, 2003, THE SALE OF A MAJORITY INTEREST IN ACS MEDIA LLC,
OR OUR DIRECTORIES BUSINESS, THAT WAS COMPLETED ON MAY 8, 2003, AND THE SALE OF
SUBSTANTIALLY ALL OF OUR THEN-REMAINING INTEREST IN OUR DIRECTORIES BUSINESS
COMPLETED ON SEPTEMBER 4, 2003, AS IF ALL SUCH TRANSACTIONS HAD BEEN COMPLETED
AT THE BEGINNING OF THE PERIODS PRESENTED. FOR YOUR CONVENIENCE, WE HAVE
INCLUDED A GLOSSARY OF CERTAIN TELECOMMUNICATIONS AND OTHER TERMS STARTING ON
PAGE 163 OF THIS PROSPECTUS.
OUR COMPANY
We are the leading integrated, facilities-based telecommunications services
provider in Alaska, offering a diverse mix of telecommunications services,
including local telephone, wireless, Internet, and interexchange services, to
business and residential customers throughout the state. We are the largest
telecommunications services provider in Alaska that uses its own network
facilities to provide full-service end-to-end communications to its customers.
As of September 30, 2003, we serviced approximately 316,000 local telephone
access lines representing approximately two-thirds of the local telephone access
lines provisioned in Alaska, and are the largest local exchange carrier, or LEC,
in Alaska and the 13th largest in the United States. On May 8, 2003, we disposed
of a majority interest in our Directories Business in a public offering, raising
approximately $160 million in gross proceeds from the offering and related
transactions, which proceeds we used to decrease our leverage and strengthen our
liquidity. Subsequently, on August 27, 2003, we were released from a lockup
agreement relating to our remaining interest in the Directories Business and we
disposed of substantially all of our remaining interest in the Directories
Business through the exercise of our right to convert 99.23% of our
then-remaining 12.58% interest in the Directories Business into 2.5 million
units of the ACS Media Income Fund, which were then sold in an underwritten
offering. The transaction settled on September 4, 2003, generating $17.3 million
in net proceeds and a gain on disposition of approximately $16 million. For the
nine months ended September 30, 2003, on a pro forma basis, we generated total
operating revenues and Adjusted EBITDA (as defined in "Summary historical
financial data" below) of $234.4 million and $68.8 million, respectively.
OUR SERVICE OFFERINGS
LOCAL TELEPHONE (69.3% OF PRO FORMA OPERATING REVENUES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003). We provide local telephone service through our four LECs.
Local telephone revenue consists of local network service, network access, and
deregulated and other revenue, each of which is described below.
- LOCAL NETWORK SERVICE. Basic local network service enables customers to
originate and receive telephone calls within a defined "exchange" area.
We provide basic local services on a retail basis to residential and
business customers, generally for a fixed
1
monthly charge. At September 30, 2003, approximately 47% of our retail
local telephone access lines served higher-margin business customers.
Competitive local network service provides interconnection through
wholesale access to our basic local service and through the leasing of
unbundled network elements, or UNEs, to other service providers as
required by the 1996 Act. As of September 30, 2003, we were reselling or
leasing approximately 90,000 local telephone access lines to other
service providers in the Anchorage, Fairbanks, and Juneau service areas.
- NETWORK ACCESS. Network access services arise in connection with the
origination and termination of long distance, or toll, calls and
typically involve more than one company in the provision of such long
distance service on an end-to-end basis. Since toll calls are generally
billed to the customer originating the call, a mechanism is required to
compensate each company providing services relating to the call. This
mechanism is the access charge, which we bill to each interexchange
carrier for the use of our facilities to access the customer. In
addition, we bill a component of access charges directly to our
customers. We also receive federal universal service funds, or USF,
associated with the provision of services to high-cost rural areas,
which we include in our network access revenue.
- DEREGULATED AND OTHER REVENUE. Deregulated and other revenue consists
of billing and collection contracts, space and power rents, pay
telephone service, customer premises equipment, or CPE, sales, and other
miscellaneous revenues generated by our LECs. We seek to capitalize on
our local presence and network infrastructure by offering these
additional services to customers and interexchange carriers.
WIRELESS (14.9% OF PRO FORMA OPERATING REVENUES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003). We provide mobile and fixed voice and data communications
services over our wireless network facilities. These wireless services are
provided statewide under the ACS Wireless brand name to approximately 84,000
subscribers as of September 30, 2003. The sources of wireless revenue include
subscriber access charges, airtime usage, toll charges, connection fees, roaming
revenues, communications equipment, and enhanced features, such as caller
identification and call waiting.
INTERNET (10.4% OF PRO FORMA OPERATING REVENUES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003). As of September 30, 2003, we provided dial-up or broadband
Internet access services to approximately 45,000 customers, including high-speed
DSL services to approximately 16,000 customers in our major LEC service
territories, such as Anchorage, Fairbanks, and Juneau. Our local dial-up numbers
and dedicated broadband connections allow customers access to a series of
computer servers we own and maintain to access their e-mail accounts and to
connect to the Internet. We are also a single-source provider of advanced
IP-based private networks to large enterprise and governmental customers in
Alaska.
INTEREXCHANGE (5.4% OF PRO FORMA OPERATING REVENUES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003). We offer long distance and interexchange private-line
services primarily as a facilities-based carrier using our own fiber-optic
capacity. As of September 30, 2003, we had approximately 43,500 long distance
customers.
COMPETITIVE STRENGTHS
LEADING COMPETITIVE POSITION. We are the leading integrated, facilities-based
telecommunications services provider in Alaska, offering a diverse mix of
telecommunications services to
2
business and residential customers throughout the state. Our strong brand name
recognition within Alaska provides us with a loyal customer base and strong
local market positions.
- We are the incumbent LEC, or ILEC, in Anchorage, Fairbanks, Juneau, and
more than 70 other communities. Servicing approximately 316,000 local
telephone access lines as of September 30, 2003, including
approximately two-thirds of the local telephone access lines in Alaska,
we are the largest LEC in Alaska and the 13th largest in the United
States.
- We are the second-largest statewide provider of wireless services in
Alaska, serving approximately 84,000 subscribers as of September 30,
2003. Our wireless network covers over 478,000 residents as of
September 30, 2003, including all major population centers and highway
corridors.
- We are the second-largest provider of Internet access services in
Alaska, with approximately 45,000 customers as of September 30, 2003.
INTEGRATED PORTFOLIO OF SERVICE OFFERINGS. We offer a diverse mix of
telecommunications services, including local telephone, wireless, Internet,
messaging, and long distance services, to business and residential customers
throughout Alaska. We believe that as the communications marketplace continues
to converge, our ability to offer an integrated package, or bundle, of
communications services provides a distinct competitive advantage. We believe
that bundled offerings are popular with customers because they allow for a
single customer interface, including fewer billing statements, as well as
pricing benefits across a number of services. We are aggressively marketing and
defending our position in local telephone services by actively selling our
wireless, Internet, long distance, messaging, and other services in bundles that
are attractive to our customers.
HIGH-QUALITY, ADVANCED NETWORKS AND FACILITIES. Since the management buyout in
1999, we have invested over $330 million in our telecommunications networks and
facilities, growing the total investment in these facilities to approximately
$1.1 billion. Our advanced telecommunications infrastructure includes over 65
carrier-class wireline switches, an advanced statewide IP network comprised of
over 35 switches and routers, 111 cellular sites, four digital wireless
switches, and 638 sheath miles of fiber-optic cable. We have made significant
incremental investments in our networks, including extensive utilization of
fiber in order to interconnect and integrate these facilities within Alaska as
well as to provide long-haul transport and connectivity between our major
markets and the rest of the United States. We have also implemented an advanced
information technology system to support our ability to deliver our services
through a single point of customer care. Our advanced customer service platform
allows us to provide varying levels of service to different customer categories,
ranging from highly automated service for residential customers to tailored
service for large enterprise customers. These investments allow us to offer our
customers a broad range of enhanced communications services in bundled packages,
where possible, and to provide high reliability and high-quality services to our
customers.
STRONG OPERATING PERFORMANCE AND SOLID CREDIT PROFILE. We operate a strong,
stable business that has performed well in a difficult telecom environment. From
2000, the first full year after our management buyout, through 2002, we have
grown revenue and Adjusted EBITDA (see "Summary historical financial data") by
approximately 10% and 19%, respectively, through a combination of investment in
new services and cost reductions in our traditional local telephone business.
Our credit profile has also improved significantly since our management buyout,
having reduced net debt (as defined below) to Adjusted EBITDA from 5.0x (based
on
3
2000 operating performance) to 4.4x as of September 30, 2003, on a pro forma
basis. Our liquidity on a pro forma basis continues to be strong, with $50
million available under our new bank credit facilities and $121 million in cash.
The recapitalization of our balance sheet in August 2003 decreased our senior
secured leverage from 3.1x Adjusted EBITDA to 2.2x Adjusted EBITDA on a pro
forma basis for the twelve months ended September 30, 2003, extended the next
significant maturities of our indebtedness to 2009, and increased our future
financial flexibility.
EXPERIENCED MANAGEMENT TEAM. Management has a demonstrated track record of
operating, managing and acquiring telecommunications companies. Members of our
senior management team provide us with an average of approximately 20 years of
telecommunications experience. Our executive management team has a wealth of
knowledge in the telecommunications industry, as well as a deep understanding of
the dynamics of the Alaskan markets and our customers.
BUSINESS STRATEGY
Our competitive position as the leading integrated, facilities-based
telecommunications services provider in Alaska allows us to capitalize on the
growing demand for communications services in the state. Through promotion of
our service offerings under the "Alaska Communications Systems" brand name, we
take advantage of our statewide presence and integrated marketing to build
superior brand awareness, drive greater penetration of our services, and sell a
comprehensive bundle of services to our customers. With the ability to deliver a
broad array of communications services, an extensive facilities-based network,
and a long history of meeting the communication needs of our unique state, our
goal is to be the premier telecommunications services provider in our markets.
We consider the following strategies to be integral to achieving our goal:
- Increase revenues from existing customers by offering multiple services
in a single package to residential and small business customers, which
we refer to as bundling, and increasing the utilization by our
customers of our services;
- Continue to capitalize on our technologically advanced networks to
provide feature-rich, high-quality and highly reliable
telecommunications services to our customers;
- Grow our wireless services by increasing marketing, expanding coverage,
rolling out next-generation CDMA technology, and providing data-related
services;
- Expand our private line and data networks business by offering
customized solutions to large commercial enterprise and governmental
customers;
- Increase our margins, reduce costs, and improve operating efficiency in
each of our business lines; and
- Pursue strategic acquisitions of and investments in other
telecommunications businesses in Alaska and elsewhere in the United
States.
COMPANY BACKGROUND
We are a wholly owned subsidiary of Alaska Communications Systems Group, Inc.
(NASDAQ: ALSK), which we refer to in this prospectus as Parent. We were formed
in August 1998 by Fox Paine & Company, LLC and members of the former senior
management team of Pacific Telecom, Inc. to acquire four local exchange carriers
in Alaska, which then comprised
4
approximately 300,000 access lines. Parent completed its initial public offering
in November 1999. Since our formation, we have become the leading integrated,
facilities-based telecommunications services provider in Alaska by offering a
diverse mix of telecommunications products. We currently offer local telephone,
wireless, Internet, and interexchange services to business and residential
customers throughout the state. Our principal executive offices are located at
600 Telephone Avenue, Anchorage, Alaska 99503, and our telephone number is (907)
297-3000. Our website address is www.alsk.com. Information included or referred
to on our website is not part of this prospectus.
Additional information about us, including our audited financial statements and
a more detailed description of our business, is contained in the documents
incorporated by reference in this prospectus. See "Certain documents
incorporated by reference."
5
CORPORATE STRUCTURE
[CORPORATE STRUCTURE FLOWCHART]
6
THE SPONSOR
Fox Paine & Company, LLC, or Fox Paine, manages investment funds in excess of
$1.5 billion that provide equity capital for (1) management buyouts, (2)
going-private transactions, and (3) company expansion and growth programs, which
we refer to collectively as MBOs. Fox Paine was founded in 1997 by Saul A. Fox,
a former general partner of Kohlberg Kravis Roberts & Co., and W. Dexter Paine,
III, a former general partner of Kohlberg & Co., and includes 14 principal
members with significant experience in MBOs, private and public equity,
corporate finance, business and tax law, commercial and investment banking, and
mergers and acquisitions. Investment funds managed by Fox Paine invested
approximately $100 million in us in May 1999.
RECENT DEVELOPMENTS
NEW BANK CREDIT FACILITIES. Simultaneously with the completion of the private
offering of the old notes described below, we entered into new bank credit
facilities and terminated our old bank credit facilities. We describe the terms
of our new bank credit facilities under "Description of other indebtedness."
EXERCISE OF OPTION UNDER NEW BANK CREDIT FACILITIES. On November 21, 2003, we
exercised an option under the terms of our new bank credit facilities to prepay
our outstanding floating to fixed swap hedge for $8.0 million. This prepayment
is excluded from cash interest expense for purposes of calculating our interest
coverage ratio under the covenants of the new bank credit facilities.
DISPOSITION OF OUR DIRECTORIES BUSINESS. On April 28, 2003, we entered into an
underwriting agreement with a syndicate of Canadian investment banks to complete
the sale of a majority interest in our Directories Business. We subsequently
filed on April 29, 2003 a final prospectus with Canadian securities regulators
to sell a majority interest in the Directories Business in a public offering in
Canada to the ACS Media Income Fund, which is a Canadian income fund. We
sponsored this offering. The transaction closed on May 8, 2003, with us selling
an 87.42% interest and retaining a 12.58% interest in the Directories Business.
The transaction raised approximately $160 million of gross proceeds, including
gross proceeds of $121 million from the offering, $35 million from the debt
issued in conjunction with the transaction, and $4 million from a gain on
foreign exchange. An amount of $107 million was used to prepay outstanding
amounts under our old bank credit facilities.
Subsequently, on August 27, 2003, we were released from a lockup agreement
relating to our then-remaining interest in the Directories Business, and we
disposed of substantially all of our remaining interest in the Directories
Business through the exercise of our right to convert 99.23% of our
then-remaining 12.58% interest in the Directories Business to 2.5 million units
of the ACS Media Income Fund, which were then sold in an underwritten offering.
The transaction settled on September 4, 2003, generating $17.3 million in net
proceeds and a gain on disposition of approximately $16 million. As a result of
this transaction, we now own less than 0.1% of the Directories Business.
APPOINTMENT OF NEW CEO AND PRESIDENT AND OTHER MANAGEMENT CHANGES. On September
15, 2003, we announced the appointment of Liane Pelletier as CEO and President
and the retirement of Charles E. Robinson as CEO. Ms. Pelletier joined our Board
of Directors and that of our Parent, effective October 6, 2003, after spending
17 years at Sprint Corporation, most recently as a member of the Executive
Management Committee and as Chief Integration
7
Officer. Ms. Pelletier's position consolidates Mr. Robinson's day-to-day
responsibilities and those of Wesley E. Carson, who left in May 2003 to be CEO
of the Directories Business. Mr. Robinson, a 45-year telecom industry veteran
who founded ACS in 1999, remained as Chairman of the Board until December 31,
2003 but retired from day-to-day management of the Company on October 6, 2003.
Ms. Pelletier replaced Mr. Robinson as Chairman on January 1, 2004. On November
6, 2003, we announced the appointment of David C. Eisenberg to the position of
Senior Vice President, Corporate Strategy and Development. Mr. Eisenberg is
directly responsible for strategic planning, business development, market and
competitive analysis, market research and strategy, regulatory strategy and
corporate communications. Mr. Eisenberg comes from Sprint Corporation where he
was Vice President--Corporate Strategy and responsible for helping shape that
corporation's strategic direction.
APPOINTMENT OF NEW BOARD MEMBERS. On November 19, 2003, John M. Egan joined our
Board of Directors. Mr. Egan is the recently retired founder and chairman/CEO of
ARRIS Group. ARRIS is a global communications technology company specializing in
the design and engineering of broadband local access networks and a leading
developer and supplier of optical transmission, cable telephony and Internet
access for cable systems operators. In addition to his role as Chairman of
ARRIS, Egan served on the Boards of the National Cable Telecommunications
Association for 20 years and the Walter Kaitz Foundation, and is actively
involved with other industry organizations. Mr. Egan currently serves on the
advisory board of KB Partners, a Chicago-based venture capital firm, as well as
on several boards of start-up technology companies.
On January 9, 2003, Patrick Pichette joined our Board of Directors. Mr. Pichette
is Executive Vice-President at Bell Canada, or BCE. In this capacity, he is
responsible for accelerating BCE's migration to the customer service,
infrastructure and support systems required to create its new IP-based network.
Mr. Pichette joined BCE in January 2001 as Executive Vice-President, Planning
and Performance Management before being appointed Chief Financial Officer in
2002. Prior to joining BCE, he was a Partner at McKinsey & Company's Montreal
office for over five years as a lead member of McKinsey's North American Telecom
Practice. Mr. Pichette earned a BA Business Administration from Universite du
Quebec a Montreal and a MA Philosophy Politics and Economics from Oxford
University where he attended as a Rhodes Scholar. Mr. Pichette is also a board
member of Manitoba Telecom Services, Inc., or MTS, and of several
non-governmental organizations, including Engineers Without Borders and The
Trudeau Foundation.
TERMINATION AND SETTLEMENT OF THE STATE OF ALASKA CONTRACT. In December 2001, we
entered into a Comprehensive Telecommunications Service Agreement, or CTSA, with
the State of Alaska that became effective on April 1, 2002, to provide
comprehensive telecommunications services for a period of five years. This
contract obligated us, among other things, to deploy and manage advanced and
innovative technologies through new and previously untested business practices.
The CTSA contained a specific completion date of April 1, 2003 for certain
implementation aspects, as well as specific ongoing service level agreements.
The agreement also provided for certain penalties and/or damages of up to
$325,000 a month if service level agreements and implementation dates were not
met. Both parties to the CTSA alleged breaches and failures to perform by the
other party, and on September 15, 2003, we received notification from the State
of Alaska that the State was terminating the CTSA between the two parties and
initiating the disentanglement procedures under the contract.
8
On October 1, 2003, we announced that we had entered into a voluntary settlement
with the State of Alaska regarding the CTSA. Subsequently, we and the State
negotiated and agreed to a definitive Settlement Agreement and Mutual Release,
or the Settlement Agreement, effective October 14, 2003, a copy of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part and is incorporated by reference in this prospectus. Under the terms
of the Settlement Agreement, we agreed to pay to the State of Alaska $3.5
million in cash, one half of which was due upon signing the agreement and one
half of which will be due upon completion of disentanglement. We also agreed to
transfer to the State title to certain assets used in providing services under
the CTSA which resulted in a net loss on disposal of those assets of
approximately $5.6 million. Based on the terms of the Settlement Agreement, we
determined that certain accounts receivable and working capital associated with
the CTSA will not be fully recoverable and we have written them down to their
estimated net realizable value, resulting in a charge of $3.3 million during the
fiscal quarter ending September 30, 2003. The estimated net realizable value of
the working capital and which assets are ultimately transferred to the State
could change as we complete disentanglement.
Each of the parties has also denied any liability or wrongdoing and has released
each other from any claims under the CTSA. The Settlement Agreement also
provides that the execution of the Settlement Agreement is not an admission of
liability or wrongdoing. The parties established a completion date for
disentanglement of December 31, 2003, although disentanglement may be extended
by the State to October 14, 2004 to assure uninterrupted service; PROVIDED,
HOWEVER, that subject to certain limitations, any services provided by us after
December 31, 2003 to the State will be provided at prevailing market rates. As
of December 31, 2003, we and the State had completed the majority of our
Settlement Agreement disentanglement obligations. All services provided by us
under the CTSA prior to January 1, 2004 were either transitioned to other
service providers at the direction of the State or transitioned to our current
commercial rates for such services. We expect that our remaining obligations
under the Settlement Agreement will be completed in the second quarter of 2004.
The Settlement Agreement also provides that we will remain eligible to compete
for future State of Alaska telecommunications contracts. We cannot assure you
that further disputes will not arise in connection with the implementation of
the disentanglement procedures. We also cannot currently estimate the impact
that the termination, including the total costs of disentanglement, will have on
our future revenues or results.
BUYBACK OF PARENT COMMON STOCK. Parent announced on November 24, 2003 that its
Board of Directors had authorized a program to repurchase shares of its common
stock. The Board approved the repurchase of shares up to a cumulative value of
$10 million over a period of approximately one year expiring on December 31,
2004. The repurchases may be made in open market or privately negotiated
transactions from time to time in compliance with Rule 10b-18 of the Exchange
Act, subject to market conditions, applicable legal requirements and other
factors. This authorized plan does not obligate Parent to acquire any particular
amount of common stock and the plan may be suspended at any time at the Parent's
discretion.
9
SUMMARY TERMS OF THE EXCHANGE OFFER
On August 26, 2003, we completed the private offering of $182 million aggregate
principal amount of 9 7/8% senior notes due 2011 at an issue price equal to
96.687% of the aggregate principal amount, which we refer to in this prospectus
as the old notes. We entered into an exchange and registration rights agreement
with the initial purchasers of the old notes, in which we agreed to deliver to
you this prospectus and to use our reasonable best efforts to complete an
exchange offer within 180 days after the date of original issuance of the old
notes. Below is a summary of the exchange offer.
THE EXCHANGE OFFER......We are offering to exchange up to $182 million aggregate
principal amount of our exchange notes for an equal
principal amount of old notes in integral multiples of
$1,000.
EXPIRATION OF THE
EXCHANGE OFFER;
ACCEPTANCE AND ISSUANCE
OF EXCHANGE NOTES.......The exchange offer will expire at 5:00 p.m., New York
City time, on February 23, 2004, or a later date and
time to which we may extend it in our sole discretion.
We do not currently intend to extend the expiration of
the exchange offer. Subject to the conditions stated in
"The exchange offer--Conditions," we will accept for
exchange any and all outstanding notes that are properly
tendered in the exchange offer before the expiration of
the exchange offer. The exchange notes will be delivered
promptly after the expiration of the exchange offer. Any
old notes not accepted for exchange for any reason will
be returned without expense to you promptly after the
expiration or termination of the exchange offer.
WITHDRAWAL RIGHTS.......You may withdraw your tender of old notes in the
exchange offer at any time before the expiration of the
exchange offer.
CONDITIONS TO THE
EXCHANGE OFFER..........The exchange offer is not conditioned upon any minimum
aggregate principal amount of old notes being tendered
for exchange. The exchange offer is subject to customary
conditions, which we may waive. Please read "The
exchange offer--Conditions" for more information
regarding the conditions to the exchange offer.
PROCEDURES FOR TENDERING
NOTES...................To tender old notes held in book-entry form through the
Depository Trust Company, or DTC, you must transfer your
old notes into the exchange agent's account in
accordance with DTC's Automated Tender Offer Program, or
ATOP, system. In lieu of delivering a letter of
transmittal to the exchange agent, a computer-generated
message, in which the holder of the old notes
acknowledges and agrees to be bound by the terms of the
letter of transmittal, must be transmitted by DTC on
behalf of a holder of old notes and received by the
exchange agent before 5:00 p.m., New York City time, on
the expiration date. In all other cases, a letter of
transmittal must be
10
manually executed and received by the exchange agent
before 5:00 p.m., New York City time, on the expiration
date. By signing, or agreeing to be bound by, the letter
of transmittal, you will represent to us that, among
other things:
- any exchange notes to be received by you will
be acquired in the ordinary course of your
business;
- if you are not a broker-dealer, you are not
engaged in, and do not intend to engage in, a
distribution of the exchange notes, and you
have no arrangement or understanding with any
person to participate in a distribution of the
exchange notes;
- you are not our "affiliate" (as defined in Rule
405 under the Securities Act);
- if you are a broker-dealer that receives
exchange notes for your own account in exchange
for old notes that were acquired as a result of
market-making activities or other trading
activities, you must acknowledge that you will
deliver a prospectus in connection with any
resale of these exchange notes;
- if you are a broker-dealer, you did not
purchase the old notes to be exchanged for the
exchange notes from us in the initial offering
of the old notes; and
- you are not acting on behalf of any person who
could not truthfully and completely make the
above representations.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, and you want to
tender old notes in the exchange offer, you should
contact the registered owner promptly and instruct the
registered holder to tender on your behalf. If you wish
to tender on your own behalf, you must, before
completing and executing the letter of transmittal and
delivering your old notes, either make appropriate
arrangements to register ownership of the old notes in
your name or obtain a properly completed bond power from
the registered holder.
GUARANTEED DELIVERY
PROCEDURES..............If you wish to tender your old notes, and time will not
permit your required documents to reach the exchange
agent by the expiration date, or the procedure for
book-entry transfer cannot be completed on time, you may
tender your old notes under the procedures described in
"The exchange offer--Guaranteed delivery procedures."
EFFECT ON HOLDERS OF OLD
NOTES...................As a result of making this exchange offer, and upon
acceptance for exchange of all validly tendered old
notes, we will have fulfilled
11
some of our obligations under the exchange and
registration rights agreement, and, accordingly, there
will be no increase in the interest rate on the old
notes under the exchange and registration rights
agreement if the old notes were eligible for exchange,
but not exchanged, in the exchange offer. If you are a
holder of old notes and you do not tender your old notes
in the exchange offer, you will continue to hold your
old notes and will be entitled to the rights and subject
to the limitations applicable to the old notes in the
indenture.
CONSEQUENCES OF FAILURE
TO EXCHANGE.............All untendered old notes will remain subject to the
restrictions on transfer provided for in the old notes
and in the indenture. Generally, the old notes that are
not exchanged for exchange notes in the exchange offer
will remain restricted securities, and may not be
offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. Any trading market for
the old notes could be adversely affected if some but
not all of the old notes are tendered and accepted in
the exchange offer.
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS......The exchange of old notes for exchange notes in the
exchange offer will not be a taxable event for U.S.
federal income tax purposes. See "Certain federal income
tax considerations" for a more detailed description of
the tax consequences of the exchange.
RESALE..................Under existing interpretations of the Securities Act by
the staff of the SEC contained in several no-action
letters to third parties, and subject to the immediately
following sentence, we believe that the exchange notes
will generally be freely transferable by holders after
the exchange offer without further compliance with the
registration and prospectus delivery requirements of the
Securities Act (subject to certain representations
required to be made by each holder of old notes, as set
forth under "The exchange offer--Procedures for
tendering"). However, any holder of old notes who:
- is one of our "affiliates" (as defined in Rule
405 under the Securities Act);
- does not acquire the exchange notes in the
ordinary course of business;
- intends to distribute the exchange notes as
part of the exchange offer; or
- is a broker-dealer who purchased old notes from
us in the initial offering of the old notes for
resale pursuant to Rule 144A or any other
available exemption under the Securities Act,
12
will not be able to rely on the interpretations of the
staff of the SEC, will not be permitted to tender old
notes in the exchange offer and, in the absence of any
exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with any resale of the exchange notes.
Each broker-dealer that receives exchange notes for its
own account under the exchange offer in exchange for old
notes that were acquired by the broker-dealer as a
result of market-making activities or other trading
activities must acknowledge that it will deliver a
prospectus in connection with any resale of such
exchange notes. See "Plan of distribution."
USE OF PROCEEDS.........We will not receive any cash proceeds from the issuance
of the exchange notes pursuant to the exchange offer.
EXCHANGE AGENT..........The Bank of New York is the exchange agent for the
exchange offer. The address and telephone number of the
exchange agent are set forth in "The exchange
offer--Exchange agent."
SUMMARY OF TERMS OF EXCHANGE NOTES
THE SUMMARY BELOW DESCRIBES THE PRINCIPAL TERMS OF THE EXCHANGE NOTES. CERTAIN
OF THE TERMS AND CONDITIONS DESCRIBED BELOW ARE SUBJECT TO IMPORTANT LIMITATIONS
AND EXCEPTIONS. THE "DESCRIPTION OF THE EXCHANGE NOTES" SECTION OF THIS
PROSPECTUS CONTAINS A MORE DETAILED DESCRIPTION OF THE TERMS AND CONDITIONS OF
THE EXCHANGE NOTES. THE EXCHANGE NOTES WILL BE IDENTICAL IN ALL MATERIAL
RESPECTS TO THE OLD NOTES FOR WHICH THEY HAVE BEEN EXCHANGED, EXCEPT:
- the exchange notes will have been registered under the Securities Act;
- the exchange notes generally will not be subject to the restrictions on
transfer applicable to the old notes or bear restrictive legends;
- the exchange notes will not be entitled to registration rights; and
- the exchange notes will not have the right to earn additional interest
under circumstances relating to our registration obligations.
The material terms of the exchange notes are summarized below:
ISSUER..................Alaska Communications Systems Holdings, Inc.
SECURITIES OFFERED......$182,000,000 aggregate principal amount of 9 7/8% Senior
Notes due 2011, which have been registered under the
Securities Act.
MATURITY DATE...........August 15, 2011.
INTEREST PAYMENT
DATES...................February 15 and August 15 of each year, commencing after
the issuance of the exchange notes.
GUARANTEES..............The exchange notes will be guaranteed on a senior
unsecured basis by Parent, the Issuer's subsidiaries and
certain of the Issuer's future subsidiaries.
13
RANKING.................The exchange notes will be unsecured and:
- will rank equally in right of payment with all
of the Issuer's existing and future senior
debt;
- will rank senior to all of the Issuer's
existing and future subordinated debt,
including the Issuer's existing senior
subordinated notes;
- will be effectively subordinated to secured
debt of the Issuer and its subsidiaries to the
extent of the value of the assets securing such
debt; and
- will be effectively subordinated to all
liabilities (including trade payables) and
preferred stock of each of the Issuer's
subsidiaries that is not a guarantor.
Similarly, the guarantees of the exchange notes provided
by Parent and the Issuer's guarantor subsidiaries will
each be unsecured and:
- will rank equally in right of payment with all
existing and future senior debt of such
guarantor;
- will rank senior to all existing and future
subordinated obligations of such guarantor,
including its guarantee of the Issuer's
existing senior subordinated notes;
- will be effectively subordinated to any secured
debt of such guarantor and its subsidiaries to
the extent of the value of the assets securing
such debt; and
- will be effectively subordinated to all
liabilities (including trade payables) and
preferred stock of each of the guarantor's
subsidiaries that is not a guarantor.
As of September 30, 2003:
- the Issuer had $385.9 million of senior debt
(exclusive of unused commitments under our new
bank credit facilities), $208.9 million of
which was secured;
- Parent had $17.3 million of senior debt,
consisting of its discount debentures
(excluding its guarantee of the new bank credit
facilities and of the exchange notes), all of
which was unsecured;
- our guarantor subsidiaries had $6.1 million of
senior debt (excluding the guarantees of the
new bank credit facilities and of the exchange
notes), $5.1 million of which was secured; and
- the Issuer had $150 million of subordinated
debt, consisting of its existing senior
subordinated notes, and Parent and the Issuer's
guarantor subsidiaries did not have any
subordinated debt other than the guarantees of
the Issuer's senior subordinated notes.
14
OPTIONAL REDEMPTION.....On or after August 15, 2007, the Issuer may redeem some
or all of the exchange notes at the redemption prices
listed under "Description of the exchange
notes--Optional redemption."
Before August 15, 2006, the Issuer may redeem up to 35%
of the exchange notes with the net cash proceeds of
certain sales of equity of the Issuer or Parent at the
redemption price listed under "Description of the
exchange notes--Optional redemption."
CHANGE OF CONTROL.......If we experience a change of control, you will have the
right to require the Issuer to repurchase your exchange
notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if
any, to the date of repurchase. See "Description of the
exchange notes--Change of control."
CERTAIN COVENANTS.......The indenture governing the exchange notes will contain
covenants that will impose significant restrictions on
our business. The restrictions that these covenants will
place on the Issuer and its restricted subsidiaries
include limitations on the ability of the Issuer and its
restricted subsidiaries to:
- incur debt;
- pay dividends or make distributions in respect
of the Issuer's capital stock or to make
certain other restricted payments or
investments;
- sell assets, including the capital stock of the
Issuer's restricted subsidiaries;
- agree to payment restrictions affecting the
Issuer's restricted subsidiaries;
- consolidate, merge, sell or otherwise dispose
of all, or substantially all, of our assets;
- incur liens;
- enter into transactions with our affiliates;
and
- designate the Issuer's subsidiaries as
unrestricted subsidiaries.
These covenants are subject to important exceptions and
qualifications, which are described under "Description
of the exchange notes--Restrictive covenants."
We have accumulated a basket of over $220 million as of
September 30, 2003 to make restricted payments under the
indenture governing our existing senior subordinated
notes, and the indenture governing the old notes and the
exchange notes offered provides for a more restrictive
basket.
15
UNRESTRICTED
SUBSIDIARIES............ACS Media Holdings LLC is what we refer to as an
Unrestricted Subsidiary. An Unrestricted Subsidiary is
not:
- a guarantor of the exchange notes; or
- subject to the restrictive covenants of the
indenture.
We can also sell the assets or capital stock of an
Unrestricted Subsidiary without restriction and can
dividend or distribute these assets or the proceeds of
the sales of these assets on the terms and subject to
the conditions in the indenture. Under circumstances
specified in the indenture, we will be able to designate
other subsidiaries as Unrestricted Subsidiaries.
Our Unrestricted Subsidiary had:
- assets of $10 thousand on a book-value basis as
of September 30, 2003;
- no liabilities as of September 30, 2003; and
- $14 thousand in other non-operating income and
EBITDA for fiscal year 2002 and $10 thousand in
other non-operating income and EBITDA for the
nine months ended September 30, 2003, in each
case on a pro forma basis.
NO PUBLIC MARKET........The exchange notes are new issues of securities and will
not be listed on any securities exchange or included in
any automated quotation system.
ORIGINAL ISSUE
DISCOUNT................The old notes were issued at a discount from their
stated principal amount for U.S. federal income tax
purposes. Consequently, original issue discount will be
included in the gross income of a holder of exchange
notes for U.S. federal income tax purposes in advance of
the receipt of cash payments on the exchange notes
attributable to such income. See "Certain federal income
tax considerations."
RISK FACTORS
You should consider carefully all of the information in this prospectus. In
particular, you should evaluate the specific factors under "Risk factors" before
deciding to exchange your old notes for exchange notes.
16
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data as of and for the year ended December 31,
1999 have been derived from our audited consolidated financial statements (which
have not been included in this prospectus) and represent our consolidated
statement of operations and cash flow data from May 14, 1999, the date upon
which we completed the acquisition of CenturyTel's Alaska Properties and ATU,
through December 31, 1999. Certain reclassifications have been made to the 1999
consolidated operations data to conform to the current presentation of our
consolidated operations data. The summary historical financial data as of and
for the years ended December 31, 2000, 2001 and 2002 have also been derived from
our audited consolidated financial statements (which are incorporated by
reference into this prospectus). The summary historical financial data for the
nine months ended September 30, 2002 and 2003 have been derived from our
unaudited interim consolidated financial statements (which are incorporated by
reference into this prospectus) and which have been prepared on a basis
consistent with our annual consolidated financial statements. In our opinion,
the financial data for the nine months ended September 30, 2002 and 2003 reflect
all adjustments, consisting only of normal and recurring adjustments, necessary
for a fair presentation of the results for those periods. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for the full year or any future period.
The following data should be read in conjunction with "Unaudited pro forma
condensed consolidated statements of operations" contained elsewhere in this
document and the "Management's discussion and analysis of financial condition
and results of operations" and the consolidated financial statements and related
notes found in our Form 10-K, as amended, for the fiscal year ended December 31,
2002, and in our Form 10-Q, as amended, for the fiscal quarter ended September
30, 2003. See "Certain documents incorporated by reference."
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------
(DOLLARS IN THOUSANDS) 1999 2000(1) 2001 2002(2) 2002 2003(3)
- -------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $192,786 $313,527 $332,215 $ 343,502 $ 256,736 $ 246,010
Operating expenses.................... 176,207 279,759 285,092 364,103 221,004 286,301
Gain (loss) on disposal of assets..... - - - (2,163) (2,108) 112,507
------------------------------------------------------------------
Operating income (loss)............... 16,579 33,768 47,123 (22,764) 33,624 72,216
Interest expense...................... (37,503) (61,958) (57,565) (49,113) (36,462) (49,546)
Interest income and other............. 426 3,560 3,250 2,203 1,626 (10,749)
Equity in income (loss) of
investments........................ (198) (303) 69 - - 628
------------------------------------------------------------------
Income (loss) before income taxes,
discontinued operations, and
cumulative effect of change in
accounting principle............... (20,696) (24,933) (7,123) (69,674) (1,212) 12,549
Income tax benefit.................... 301 197 195 - - -
------------------------------------------------------------------
Income (loss) from continuing
operations......................... (20,395) (24,736) (6,928) (69,674) (1,212) 12,549
Loss from discontinued
operations(4)...................... (306) (917) (1,718) (7,632) (7,523) (52)
------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting
principle.......................... (20,701) (25,653) (8,646) (77,306) (8,735) 12,497
Cumulative effect of change in
accounting principle(5)............ - - - (105,350) (105,350) -
------------------------------------------------------------------
Net income (loss)..................... $(20,701) $(25,653) $ (8,646) $(182,656) $(114,085) $ 12,497
------------------------------------------------------------------
------------------------------------------------------------------
</Table>
17
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------
(DOLLARS IN THOUSANDS) 1999 2000(1) 2001 2002(2) 2002 2003(3)
- -------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............. $ 9,006 $ 61,896 $ 41,012 $ 18,565 $ 21,040 $ 121,160
Working capital(6).................... 101,374 54,727 33,721 25,686 23,518 121,999
Total assets.......................... 937,711 909,306 903,542 704,982 773,456 655,611
Total debt, including current
portion............................ 598,407 599,642 596,603 592,831 591,498 535,915
Total stockholder's equity............ 266,541 231,153 208,678 18,618 89,977 33,180
- -------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used for)
operating activities............... $(50,648) $143,547 $ 76,638 $ 65,799 $ 49,179 $ 50,519
Net cash provided by (used for)
investing activities............... (774,368) (74,699) (94,483) (78,571) (61,547) 128,375
Net cash provided by (used for)
financing activities............... 833,741 (15,958) (3,039) (9,675) (7,604) (76,299)
OTHER FINANCIAL DATA:
Adjusted EBITDA(7).................... $ 56,821 $108,524 $128,661 $ 128,681 $ 98,484 $ 75,780
EBITDA margin(8)...................... 29.5% 34.6% 38.7% 37.5% 38.4% 30.8%
Depreciation and amortization......... $ 40,141 $ 71,755 $ 79,108 $ 82,940 $ 61,690 $ 66,735
Goodwill impairment loss(2)........... - - - 64,755 - -
Capital expenditures.................. 74,792 72,253 87,582 71,164 52,559 32,127
Ratio of net debt to EBITDA(9)........ 5.0x 4.3x 4.5x
Ratio of net senior debt to
EBITDA(10)......................... 3.6x 3.2x 3.3x
Ratio of earnings to fixed
charges(11)........................ 0.5x 0.6x 0.9x - 1.0x 1.25x
Other data (at end of period):
LOCAL TELEPHONE
Retail access lines................... 281,726 272,936 261,002 236,148 241,583 224,744
Wholesale access lines................ 15,680 17,303 22,859 22,148 25,074 18,795
Unbundled network elements............ 28,202 39,221 49,062 64,711 60,504 72,449
------------------------------------------------------------------
Total local telephone access lines.... 325,608 329,460 332,923 323,007 327,161 315,988
Enterprise private network
lines(12).......................... - - - 13,050 11,747 20,188
------------------------------------------------------------------
Total lines........................... 325,608 329,460 332,923 336,057 338,908 336,176
WIRELESS
Estimated covered population(13)...... 460,802 462,057 468,622 478,413 471,863 478,413
Subscribers........................... 73,068 75,933 80,120 82,220 81,559 83,993
Penetration........................... 15.9% 16.4% 17.1% 17.2% 17.3% 17.6%
- -------------------------------------------------------------------------------------------------------------
</Table>
(1) For the year ended December 31, 2000, operating expenses include $5,288 of
unusual charges, which consisted of $3,019 of severance and restructuring
charges, $1,451 of costs incurred in connection with an attempted
acquisition, and $818 related to a legal settlement.
(2) For the year ended December 31, 2002, operating revenues include $11,066 of
previously deferred interstate access revenue related to a dispute that was
recognized during the year based on a favorable ruling by the District of
Columbia Court of Appeals. Operating expenses include a $64,755 charge
related to the impairment of goodwill incurred as a result of our annual
goodwill impairment analysis, the write-off of $875 related to a previously
deferred regulatory asset, $1,000 of severance and restructuring related
costs, and $325 of other costs.
(3) The nine months ended September 30, 2003 include $54,539 in contract
termination and asset impairment charges, which is included in operating
expenses, $113,518 in gains related to the sales of the Directories Business
on May 8, 2003 and September 4, 2003, which is included in gain (loss) on
disposal of assets, $4,261 in foreign currency gains realized on settlement
of the sales of the Directories Business and a non-operating asset
impairment charge of $15,924, which are both included in interest income and
other, and a $13,053 write-off of deferred financing costs related to the
early extinguishment of our old bank credit facilities, which is included in
interest expense.
(4) In March of 2002, we approved a plan to discontinue and sell our wireless
television segment. As a result, the operating income and expense of this
segment has been classified as a discontinued operation for all periods
presented.
(5) Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. As a part of this
adoption, we recorded a goodwill impairment charge of $105,350 on January 1,
2002 as a cumulative effect of a change in accounting principle.
(6) Working capital represents total current assets less total current
liabilities.
18
(7) Adjusted EBITDA represents net income (loss) before interest expense, income
tax benefit, depreciation and amortization, and certain non-cash charges and
unusual gains as defined in our new bank credit facility agreement as
described in the following table:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 2002 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss)........................................... $(20,701) $(25,653) $ (8,646) $(182,656) $(114,085) $ 12,497
Add (subtract):
Interest expense......................................... 37,503 61,958 57,565 49,113 36,462 49,546
Income tax benefit....................................... (301) (197) (195) - - -
Depreciation and amortization............................ 40,141 71,755 79,108 82,940 61,690 66,735
Other non-cash charges and unusual gains:
Loss from discontinued operations..................... 179 661 829 7,016 6,959 11
(Gain) loss on disposal of assets..................... - - - 2,163 2,108 (112,507)
Asset impairment charges.............................. - - - - - 63,759
Goodwill impairment loss.............................. - - - 64,755 - -
Change in accounting principle........................ - - - 105,350 105,350 -
Gain on foreign exchange.............................. - - - - - (4,261)
-----------------------------------------------------------------
Adjusted EBITDA............................................. $ 56,821 $108,524 $128,661 $ 128,681 $ 98,484 $ 75,780
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
Adjusted EBITDA is included in this prospectus because it is an operating
performance measure used in determining our compliance with our debt covenants
and it is an important performance measure for our current and future lenders.
While EBITDA and similar variations thereof are frequently used as a measure of
operating performance, these terms are not necessarily comparable to other
similarly titled captions of other companies due to the potential
inconsistencies in the method of calculation.
(8) "EBITDA margin" is defined as Adjusted EBITDA as a percentage of operating
revenues.
(9) "Ratio of net debt to EBITDA" is defined as net debt, which includes total
debt less cash and cash equivalents, divided by Adjusted EBITDA.
(10) "Ratio of net senior debt to EBITDA" is defined as (a) total debt less (1)
senior subordinated debt of $150 million and (2) cash and cash equivalents,
divided by (b) Adjusted EBITDA.
(11) For the purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income before income tax benefit plus fixed charges.
"Fixed charges" consist of expensed and capitalized interest, amortization
of debt issuance costs, and the portion of rental expense which we believe
is representative of the interest component of lease expense. For the years
ended December 31, 1999, 2000, 2001 and 2002, the deficiency of earnings to
fixed charges was $20,197, $24,433, $6,997 and $69,674, respectively.
(12) Revenues from enterprise private network lines are recognized in the
Internet segment and not in the local telephone segment.
(13) Estimated covered population figures are based on population data published
by the State of Alaska on an annual basis.
19
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW IN ADDITION TO OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION TO
EXCHANGE YOUR OLD NOTES FOR EXCHANGE NOTES. REALIZATION OF ANY OF THE FOLLOWING
RISKS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION,
CASH FLOW, AND RESULTS OF OPERATIONS.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL LEGISLATION AND REGULATION.
APPLICABLE LEGISLATION AND REGULATIONS AND CHANGES TO THEM COULD ADVERSELY
AFFECT OUR BUSINESS.
We operate in a heavily regulated industry, and most of our revenues come from
the provision of services regulated by the Federal Communications Commission, or
FCC, and the Regulatory Commission of Alaska, or RCA. Laws and regulations
applicable to us and our competitors may be, and have been, challenged in the
courts, and could be changed by legislative initiative or regulatory agencies at
any time. We cannot predict the impact of future developments or changes to the
regulatory environment or the impact such developments or changes would have on
us. See "Regulation."
There are a number of FCC policies under review that could have a significant
impact on us. For example, many of the FCC's policies with regard to the
provisioning of UNEs and other LEC interconnection rules are in the process of
being clarified or revised. These policies include clarification of our
obligation to provide UNEs and new rules for the prices we receive for the UNEs.
Changes to intercarrier compensation that could impact our access revenues are
also possible. The FCC is also looking at universal service fund contribution
and disbursement policies that could impact the amount and timing of our
contribution to and receipt of universal service funds. Changes in FCC policies
may increase our obligations and/or reduce our revenue. Further, most FCC
telecommunications decisions, such as the Triennial Review order, are subject to
substantial delay and judicial review. These delays and related litigation
create risk associated with uncertainty over the final direction of federal
policies.
The federal regulatory environment in which we operate may undergo a significant
change in the near future. On August 21, 2003, the FCC, in its Triennial Review
proceeding, issued an order describing its findings and a framework concerning
the obligations of incumbent local exchange carriers, or ILECs, such as our
wireline subsidiaries, to make available network elements on an unbundled and
subsidized basis. The FCC framework eliminates some unbundling requirements for
new broadband and packet-switching facilities. In addition, the FCC framework
requires state commissions to initiate proceedings to determine whether to
discontinue specific unbundling obligations (E.G., for switching, high capacity
loops and unbundled transport) of ILECs, such as our wireline subsidiaries. The
resulting rules replace the FCC's previous unbundling rules, which were
overturned by the U.S. Court of Appeals for the District of Columbia. We cannot
analyze or quantify the effects of this decision until the states complete their
implementation proceedings in July 2004 and the Appeals Court rules on the
lawfulness of the Triennial Review order. However, the new unbundling rules will
most likely create an even more uncertain and more complex regulatory
environment for our wireline subsidiaries, possibly resulting in further
reductions in revenues, capital expenditures, and employment levels.
In addition, the direction of state regulatory policy under the RCA remains
unclear. The RCA was formed in 1999 and is subject to periodic reauthorization.
The RCA's ability to implement
20
improved regulatory policies and practices was called into question by the
Alaska legislature during the RCA's most recent reauthorization proceedings in
2003. While the RCA ultimately received reauthorization through 2007, the
legislature did provide guidance on certain telecommunications policies, and it
continues to scrutinize the regulatory process. Further, three of the five
commissioners of the RCA have been appointed within the last year. Given the
large number of proceedings currently before the RCA, including those addressing
various aspects of local exchange competition, market structure, bundling,
access charges, retail rates, and UNE rates, the continuing debate over
regulatory policy and the recent seating of a majority of new commissioners
creates uncertainty regarding the timing and direction of state regulatory
policies.
AS THE INCUMBENT LEC IN OUR SERVICE AREAS, WE ARE SUBJECT TO LEGISLATION AND
REGULATION THAT IS NOT APPLICABLE TO OUR COMPETITORS.
Existing federal and state rules impose obligations and limitations on us, as
the incumbent LEC, that are not imposed on our competitors. Federal obligations
to share facilities, justify tariffs, maintain certain types of accounts, and
file certain types of reports are all examples of disparate regulation.
Similarly, state regulators impose limitations on bundling, require structural
separations between certain affiliated entities, and impose accounting and
reporting requirements and service obligations on us that do not exist for our
competitors. In addition, state regulators have imposed greater tariffing
standards and obligations on us than our competitors, have required us to
operate our business segments separately, and have prohibited our LECs from
promoting our long distance services more favorably than our competitors. As our
business becomes increasingly competitive, the continued regulatory disparity
could impede our ability to compete in the marketplace, which could have a
material adverse effect on our business.
A REDUCTION BY THE RCA OR THE FCC OF THE RATES WE CHARGE OUR CUSTOMERS WOULD
REDUCE OUR REVENUES AND EARNINGS.
The rates we charge our local telephone customers are based, in part, on a rate
of return authorized by the RCA on capital invested in our LECs' networks. These
authorized rates, as well as allowable investment and expenses, are subject to
review and change by the RCA at any time. If the RCA orders us to reduce our
rates, both our revenues and our earnings will be reduced.
As a condition to granting its approval of our 1999 acquisitions of the Alaska
properties of CenturyTel and ATU, the Alaska Public Utilities Commission, or
APUC, the predecessor of the RCA, required that we file, by July 1, 2001,
revenue-requirement, cost-of-service and rate-design studies that showed our
earnings levels for the year ended December 31, 2000. The revenue-requirement
phase has now been completed for our three rural LECs. ACS of Alaska, Inc., or
ACSAK, was found to be underearning, while ACS of Fairbanks, Inc., or ACSF, and
ACS of Northland, Inc., or ACSN (covering the most rural communities), were
found to be overearning. ACS of Anchorage, Inc., or ACSA, our non-rural LEC, was
found to be underearning, but due to our claim that the amount of the
underearning deficiency was too small, the RCA held a rehearing. The RCA issued
an order on the rehearing that will increase ACSA's underearning deficiency.
Generally, overearnings lead to reduced rates while underearnings result in
increased rates, but there are a number of factors that influence the results,
including changes in demand, competitive pressures, and alternative recovery
mechanisms. In addition, the current rates in Anchorage are interim and
refundable, already capturing a portion of the revenue increase attributable to
ACSA's underearning position.
21
Until a final order is issued, we cannot assure you that the rates that result
from this process will increase or even remain at their current levels. While we
expect that final rates will likely be implemented for the three rural LECs in
the second or third quarter of 2004 and for Anchorage in the first half of 2005,
there can be no assurance that our rates will be implemented on this schedule or
at the anticipated rates. In addition, the requirement to disclose proposed
tariffs six to 12 months before they go into effect will enable our competitors
to implement competitive responses before we are able to implement new rates,
diminishing our ability to compete in the marketplace. State regulators may
rebalance our planned rates or set new rates closer to costs, and refuse to keep
sensitive business information confidential, continuing our competitive
disadvantage in the marketplace. Our local exchange service competitors may also
gain a competitive advantage as a result of the state regulators permitting our
competitors to intervene in rate-setting proceedings.
FCC regulations also affect rates that are charged to customers. The FCC
approves tariffs for interstate access and subscriber line charges, both of
which are components of our network service revenue. The FCC currently is
considering proposals to reduce interstate access charges for carriers like us,
and may require us to recover the forgone revenue from our end users. If the FCC
lowers interstate access charges, we may be required to recover more revenue
through subscriber line charges or forego this revenue altogether. This could
reduce our revenue or impair our competitive position.
LOSS OF THE EXEMPTION FROM CERTAIN FORMS OF COMPETITION GRANTED TO OUR RURAL
LECS UNDER THE 1996 ACT EXPOSES US TO INCREASED COMPETITION.
Historically, our rural LECs (which do not include Anchorage) operated under a
statutory exemption under which they were not required to offer UNEs and
wholesale discounted resale services to competitors. On June 30, 1999, the APUC
issued an order revoking these rural exemptions. In July 1999 we sought
reconsideration of this order from the RCA, and on October 11, 1999, the RCA
issued an order sustaining the APUC decision. Upon appeal, the Alaska Supreme
Court reversed and remanded the RCA's decision, in part, on December 12, 2003,
ruling that the termination of ACSN's rural exemption was erroneous, and the
terminations of ACSF and ACSAK may be erroneous. As a result, the RCA was
ordered to conduct further proceedings on the rural exemptions of ACSF and
ACSAK. However, ACSN's exemption is fully reinstated. See "Regulation."
The obligation of ACSF and ACSAK to provide UNEs to CLECs for new customers was
suspended by the RCA on January 16, 2003 pending resolution of the remand
proceedings. Absent a reinstatement of the statutory exemption, ACSF and ACSAK
will continue to face local exchange service competition, further reducing
revenues and returns. If the rural exemption is reinstated, the decision may be
subject to a judicial stay.
GCI currently has interconnection agreements with our rural LECs, ACSF and ACSAK
(as well as with our Anchorage LEC). The rates, terms, and conditions of these
rural interconnection agreements were arbitrated in the summer of 2000, and the
RCA confirmed the arbitrator's decision by an order issued October 5, 2000. The
existing agreements expired on October 5, 2003, and we will arbitrate new
agreements after the RCA completes proceedings on the ACSA interconnection
agreement. New rates for the rural agreements will be in place by October 6,
2004, at the latest, and will be effective retroactive to April 6, 2004. In
addition, so long as the rural exemptions are terminated, other carriers are
entitled to obtain interconnection agreements with us. If we continue to be
unable to charge rates that fairly compensate us for
22
providing UNEs or wholesale discounted resale services, our financial and
operating results could be adversely affected.
THE TELECOMMUNICATIONS INDUSTRY IS EXTREMELY COMPETITIVE, AND WE MAY HAVE
DIFFICULTY COMPETING EFFECTIVELY.
The telecommunications industry is extremely competitive. Competition in the
markets in which we operate could:
- reduce our customer base;
- require us to lower rates and other prices in order to compete;
- increase marketing expenditures and the use of discounting and
promotional campaigns that would adversely affect our margins; or
- otherwise lead to reduced revenues, margins, and returns.
LOCAL. As the ILEC, we face stiff competition mainly from resellers, local
providers who lease UNEs from us, and, to a lesser degree, from facilities-based
providers of local telephone services. Six years ago the two largest long
distance carriers in Alaska began providing competitive local telephone services
in Anchorage through UNE interconnection with our facilities and resale of our
services. Interconnection agreements have since been executed with several other
competitors, and an agreement is pending with another competitor. As a result,
since 1996, when the market was opened to competition, through December 2003, we
have lost approximately 50% of our retail local telephone access lines in
Anchorage. Our competitors may, in the future, bypass or remove these customers
from our network completely, which would eliminate revenue from those lines
altogether.
In addition to losing additional customers to our existing competitors, we may
also lose customers to new competitors. Market entry by new competitors is
encouraged by the FCC's pick-and-choose rule, which allows any new competitor in
a market to pick and choose any portion of or all of an existing interconnection
agreement for itself. This obviates the need for a lengthy and often costly
negotiation or arbitration for a new interconnection agreement, thereby easing
entry into such a market for a new competitor, but it can reduce the incentive
of the incumbent carrier to negotiate different terms with different
competitors. The FCC has proposed changes to this rule which would eliminate the
ability to "pick and choose" among the provisions of different agreements, and
require a competitor to adopt all of an existing agreement, negotiate or
arbitrate a new agreement, or choose interconnection terms from a state-approved
statement of generally available terms. We cannot predict the outcome of these
proposed changes. Also, the opportunity for competitors to receive portable USF
encourages entry where it would otherwise not be economically feasible.
As noted above, our rural LECs had been exempt from having to lease their
facilities or to resell their services on a wholesale basis to competitors
seeking interconnection. However, Alaska's regulatory commission terminated
these exemptions four years ago. We have since had to provide UNEs and wholesale
resale services to competitors in our rural areas. We continue to have this
obligation after the Alaska Supreme Court opinion reversing the RCA order,
except with respect to ACSN, at least until the remand proceeding concludes, and
possibly, thereafter. As of December 2003, we believe we have lost approximately
23% of our retail-access lines in Fairbanks and 22% of such lines in Juneau. See
"--Loss of the exemption from certain forms of competition granted to our rural
LECs under the 1996 Act exposes us to increased competition."
23
Interconnection duties are governed by telecommunications rules and regulations
related to the UNEs that must be provided. These rules and regulations remain
subject to ongoing modifications. See "--Our business is subject to extensive
governmental legislation and regulation. Applicable legislation and regulations
and changes to them could adversely affect our business." In addition, while
cellular wireless services have historically complemented traditional local
exchange services, existing and emerging wireless technologies are increasingly
competitive with local exchange services in some or all of our service areas.
Finally, GCI has announced plans to deploy cable telephony and migrate its UNE
customers off of our network and onto its cable system. Such a migration would
result in a reduction of revenue as GCI would no longer be leasing our
facilities to serve those customers, which could have a material impact on our
results of operations.
In addition, unaffiliated wireless providers that serve many of the same areas
served by our LECs may provide increased competition to our LECs because of
recent changes in the law that will allow customers to retain their telephone
numbers when changing service providers from one of our LECs to a wireless
carrier as of May 24, 2004.
WIRELESS. With respect to our wireless services, we currently compete with at
least one other wireless provider in each of our major service areas. Some of
our competitors are formidable and may have financial and technical resources
greater than ours.
INTERNET. In the highly competitive Internet access services business, we expect
that competition will intensify in the future due to the absence of significant
barriers to entry. We currently compete with a number of established online
services companies, interexchange carriers and cable companies, including GCI.
Competition is particularly intense for broadband services. For instance, the
number of cable modems deployed by GCI is approximately 2.6 times the number of
DSL modems deployed by us.
LONG DISTANCE. In long distance, we face competition from AT&T Alascom and GCI,
the two major long distance providers in Alaska, and we believe we have less
than 5% of total long distance revenue in Alaska as of September 30, 2003.
In seeking to compete in these businesses, we may be subject to regulatory
restrictions, such as those pertaining to bundled service offerings, structural
separation, competitive neutrality or use of customer information, which will
increase our difficulty in competing effectively. In addition, the terms and
conditions under which we are obligated to lease our facilities and provide
services at prices set by the state regulator also impair our ability to compete
effectively. At this time, we are required by the RCA to lease UNEs to
competitors at a price that is less than it costs us to construct and maintain
these lines (even in light of our receipt of universal service payments). This
requirement benefits companies entering the telecommunications markets served by
our LECs and provides these companies with a competitive pricing advantage.
REVENUES FROM ACCESS CHARGES MAY BE REDUCED OR LOST.
We received 29.4% of our 2002 pro forma operating revenues from access charges
paid by interstate and intrastate interexchange carriers and end users for the
use of our network to connect the customer premises to the interexchange
network. The amount of revenue that we receive from access charges is calculated
in accordance with requirements set by the FCC and the RCA. Any change in these
requirements may reduce our revenues and earnings.
Under the regulatory rules that exist today, we receive access revenue related
to the calls made by all of our retail customers as well as our competitors'
customers who are served via
24
wholesale resale service. Access revenue related to our competitors' retail
customers that are served by UNEs or by the competitors' own facilities flows to
our competitors. To the extent that competitors shift the form in which they
provide service away from wholesale resale to UNEs or their own facilities, our
access revenue will be reduced.
There is currently a national debate regarding the appropriate mechanisms for
intercarrier compensation, and some parties to that debate have suggested
terminating all interstate access charge payments. If such a proposal is
adopted, it could have a material impact on the company's revenue and earnings.
The same is true for any changes to the current methodology for setting
intrastate access charges.
In addition, both GCI and AT&T alleged that we collected excess interstate
access revenue during the years 1997 through 2000. While those claims have been
resolved, we cannot assure you that claims for excess charges in subsequent
years will not be made, nor that we will be able to defeat all such claims.
A REDUCTION IN THE UNIVERSAL SERVICE SUPPORT CURRENTLY RECEIVED BY SOME OF OUR
SUBSIDIARIES WOULD REDUCE OUR REVENUES AND EARNINGS.
We received 5.6% of our 2002 pro forma operating revenues from the USF, which
was established under the direction of the FCC to compensate carriers for the
high cost of providing universal telecommunications services in rural, insular,
and high-cost areas. If the support received from the USF is materially reduced
or discontinued, some of our rural LECs might not be able to operate profitably.
Also, because we provide interstate and international services, we are required
to contribute to the USF a percentage of our revenue earned from such interstate
and international services. Although our rural LECs receive support from the
USF, we cannot be certain of how, in the future, our contributions to the USF
will compare to the support we receive from the USF.
Various reform proceedings are under way at the FCC to change the method of
calculating the amount of contributions paid into the USF by all carriers and
the amount of contributions or support rural carriers like ACSF, ACSAK and ACSN
receive from the USF, as well as the amount of support received by our
competitors. We cannot predict at this time the effect that any change in the
method of calculating support may have on our business. We cannot predict at
this time whether or when any change in the method of calculating support may
affect our business.
The RCA has granted Eligible Telecommunications Carrier, or ETC, status to GCI
in Fairbanks and Juneau. Under current FCC rules, this entitles GCI to the same
amount of per-line USF support that we would have received regardless of GCI's
costs. To the extent that the competitive ETC has lower costs than the
incumbent, but receives the same amount of financial support, the competitor
gains a competitive cost advantage over the incumbent. For example, on average,
our cost of providing a local loop in Fairbanks is approximately $30 per line
per month, but GCI has the right to lease this facility from us for
approximately $19 per line per month. Consequently, if GCI serves a customer via
UNEs, it receives USF support based on a high-cost $30 loop, creating a windfall
gain for GCI because its loop costs are much lower. While these issues are part
of the national debate on the future of USF, it is impossible to say when, if
ever, these trends will change.
There is a trend toward granting ETC status to wireless carriers. Following a
petition for ETC status by Alaska DigiTel LLC, or DigiTel, ACS Wireless, Inc.,
or ACSW, Dobson Cellular Systems, Inc., or Dobson, and MTA Wireless, or MTAW,
have also petitioned for ETC status. Further,
25
Dobson has asked the RCA to redefine our rural service areas to permit Dobson to
receive support on a wire-center basis, but without having to serve the entire
area that we are currently required to serve. Redefining ACS's rural service
areas requires the approval of both the RCA and the FCC. On August 28, 2003, the
RCA granted DigiTel's request for ETC status. The ACSW, Dobson and MTAW
petitions are still pending. It is impossible to say whether these pending
petitions will be granted or even when a decision will be rendered. The granting
of our ACSW petition will generate additional revenue for us while the granting
of DigiTel's petition will generate increased competition. The granting of
Dobson's request to redefine service areas could have a material impact on our
revenues and earnings, in addition to increasing competition.
WE MAY NOT BE ABLE TO OFFER LONG DISTANCE AND INTERNET SERVICES ON A PROFITABLE
BASIS.
Our long distance operations have historically been modest in relation to the
long distance businesses of our competitors and have generated operating losses
of $2.0 million in 2001 and $1.6 million in 2002. We have expanded our long
distance operations substantially and changed the way in which we offer those
services by packaging them with complementary services. Our Internet operations
generated operating losses of $9.6 million in 2001 and $21.6 million in 2002. We
have also deployed new technology capable of providing advanced Internet
services over a converged network. There is, however, no assurance that our
operating losses from long distance and Internet services will not increase in
the future, even after taking account of any additional revenue from
complementary or advanced services.
Prior to 1999 we offered long distance services only in the Anchorage area, and
those services were provided on a "reseller" basis as we relied on other
carriers to provide the service. In 1999, we acquired ownership of long distance
fiber-optic transmission capacity connecting Juneau, Fairbanks, and Seattle with
Anchorage and, where possible, we have transferred our long distance traffic to
our own network. We also have an agreement that enables us to purchase
additional fiber-optic capacity in future years from Neptune Communications,
L.L.C., or Neptune, the expenditures for which are expected to be significant
and may exceed $25 million over the next four years. As part of the agreement,
we fulfilled a commitment to lend to Neptune an aggregate principal of $15
million for certain consideration. The loaned amount was written down to its
estimated net realizable value during the quarter ended September 30, 2003.
While we have an agreement with Neptune, certain material terms of the agreement
remain subject to continued renegotiation including the terms and structure of
the loaned amount. The significant provisions of this agreement are: i) purchase
commitments by us for capacity in 2005 and 2007, the final price and quantity of
which are subject to future events, ii) Neptune's restoration of our traffic
carried on another cable system, iii) and specific interconnection arrangements
between us and Neptune, should we exercise our option to purchase certain
network assets from Neptune. We are currently negotiating open elements of our
agreement with Neptune and renegotiating other terms and conditions of the
agreement. It is impossible to determine the ultimate outcome of these
negotiations at this time. In addition, even if we are able to resolve the
issues, we cannot assure you that we will generate sufficient revenue from these
future acquisitions of fiber-optic capacity to provide satisfactory returns on
our investment.
We expect to continue to enter into resale agreements for a portion of our long
distance services. In connection with these agreements, we must estimate future
demand for our long distance service. If we overestimate this demand, we may be
forced to pay for services we do not need, and if we underestimate this demand,
we may need to lease additional capacity on a
26
short-term basis at unfavorable prices, assuming additional capacity is
available. If additional capacity is not available, we will not be able to meet
this demand. For example, we have recently invested in a Multi-Protocol Label
Switching over Asynchronous Transfer Mode, or MPLS/ATM, network and associated
service center assets for a combined total of approximately $20 million which
amount we subsequently wrote down by approximately $15 million in the fiscal
quarter ended September 30, 2003. The service we provide over our MPLS/ATM
network currently is not subject to regulation as a telecommunications service.
If the FCC or the RCA subject this type of service to increased regulation, it
could materially increase our costs and/or reduce our revenues. To date, we have
not added sufficient customers to our MPLS/ATM network to generate enough
revenues to operate it profitably. If we are unable to increase our customer
base in this network, we may not recover our investment in the network.
IF WE DO NOT ADAPT TO TECHNOLOGICAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY,
WE COULD LOSE CUSTOMERS OR MARKET SHARE.
The telecommunications industry will continue to experience rapid changes in
technology. Our success may depend on our ability to adapt to changes in the
industry. Our failure to adopt a new technology, or our choice of one
technological innovation over another, may have an adverse impact on our ability
to compete or meet the demands of our customers. Technological change could,
among other things, reduce the capital required by a competitor to provide local
service in our service areas.
WE MAY NOT BE ABLE TO RECOVER THE COSTS OF DEPLOYING A NEW WIRELESS NETWORK.
ACS Wireless, Inc. is currently commencing the deployment of a new CDMA 1xRTT
network. Substantial costs are involved in the hardware and software necessary
to implement this new network. There may also be substantial costs related to
the business process changes, such as new billing and customer service
arrangements, needed to provide service over this network and the business of
migrating existing customers from the existing TDMA network to the next-
generation CDMA network. Customers may not immediately receive the full benefits
of the next-generation CDMA network's enhanced capabilities, as network
deployment is expected to occur in stages over time. If we are not able to
successfully deploy the technology, we may lose customers to other carriers. In
addition, there is no assurance that our next-generation CDMA network will work
as expected. The size of the Alaska market being served by this new network is
also small, and we cannot assure you that we will fully recover all costs
related to this network within a reasonable period of time, or at all.
THE SUCCESSFUL OPERATION AND GROWTH OF OUR BUSINESSES ARE DEPENDENT ON ECONOMIC
CONDITIONS IN ALASKA.
Substantially all of our customers and operations are located in Alaska. Due to
our geographical concentration, the successful operation and growth of our
businesses is dependent on economic conditions in Alaska. The Alaskan economy,
in turn, is dependent upon many factors, including:
- the strength of the natural resources industries, particularly oil
production;
- the strength of the Alaskan tourism industry;
- the level of government and military spending; and
- the continued growth in services industries.
27
The customer base for telecommunications services in Alaska is small and
geographically concentrated. The population of Alaska is approximately 640,000,
over 60% of whom live in Anchorage, Juneau, and Fairbanks.
WE MAY INCUR SUBSTANTIAL COSTS IN CONNECTION WITH THE TERMINATION AND SETTLEMENT
OF THE AGREEMENT WITH THE STATE OF ALASKA.
In December 2001, we entered into a Comprehensive Telecommunications Service
Agreement, or CTSA, with the State of Alaska that became effective on April 1,
2002, to provide comprehensive telecommunications services for a period of five
years. This contract obligated us, among other things, to deploy and manage
advanced and innovative technologies through new and previously untested
business practices. The CTSA contained a specific completion date of April 1,
2003 for certain implementation aspects, as well as specific ongoing service
level agreements. The agreement also provided for certain penalties and/or
damages of up to $325,000 a month if service level agreements and implementation
dates were not met. Both parties to the CTSA alleged breaches and failures to
perform by the other party, and on September 15, 2003, we received notification
from the State of Alaska that the State was terminating the CTSA between the two
parties and initiating the disentanglement procedures under the contract.
On October 1, 2003, we announced that we had entered into a voluntary settlement
with the State of Alaska regarding the CTSA. Subsequently, we and the State
negotiated and agreed to a definitive Settlement Agreement and Mutual Release,
or the Settlement Agreement, effective October 14, 2003, a copy of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part and is incorporated by reference in this prospectus. Under the terms
of the Settlement Agreement, we agreed to pay to the State of Alaska $3.5
million in cash, one half of which was due upon signing the agreement and one
half of which will be due upon completion of disentanglement. We also agreed to
transfer to the State title to certain assets used in providing services under
the CTSA which resulted in a net loss on disposal of those assets of
approximately $5.6 million. Based on the terms of the Settlement Agreement, we
determined that certain accounts receivable and working capital associated with
the CTSA will not be fully recoverable and we have written them down to their
estimated net realizable value, resulting in a charge of $3.3 million during the
fiscal quarter ending September 30, 2003. The estimated net realizable value of
the working capital and which assets are ultimately transferred to the State
could change as we complete disentanglement.
Each of the parties has also denied any liability or wrongdoing and has released
each other from any claims under the CTSA. The Settlement Agreement also
provides that the execution of the Settlement Agreement is not an admission of
liability or wrongdoing. The parties established a completion date for
disentanglement of December 31, 2003, although disentanglement may be extended
by the State to October 14, 2004 to assure uninterrupted service; PROVIDED,
HOWEVER, that subject to certain limitations, any services provided by us after
December 31, 2003 to the State will be provided at prevailing market rates. As
of December 31, 2003, we and the State had completed the majority of our
Settlement Agreement disentanglement obligations. All services provided by us
under the CTSA prior to January 1, 2004 were either transitioned to other
service providers at the direction of the State or transitioned to our current
commercial rates for such services. We expect that our remaining obligations
under the Settlement Agreement will be completed in the second quarter of 2004.
The Settlement Agreement also provides that we will remain eligible to compete
for future State of Alaska telecommunications contracts. We cannot assure you
that further disputes will
28
not arise in connection with the implementation of the disentanglement
procedures. We also cannot currently estimate the impact that the termination,
including the total costs of disentanglement, will have on our future revenues
or results.
WE DEPEND ON KEY MEMBERS OF OUR SENIOR MANAGEMENT TEAM.
Our success depends largely on the skills, experience and performance of key
members of our senior management team. In connection with our disposition of a
controlling interest in our Directories Business in May 2003, our then-president
and chief operating officer, Wesley E. Carson, departed to run that business. In
addition, on October 6, 2003, Charles E. Robinson retired as our chief executive
officer and as chief executive officer of Parent. While Ms. Liane Pelletier,
after having spent 17 years at Sprint Corporation, most recently as a member of
its Executive Management Committee and as Chief Integration Officer, joined us,
effective October 6, 2003, as our president and chief executive officer in a
position that consolidates the day-to-day responsibilities of Mr. Robinson and
Mr. Carson, and as Chairman, effective January 1, 2004, we cannot assure you
that the transition in leadership will be seamless and without disruption to our
businesses. Although Ms. Pelletier has extensive telecommunications experience,
she has not had any history running our company. Furthermore, on November 3,
2003, David C. Eisenberg, another former Sprint Corporation executive, joined us
as our Senior Vice President, Corporate Strategy and Development. If we lose one
or more of our key employees, or the transition in leadership is not successful,
our ability to successfully implement our business plan could be materially
adversely affected. We do not maintain any "key person" insurance on any of our
personnel.
YOUR INTERESTS AS HOLDERS OF THE EXCHANGE NOTES MAY CONFLICT WITH THE INTERESTS
OF PARENT'S CONTROLLING STOCKHOLDER.
Fox Paine beneficially owns 66.45% of the outstanding shares of Parent's voting
capital stock. As a result, Fox Paine has control over the outcome of matters
requiring stockholder approval, including:
- the power to elect all of our directors and the directors of our
subsidiaries;
- amend our charter or by-laws; and
- adopt or prevent mergers, consolidations or the sale of all or
substantially all of our assets or our subsidiaries' assets.
Fox Paine also will be able to prevent or cause a change of control relating to
us, which may delay or prevent a change in control of us or cause a change of
control, which could trigger a default under our outstanding indebtedness.
Fox Paine may in the future make significant investments in other
telecommunications companies. Some of these companies may compete with us. Fox
Paine and its affiliates are not obligated to advise us of any investment or
business opportunities of which they are aware, and they are not restricted or
prohibited from competing with us.
29
PARENT IS DEPENDENT UPON US TO MAKE PAYMENTS ON ITS DISCOUNT DEBENTURES.
Parent is a holding company whose only material asset is our capital stock.
Parent is not expected to undertake any business activities, other than in
connection with:
- its ownership of our capital stock;
- the performance of its obligations as a guarantor of our new bank
credit facilities, the exchange notes offered hereby and our senior
subordinated notes; and
- the issuance of its discount debentures and warrants to purchase its
capital stock.
As a result, Parent is dependent upon dividends from us for the funds necessary
to satisfy its obligations, including payment of principal of its discount
debentures if their maturity is accelerated (unless they could be refinanced)
and, after May 15, 2004, payment of interest on its discount debentures. Parent
will also be dependent upon dividends from us for the funds needed to purchase
any discount debentures tendered upon an offer to purchase following a "change
of control" (as defined in the indenture governing the discount debentures) or
certain sales of assets.
We cannot assure you that we will have adequate funds to pay dividends to Parent
to allow Parent to satisfy its obligations under its discount debentures. In
addition, the indentures governing our exchange notes and our senior
subordinated notes, and our new bank credit facilities restrict our ability to
pay dividends (and make other distributions) to Parent. Consequently, we may not
be permitted to pay dividends (or make other distributions) to Parent in amounts
sufficient to allow Parent to satisfy its obligations under its discount
debentures. If Parent does not receive dividends from us that are sufficient for
Parent to satisfy its obligations under its discount debentures, then, unless
Parent can refinance those obligations, a default under the indenture governing
the discount debentures could occur, and payment of all amounts outstanding
under the discount debentures would be accelerated. In addition, a default under
the indenture governing the discount debentures would result in a default under
our new bank credit facilities and, as a result, the indentures governing the
exchange notes offered hereby and our senior subordinated notes.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO SUCCESSFULLY INTEGRATE ANY
ACQUISITIONS WE MAY MAKE IN THE FUTURE.
As part of our business strategy, we continually explore, investigate, and
pursue acquisitions. However, any future acquisitions we make may involve some
or all of the following risks:
- diversion of management attention from operating matters;
- inability to retain key personnel of the acquired business or maintain
relationships with its customers;
- inability successfully to integrate acquired businesses with our
existing businesses, including information-technology systems; and
- difficulty in maintaining uniform standards, controls, procedures, and
policies.
30
RISKS RELATED TO THE EXCHANGE NOTES AND THIS EXCHANGE OFFER
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR
BUSINESS AND TO OBTAIN ADDITIONAL FINANCING AND PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE EXCHANGE NOTES.
We have substantial indebtedness and, as a result, significant debt service
obligations. As of September 30, 2003, our total indebtedness outstanding was
$535.9 million, representing approximately 94.2% of our total capitalization,
and we had total stockholders' equity of $33.2 million. For the nine months
ended September 30, 2003, on a pro forma basis, our interest expense would have
been $45.2 million and our ratio of earnings to fixed charges would have been
negative with a deficiency of earnings to fixed charges of $107,834. For the
year ended December 31, 2002, on a pro forma basis, our interest expense would
have been $56.1 million and our ratio of earnings to fixed charges would have
been negative, representing a deficiency of earnings to fixed charges of
$95,933. For information regarding the availability and commitments under our
new bank credit facilities, see "Description of other indebtedness." In
addition, the credit agreement governing the new bank credit facilities and the
indentures governing our senior subordinated notes and the exchange notes
offered hereby permit us, and will permit us, to incur or generate substantial
additional indebtedness, subject to certain limitations. The $50 million
revolving portion of our new bank credit facility is undrawn as of the date of
this prospectus.
Our substantial debt could have important consequences to you. For example, it
could:
- make it more difficult for us to satisfy our obligations under the
exchange notes;
- require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash
flow available to fund working capital, capital expenditures, and other
corporate requirements;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to respond to changes in our business and future
business opportunities;
- limit our ability to borrow additional funds, which may be necessary;
and
- subject us to financial and other restrictive covenants that, if we
fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.
Our ability to make payments on and to refinance our debt, including the
exchange notes offered hereby, depends on our ability to generate sufficient
cash flow. This ability, to a significant extent, is subject to general
economic, financial, regulatory, political, and other factors that are beyond
our control. In addition, our ability to borrow funds in the future to service
our debt will depend on our meeting the financial covenants in our new bank
credit facilities and other debt agreements. Future borrowings may not be
available to us under our new bank credit facilities or otherwise in amounts
sufficient to enable us to pay our debt or to fund other liquidity needs. As a
result, we may need to refinance all or a portion of our debt on or before
maturity. Any inability to generate sufficient cash flow or refinance our debt
on favorable terms could materially and adversely affect our financial
condition. If we cannot
31
service our indebtedness, we may have to take actions such as selling assets,
seeking additional equity, or reducing or delaying capital expenditures,
strategic acquisitions, investments, and alliances. We cannot assure you that
any such actions, if necessary, could be effected on commercially reasonable
terms, or at all.
THE AGREEMENTS GOVERNING THE EXCHANGE NOTES AND OUR OTHER DEBT IMPOSE
RESTRICTIONS ON OUR BUSINESS.
The indenture governing the exchange notes and the agreements governing our
other debt contain a number of covenants imposing significant restrictions on
our business. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
as they arise. The restrictions these covenants place on us include limitations
on our ability to:
- incur indebtedness or issue preferred shares;
- pay dividends or make distributions in respect of our capital stock or
to make certain other restricted payments;
- create liens;
- make acquisitions or certain types of investments;
- engage in business activities unrelated to our current business;
- permit restrictions on the ability of certain of our subsidiaries to
pay dividends and make other distributions;
- consolidate, merge, sell or lease all or substantially all of our
assets; and
- enter into transactions with our affiliates.
Our ability to comply with these agreements may be affected by events beyond our
control, including prevailing economic, financial and industry conditions, and
are subject to the risks in this "Risk factors" section. In addition, our new
bank credit facilities include other and more restrictive covenants and prohibit
us from prepaying our other indebtedness, including the exchange notes, while
indebtedness under our new bank credit facilities is outstanding. The agreement
governing our new bank credit facilities also requires us to achieve specified
financial and operating results and maintain compliance with specified financial
ratios. Our ability to comply with these ratios may be affected by events beyond
our control.
The restrictions contained in the indenture and the agreement governing our new
bank credit facilities could:
- limit our ability to plan for or react to market conditions or meet
capital needs or otherwise restrict our activities or business plan;
and
- adversely affect our ability to finance our operations, strategic
acquisitions, investments or alliance or other capital needs or to
engage in other business activities that would be in our interest.
A breach of any of these restrictive covenants or our inability to comply with
the required financial ratios could result in a default under the agreement
governing our new bank credit facilities. If a default occurs, the lenders under
our new bank credit facilities may elect to declare all borrowing outstanding,
together with accrued interest and other fees, to be immediately due and
payable, which would result in an event of default under the exchange
32
notes. The lenders will also have the right in these circumstances to terminate
any commitments they have to provide further borrowings. If we are unable to
repay outstanding borrowings when due, the lenders under our new bank credit
facilities also have the right to proceed against the collateral, including our
available cash, granted to them to secure the indebtedness. If the indebtedness
under our new credit facilities and the exchange notes were to be accelerated,
we cannot assure you that our assets would be sufficient to repay in full that
indebtedness and our other indebtedness, including the exchange notes. See
"Description of the exchange notes--Ranking," "Description of the exchange
notes--Restrictive covenants," and "Description of other indebtedness--The new
bank credit facilities."
Notwithstanding the restrictions on our ability to pay dividends, make
distributions in respect of our capital stock and make certain other restricted
payments, we have accumulated a basket of over $220 million as of September 30,
2003 to make such restricted payments under the indenture governing our existing
senior subordinated notes, and the indenture governing the exchange notes
offered hereby, as of the issue date of the old notes, provides for a more
restrictive basket.
BECAUSE WE ARE A HOLDING COMPANY, OUR ABILITY TO PAY OUR DEBTS DEPENDS UPON THE
ABILITY OF OUR SUBSIDIARIES TO PAY US DIVIDENDS AND TO ADVANCE US FUNDS.
Because we conduct business primarily through our subsidiaries, our ability to
pay our debts depends upon the earnings and cash flow of our subsidiaries and
their ability to pay us dividends and to advance us funds. Contractual and legal
restrictions applicable to our subsidiaries could also limit our ability to
obtain cash from them. Our rights to participate in any distribution of our
subsidiaries' assets upon their liquidation, reorganization or insolvency would
generally be subject to the prior claims of the subsidiaries' creditors,
including any trade creditors and preferred shareholders.
THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES WILL BE UNSECURED
AND EFFECTIVELY SUBORDINATED TO OUR EXISTING AND FUTURE SECURED INDEBTEDNESS,
THE EXISTING AND FUTURE SECURED INDEBTEDNESS OF OUR SUBSIDIARIES THAT GUARANTEE
THE EXCHANGE NOTES, AND ALL LIABILITIES OF OUR SUBSIDIARIES THAT DO NOT
GUARANTEE THE EXCHANGE NOTES.
The exchange notes and the guarantees of the exchange notes will be senior
unsecured obligations, effectively junior in right of payment to all of our
existing and future secured debt and the existing and future secured debt of our
subsidiaries that guarantee the exchange notes, to the extent of the value of
the collateral securing such debt. The indebtedness under our new bank credit
facilities is secured by a lien on substantially all of our and our domestic
subsidiaries' assets and by a pledge of our outstanding capital stock and the
outstanding capital stock of our domestic subsidiaries. In addition, the
exchange notes will be effectively junior in right of payment to the
indebtedness and other liabilities of any subsidiaries that do not guarantee the
exchange notes. For further information, see "Description of the exchange
notes--Ranking."
In the event that we or any of our subsidiaries that guarantee the exchange
notes are declared bankrupt, become insolvent or are liquidated or reorganized,
any secured debt will have a prior claim to the assets that secure such debt.
Holders of the exchange notes will participate ratably with all holders of our
other senior unsecured indebtedness and the other senior unsecured indebtedness
of our subsidiaries that guarantee the exchange notes, based upon the respective
amounts owed to each holder or creditor, in our remaining assets and the assets
of our subsidiaries that guarantee the exchange notes. In any of the foregoing
events, we cannot assure you that there will be sufficient assets to pay amounts
due on the exchange notes. As a
33
result, holders of exchange notes may receive less, ratably, than holders of our
secured indebtedness.
As of September 30, 2003, the aggregate amount of the Issuer's secured
indebtedness was $208.9 million, and $50 million was available for additional
borrowing under our new revolving credit facility. As of September 30, 2003, our
subsidiaries that guarantee the exchange notes would have had $5.1 million of
secured indebtedness other than their guarantees of our new bank credit
facilities.
WE MAY NOT HAVE THE ABILITY TO FINANCE THE CHANGE OF CONTROL REPURCHASE OFFER
REQUIRED BY THE INDENTURE GOVERNING THE EXCHANGE NOTES.
Upon certain change of control events, as that term is defined in the indenture
governing the exchange notes, including a change of control caused by an
unsolicited third party, we will be required to make an offer in cash to
repurchase all or any part of each holder's exchange notes at a price equal to
101% of the principal amount thereof, plus accrued interest. The source of funds
for any such repurchase would be our available cash or cash generated from
operations or other sources, including borrowings, sales of equity or funds
provided by a new controlling person or entity. We cannot assure you that
sufficient funds will be available at the time of any change of control event to
repurchase all tendered exchange notes pursuant to this requirement. Our failure
to offer to repurchase exchange notes, or to repurchase exchange notes tendered,
following a change of control will result in a default under the indenture,
which could lead to a cross-default under our new bank credit facilities and
under the terms of our other indebtedness. In addition, our new bank credit
facilities prohibit us from making any such required repurchases. Prior to
repurchasing the notes upon a change of control event, we must either repay
outstanding indebtedness under our new bank credit facilities or obtain the
consent of the lenders under those facilities. If we do not obtain the required
consents or repay our outstanding indebtedness under our new bank credit
facilities, we would remain prohibited from offering to repurchase the exchange
notes. For further information, see "Description of the exchange notes--Change
of control."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE EXCHANGE NOTES AND THE GUARANTEES OF THE EXCHANGE NOTES.
Our issuance of the exchange notes may be subject to review under U.S. federal
bankruptcy law and comparable provisions of state fraudulent conveyance laws if
a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of
our unpaid creditors. Under these laws, if a court were to find in such a
bankruptcy or reorganization case or lawsuit that, at the time we issued the
exchange notes:
- we issued the exchange notes to delay, hinder or defraud present or
future creditors; or
- we received less than reasonably equivalent value or fair consideration
for issuing the exchange notes and:
- we were insolvent or rendered insolvent by reason of issuing the
exchange notes;
- we were engaged, or about to engage, in a business or transaction
for which our remaining unencumbered assets constituted unreasonably
small capital to carry on our business; or
- we intended to incur, or believed that we would incur, debts beyond
our ability to pay as they mature,
34
then the court could void the obligations under the exchange notes or
subordinate the exchange notes to our other debt or take other action
detrimental to holders of the exchange notes.
The measures of insolvency for purposes of fraudulent transfer laws vary
according to the law of the jurisdiction that is being applied in any proceeding
to determine whether a fraudulent transfer has occurred. Generally, however, a
person would be considered insolvent if, at the time it incurred the debt:
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
There can be no assurance regarding the standard that a court would use to
determine whether or not we were solvent at the relevant time, or, regardless of
the standard that the court uses, that the issuance of the exchange notes would
not be voided or the exchange notes would not be subordinated to our other debt.
Each guarantee of the exchange notes also may be subject to review under federal
bankruptcy law and comparable provisions of state fraudulent conveyance laws if
a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of
the unpaid creditors of the applicable guarantor. If such a case were to occur:
- the analysis applicable to the issuance of the exchange notes would
generally apply to the incurrence of the guarantee of the exchange
notes; and
- any guarantee of the exchange notes incurred by one of our guarantor
subsidiaries could also be subject to the claim that, since the
guarantee was incurred for our benefit, and only indirectly for the
benefit of the guarantor subsidiary, the obligations of the applicable
guarantor subsidiary were incurred for less than fair consideration.
A court could thus void the obligations under the guarantee or subordinate the
guarantee to the applicable guarantor's other debt or take other action
detrimental to holders of the exchange notes.
THE OLD NOTES WERE ISSUED WITH ORIGINAL ISSUE DISCOUNT, OR OID, AND THEREFORE
YOU WILL RECOGNIZE TAXABLE OID INCOME EACH YEAR IN ADVANCE OF THE RECEIPT OF
CASH PAYMENTS ATTRIBUTABLE TO SUCH OID INCOME. THE CLAIM OF A HOLDER OF EXCHANGE
NOTES IN BANKRUPTCY MAY ALSO BE LIMITED BECAUSE THE OLD NOTES WERE ISSUED WITH
OID.
The old notes were issued at a discount from their stated principal amount for
U.S. federal income tax purposes. Consequently, original issue discount will be
included in the gross income of a holder of exchange notes for U.S. federal
income tax purposes in advance of the receipt of cash payments on the exchange
notes attributable to such income. See "Certain federal income tax
considerations" for a more detailed explanation of the tax consequences to
holders of the exchange notes.
In the event a bankruptcy case is commenced by or against us under the United
States Bankruptcy Code, or the Bankruptcy Code, after the issuance of the notes,
the claim of a holder of the exchange notes may be limited to an amount equal to
the sum of (i) the initial offering price and (ii) that portion of OID which is
not deemed to constitute "unmatured interest" for purposes of the Bankruptcy
Code. Any OID that was not amortized as of the date
35
of any such bankruptcy filing would constitute "unmatured interest." To the
extent that the Bankruptcy Code differs from the Internal Revenue Code of 1986,
as amended, or the Code, in determining the method of amortization of OID, a
holder of exchange notes may realize taxable gain or loss on payment of such
holder's claim in bankruptcy.
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES, AND WE CANNOT ASSURE YOU THAT
A MARKET FOR THE EXCHANGE NOTES WILL DEVELOP.
The exchange notes are a new issue of securities for which there is no trading
market. We do not intend to have the notes listed on any U.S. securities
exchange or for quotation through an automated dealer quotation system. If any
of the exchange notes are traded after their initial issuance, they may trade at
a discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities and other factors, including general
economic conditions, our financial condition, performance and prospects, and the
prospects for companies in our industry generally. In addition, the liquidity of
the trading market in the exchange notes and the market prices quoted for the
exchange notes may be adversely affected by changes in the overall market for
high-yield securities.
The initial purchasers advised us that they intended to make a market in the old
notes as permitted by applicable law. The initial purchasers were not obligated,
however, to make a market in the old notes, and any such market-making may be
discontinued at any time at the sole discretion of the initial purchasers. As a
result, you cannot be sure that an active trading market will develop for the
old notes or the exchange notes as we may not be successful in consummating the
exchange or having the registration statement declared effective.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES, THEY MAY BE DIFFICULT TO RESELL.
If may be difficult for you to sell old notes that are not exchanged in the
exchange offer, since any old notes not exchanged will continue to be subject to
the restrictions on transfer described in the legend on the global security
representing the old notes. These restrictions on transfer exist because we
issued the old notes pursuant to an exemption from the registration requirements
of the Securities Act and applicable state securities laws. Generally, the old
notes that are not exchanged for exchange notes will remain restricted
securities. Accordingly, those old notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
To the extent any old notes are tendered and accepted in the exchange offer, the
trading market, if any, for the old notes that remain outstanding after the
exchange offer would be adversely affected due to a reduction in market
liquidity.
36
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the old notes on August 26, 2003, we entered
into an exchange and registration rights agreement with the initial purchasers
of the old notes, in which we agreed to commence the exchange offer. A copy of
the exchange and registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus is a part. Under the exchange
and registration rights agreement, we agreed to file and cause to become
effective a registration statement with respect to an offer to exchange the old
notes for the exchange notes. We also agreed to cause the exchange offer to be
consummated within 180 days following the original issuance of the old notes. We
are making the exchange offer to comply with our contractual obligations under
the exchange and registration rights agreement. Except under limited
circumstances described under "Description of the exchange notes--Registration
Rights," upon completion of the exchange offer, our obligations with respect to
the registration of the old notes will terminate. In addition, each
broker-dealer that receives exchange notes for its own account in exchange for
old notes, where such old notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such exchange
notes.
The exchange offer is not being made to, nor will we accept tenders for exchange
from, holders of old notes in any jurisdiction in which the exchange offer or
the acceptance of it would not be in compliance with the securities or blue-sky
laws of that jurisdiction.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal, which together constitute the exchange offer, we will
accept for exchange any old notes properly tendered and not withdrawn before
expiration of the exchange offer. The date of acceptance for exchange of the old
notes and completion of the exchange offer is the exchange date, which will be
the first business day following the expiration date unless we extend the
exchange offer as described in this prospectus. We will issue $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of old
notes surrendered under the exchange offer. The old notes may be tendered only
in integral multiples of $1,000. The exchange notes will be delivered on the
earliest practicable date following the exchange date.
Interest on the exchange notes will accrue from the last payment date on which
interest was paid on the old note surrendered in exchange therefor or, if no
interest has been paid on the old notes surrendered, from August 26, 2003.
Accordingly, holders of exchange notes on the relevant record date for the first
interest payment date following the consummation of the exchange offer will
receive interest accruing from the most recent date on which interest has been
paid on the old notes. Old notes accepted for exchange will not accrue interest
from the last payment date on which interest was paid on the old notes. Holders
of old notes whose old notes are accepted for exchange will not receive any
payment in respect of accrued interest on such old notes otherwise payable on
any interest payment date which occurs on or after the consummation of the
exchange offer.
37
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the old notes, except:
- the offer and sale of the exchange notes will have been registered
under the Securities Act, and thus the exchange notes generally will
not be subject to the restrictions on transfer applicable to the old
notes or bear restrictive legends;
- the exchange notes will not be entitled to registration rights under
the exchange and registration rights agreement; and
- the exchange notes will not have the right to earn special interest
under circumstances relating to our registration obligations.
The exchange notes will evidence the same debt as the old notes. The exchange
notes will be issued under and entitled to the benefits of the same indenture
that authorized the issuance of the old notes. Consequently, both the old notes
and the exchange notes will be treated as a single series of debt securities
under the indenture. For a description of the indenture, see "Description of the
exchange notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange and not withdrawn. As of the
date of this prospectus, $182 million aggregate principal amount of the old
notes are outstanding. This prospectus and the letter of transmittal are being
sent to all registered holders of old notes. There will be no fixed record date
for determining registered holders of old notes entitled to participate in the
exchange offer.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the SEC. Old notes that are not exchanged in the exchange offer
will remain outstanding and continue to accrue interest and will be entitled to
the rights and benefits their holders have under the indenture.
We will be deemed to have accepted for exchange properly tendered old notes when
we have given oral or written notice of the acceptance to the exchange agent.
The exchange agent will act as agent for the holders of old notes who surrender
them in the exchange offer for the purposes of receiving the exchange notes from
us and delivering the exchange notes to their holders. The exchange agent will
make the exchange as promptly as practicable on or after the date of acceptance
for exchange of the old notes.
Holders that tender old notes in the exchange offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of old notes. We will
pay all charges and expenses, other than applicable taxes described below, in
connection with the exchange offer. You should read "--Fees and expenses" for
more details regarding fees and expenses incurred in the exchange offer.
EXPIRATION OF THE EXCHANGE OFFER; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on February 23,
2004. We can extend the exchange offer in our sole discretion, in which case the
term "expiration date" means the latest date and time to which we extend the
exchange offer. If we decide to extend the exchange offer, we will then delay
acceptance of any old notes by giving notice of an extension as described below.
During any extension period, all old notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. We will
38
return any old notes not accepted for exchange to the tendering holder after the
expiration or termination of the exchange offer.
Our obligation to accept old notes for exchange in the exchange offer is subject
to the conditions described below under "--Conditions." We may decide to waive
any of the conditions in our discretion. Furthermore, we expressly reserve the
right to amend or terminate the exchange offer, and not to accept for exchange
any old notes not previously accepted for exchange, upon the occurrence of any
of the conditions of the exchange offer specified below under the same heading.
By press release or other public announcement we will give oral or written
notice of any extension, amendment, non-acceptance or termination as promptly as
practicable. Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise or otherwise communicate
any such public announcement, other than by making a timely release to an
appropriate news agency.
We reserve the right to amend the terms of the exchange offer in any manner. If
we amend the exchange offer in a manner that we determine constitutes a material
change, we will disclose the amendment by means of a prospectus supplement. If
we make such a material change less than five to ten business days, depending on
the significance of the amendment, before the expiration of the exchange offer,
we will extend the offer so that you have at least five to ten business days to
tender or withdraw. We will notify you of any extension of the exchange offer by
means of a press release or other public announcement no later than 9:00 a.m.,
New York City time, on the first business day after the previously scheduled
expiration time.
CONDITIONS
Despite any other term of the exchange offer, or any extension of the exchange
offer, we will not be required to accept for exchange, or to exchange, any old
notes for any exchange notes and, as described below, may terminate the exchange
offer, or may waive any of the conditions to or amend the exchange offer, if any
of the following conditions has occurred or exists:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency relating to the exchange offer that,
in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer; or
- any law, statute, rule, or regulation, order, or SEC staff
interpretation is proposed, adopted, enacted, entered, or issued that,
in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer.
These conditions are solely for our benefit and we may assert them regardless of
the circumstances that may give rise to them. If we determine in our sole
discretion that any of the foregoing events or conditions has occurred or
exists, we may, subject to applicable law, terminate the exchange offer, whether
or not any old notes have been accepted for exchange, or may waive any such
condition or otherwise amend the terms of the exchange offer in any respect. See
"--Expiration of the exchange offer; extensions; amendments" above. If we fail
at any time to exercise any of the foregoing rights, this failure will not
constitute a waiver of that right. Each of these rights will be deemed an
ongoing right that we may assert at any time or at various times.
39
We will not accept for exchange any old notes tendered and will not issue
exchange notes in exchange for any old notes, if at that time a stop order is
threatened or in effect with respect to the registration statement of which this
prospectus constitutes a part or the qualification of the indentures under the
Trust Indenture Act of 1939.
In addition, we will not be obligated to accept for exchange the old notes of
any holder that has not made to us:
- the representations described under "--Procedures for tendering" and
"Plan of distribution"; and
- any other representations that may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available
to us an appropriate form for registration of the exchange notes under
the Securities Act.
PROCEDURES FOR TENDERING
We have forwarded to you, along with this prospectus, a letter of transmittal
relating to this exchange offer. A holder need not submit a letter of
transmittal if the holder tenders old notes in accordance with the procedures
mandated by DTC's Automated Tender Offer Program, or ATOP. To tender old notes
without submitting a letter of transmittal, the electronic instructions sent to
DTC and transmitted to the exchange agent must contain your acknowledgment of,
receipt of, and your agreement to be bound by, and to make all of the
representations contained in the letter of transmittal. In all other cases, a
letter of transmittal must be manually executed and delivered as described in
this prospectus.
Only a holder of record of old notes may tender old notes in the exchange offer.
To tender in the exchange offer, a holder must comply with all applicable
procedures of DTC and either:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and
deliver the letter of transmittal or facsimile to the exchange agent
prior to the expiration date; or
- in lieu of delivering a letter of transmittal, instruct DTC to transmit
on behalf of the holder a computer-generated message to the exchange
agent in which the holder of the old notes acknowledges and agrees to
be bound by the terms of the letter of transmittal, which
computer-generated message must be received by the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date.
In addition, either:
- the exchange agent must receive the old notes along with the letter of
transmittal; or
- with respect to the old notes, the exchange agent must receive, before
expiration of the exchange offer, timely confirmation of book-entry
transfer of old notes into the exchange agent's account at DTC,
according to the procedure for book-entry transfer described below; or
- the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange agent" before expiration of the
exchange offer. To receive confirmation of valid tender of old
40
notes, a holder should contact the exchange agent at the telephone number listed
under "--Exchange agent."
The tender by a holder that is not withdrawn before expiration of the exchange
offer will constitute an agreement between that holder and us in accordance with
the terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal. Only a registered holder of old notes may tender the old
notes in the exchange offer. If a holder completing a letter of transmittal
tenders less than all of the old notes held by this holder, this tendering
holder should fill in the applicable box of the letter transmittal. The amount
of old notes delivered to the exchange agent will be deemed to have been
tendered unless otherwise indicated.
If old notes, the letter of transmittal or any other required documents are
physically delivered to the exchange agent, the method of delivery is at the
holder's election and risk. Rather than mail these items, we recommend that
holders use an overnight or hand-delivery service. In all cases, holders should
allow sufficient time to assure delivery to the exchange agent before expiration
of the exchange offer. Holders should not send the letter of transmittal or old
notes to us. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owner's behalf. If the beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the letter of transmittal and delivering
its old notes, either:
- make appropriate arrangements to register ownership of the old notes in
the owner's name; or
- obtain a properly completed bond power from the registered holder of
old notes.
The transfer of registered ownership may take considerable time and may not be
completed prior to the expiration date.
If the applicable letter of transmittal is signed by the record holder(s) of the
old notes tendered, the signature must correspond with the name(s) written on
the face of the old notes without alteration, enlargement or any change
whatsoever. If the applicable letter of transmittal is signed by a participant
in DTC, the signature must correspond with the name as it appears on the
security position listing as the holder of the old notes.
A signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution. Eligible guarantor institutions
include banks, brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, government securities
brokers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. The signature need not
be guaranteed by an eligible guarantor institution if the old notes are
tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes, the old notes must be endorsed or accompanied by a
properly completed bond power.
41
The bond power must be signed by the registered holder as the registered
holder's name appears on the old notes, and an eligible guarantor institution
must guarantee the signature on the bond power.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing. Unless we waive this requirement, they
should also submit evidence satisfactory to us of their authority to deliver the
letter of transmittal.
We will determine in our sole discretion all questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
old notes. Our determination will be final and binding. We reserve the absolute
right to reject any old notes not properly tendered or any old notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular old notes. Our interpretation of the terms and conditions of
the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of old
notes must be cured within the time that we determine. Although we intend to
notify holders of defects or irregularities with respect to tenders of old
notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give such notification. Tenders of old notes will not
be deemed made until those defects or irregularities have been cured or waived.
Any old notes received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, we will issue exchange notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
- the old notes or a timely book-entry confirmation that the old notes
have been transferred into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Holders should receive copies of the applicable letter of transmittal with the
prospectus. A holder may obtain additional copies of the applicable letter of
transmittal for the old notes from the exchange agent at its offices listed
under "--Exchange agent." By signing the letter of transmittal, or causing DTC
to transmit an agent's message to the exchange agent, each tendering holder of
old notes will represent to us that, among other things:
- any exchange notes to be received by the holder will be acquired in the
ordinary course of its business;
- if the holder is not a broker-dealer, the holder is not engaged in, and
does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the exchange
notes;
- the holder is not our "affiliate" (as defined in Rule 405 under the
Securities Act);
42
- if the holder is a broker-dealer that receives exchange notes for its
own account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, it must
acknowledge that it will deliver a prospectus in connection with any
resale of these exchange notes (see "Plan of distribution");
- if the holder is a broker-dealer, that it did not purchase the old
notes to be exchanged for the exchange notes from us in the initial
offering of the old notes; and
- the holder is not acting on behalf of any person who could not
truthfully and completely make the foregoing representations.
DTC BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the old notes at DTC for purposes of the exchange offer within two business days
after the date of this prospectus.
With respect to the old notes, the exchange agent and DTC have confirmed that
any financial institution that is a participant in DTC may utilize the DTC ATOP
procedures to tender old notes.
With respect to the old notes, any participant in DTC may make book-entry
delivery of old notes by causing DTC to transfer the old notes into the exchange
agent's account in accordance with DTC's ATOP procedures for transfer.
However, the exchange for the old notes so tendered will only be made after a
book-entry confirmation of such book-entry transfer of old notes into the
exchange agent's account, and timely receipt by the exchange agent of an agent's
message and any other documents required by the letter of transmittal. The term
"agent's message" means a message, transmitted by DTC and received by the
exchange agent and forming part of a book-entry confirmation, which states that
DTC has received an express acknowledgment from a participant tendering old
notes that are the subject of the book-entry confirmation that the participant
has received and agrees to be bound by the terms of the letter of transmittal,
and that we may enforce that agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or cannot
comply with the applicable procedures described above before expiration of the
exchange offer may tender if:
- the tender is made through an eligible guarantor institution;
- before expiration of the exchange offer, the exchange agent receives
from the eligible guarantor institution either a properly completed and
duly executed notice of guaranteed delivery, by facsimile transmission,
mail or hand delivery, or a properly transmitted agent's message and
notice of guaranteed delivery:
1. setting forth the name and address of the holder and the registered
number(s) and the principal amount of old notes tendered;
2. stating that the tender is being made by guaranteed delivery;
43
3. guaranteeing that, within three New York Stock Exchange trading
days after expiration of the exchange offer, the letter of
transmittal, or facsimile thereof, together with the old notes or a
book-entry transfer confirmation, and any other documents required
by the letter of transmittal will be deposited by the eligible
guarantor institution with the exchange agent; and
- the exchange agent receives the properly completed and executed letter
of transmittal, or facsimile thereof, as well as all tendered old notes
in proper form for transfer or a book-entry transfer confirmation, and
all other documents required by the letter of transmittal, within three
New York Stock Exchange trading days after expiration of the exchange
offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be sent
to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time before expiration of the exchange offer.
For a withdrawal to be effective, the exchange agent must receive a
computer-generated notice of withdrawal transmitted by DTC on behalf of the
holder in accordance with the standard operating procedures of DTC, or a written
notice of withdrawal, which may be by telegram, telex, facsimile transmission or
letter, at one of the addresses set forth below under "--Exchange agent."
Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the principal amount
of the old notes to be withdrawn; and
- where certificates for old notes have been transmitted, specify the
name in which the old notes were registered, if different from that of
the withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of those certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution, unless the withdrawing holder is an eligible
guarantor institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of the facility.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal, and our determination shall
be final and binding on all parties. We will deem any old notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
We will return any old notes that have been tendered for exchange, but that are
not exchanged for any reason, to their holder without
44
cost to the holder. In the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC, according to the procedures described
above, those old notes will be credited to an account maintained with DTC, for
old notes, as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. You may retender properly withdrawn old notes
by following one of the procedures described under "--Procedures for tendering"
above at any time on or before expiration of the exchange offer.
A holder may obtain a form of the notice of withdrawal from the exchange agent
at its offices listed under "--Exchange agent."
RESALE OF EXCHANGE NOTES
Under existing interpretations of the Securities Act by the staff of the SEC
contained in several "no-action" letters to third parties, and subject to the
immediately following sentence, we believe that the exchange notes will
generally be freely transferable by holders after the exchange offer without
further compliance with the registration and prospectus delivery requirements of
the Securities Act (subject to certain representations required to be made by
each holder of old notes, as set forth under "--Procedures for tendering").
However, any holder of old notes that is one of our "affiliates" (as defined in
Rule 405 under the Securities Act), that does not acquire the exchange notes in
the ordinary course of business, that intends to distribute the exchange notes
as part of the exchange offer, or that is a broker-dealer who purchased old
notes from us in the initial offering of the old notes for resale pursuant to
Rule 144A or any other available exemption under the Securities Act, (1) will
not be able to rely on the interpretations of the staff of the SEC and (2) in
the absence of any exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of the
exchange notes.
With regard to broker-dealers, only broker-dealers that acquired the old notes
for their own accounts as a result of market-making activities or other trading
activities may participate in the exchange offer. Each such broker-dealer that
receives exchange notes for its own account in exchange for the old notes that
were acquired by such broker-dealer as a result of market-making activities or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Please see "Plan of
distribution" for more details regarding the transfer of exchange notes.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal, and
requests for the notice of guaranteed delivery or the notice of withdrawal to
the exchange agent addressed as follows:
THE BANK OF NEW YORK
<Table>
<Caption>
BY FACSIMILE TRANSMISSION BY REGISTERED OR BY HAND OR
(FOR ELIGIBLE INSTITUTIONS ONLY): CERTIFIED MAIL: OVERNIGHT DELIVERY:
- --------------------------------- ---------------- -------------------
(212) 298-1915 The Bank of New York The Bank of New York
Attention: Ms. Diane Amoroso Corporate Trust Operation Corporate Trust Operation
Reorganization Unit Reorganization Unit Reorganization Unit
Confirm by Telephone: 101 Barclay Street-7 East 101 Barclay Street-7 East
(212) 815-3738 New York, NY 10286 New York, NY 10286
Attention: Ms. Diane Amoroso Attention: Ms. Diane Amoroso
</Table>
45
Delivery of the letter of transmittal to an address other than as shown above or
transmission via facsimile other than as set forth above does not constitute a
valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation is
being made by mail; however, we may make additional solicitations by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer, including the following:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- our accounting and legal fees; and
- our printing and mailing costs.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old notes
under the exchange offer. The tendering holder, however, will be required to pay
any transfer taxes, whether imposed on the registered holder or any other
person, if:
- certificates representing old notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of old notes
tendered;
- exchange notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the old notes;
- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of transfer taxes is not submitted with the
letter of transmittal, the amount of any transfer taxes will be billed to the
tendering holder.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same carrying
value as the old notes, which is the aggregate principal amount less unamortized
discount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer.
46
CONSEQUENCES OF FAILURE TO TENDER
All untendered old notes will remain subject to the restrictions on transfer
provided for in the old notes and in the indenture. Generally, the old notes
that are not exchanged for exchange notes pursuant to the exchange offer will
remain restricted securities. Accordingly, such old notes may be resold only:
(A) (1) to a person who the seller reasonably believes is a Qualified
Institutional Buyer within the meaning of Rule 144a under the
Securities Act purchasing for its own account or for the account
of a Qualified Institutional Buyer in a transaction meeting the
requirements of Rule 144a;
(2) in an offshore transaction complying with Rule 903 or Rule 904
of Regulation S under the Securities Act;
(3) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available);
(4) to an Institutional Accredited Investor in a transaction exempt
from the registration requirements of the Securities Act;
(5) pursuant to an effective registration statement under the
Securities Act; or
(6) to us (upon redemption or otherwise); and
(B) in accordance with all applicable securities laws of the states of
the United States and other jurisdictions.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. We urge you to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in open-market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. However, we have no present plans to acquire any old notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
47
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the exchange
and registration rights agreement, dated August 26, 2003, by and among us,
Parent and the initial purchasers of the old notes. We will not receive any cash
proceeds from the issuance of the exchange notes in the exchange offer. We will
receive in exchange for the exchange notes the old notes in like principal
amount. We will retire and cancel all of the old notes tendered in the exchange
offer.
On August 26, 2003, we issued and sold the old notes. We used the cash proceeds
from the offering of the old notes, together with borrowings under our new
credit facilities, to repay all borrowings under our old bank credit facilities
and to pay transaction costs related to the offering of the old notes and the
entering into of the new bank credit facilities, with the excess available to
finance general corporate needs.
For further information on the terms of the new bank credit facilities, see
"Description of other indebtedness."
48
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2003:
You should read this table in conjunction with the "Management's discussion and
analysis of financial condition and results of operations" and the financial
statements and related notes found in our Form 10-K, as amended, for the fiscal
year ended December 31, 2002, and our Form 10-Q, as amended, for the fiscal
quarter ended September 30, 2003. See "Certain documents incorporated by
reference."
<Table>
<Caption>
- --------------------------------------------------------------------------------
AS OF
SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS) ------------------
- --------------------------------------------------------------------------------
Cash and cash equivalents................................... $121,160
------------------
Debt (including current portion):
Revolving credit facility(1)............................. -
Term loan credit facility................................ 200,000
Capital lease obligations and other senior debt.......... 9,897
Old notes................................................ 182,000
Original issue discount to old notes.................. (5,982)
9 3/8% senior subordinated notes due 2009................ 180,000
------------------
Total debt............................................ 535,915
Stockholder's equity:
Common stock ($0.01 par value) 1,000 shares authorized; 1
share issued and outstanding........................... -
Paid-in capital.......................................... 287,242
Accumulated deficit...................................... (241,537)
Accumulated other comprehensive loss..................... (12,525)
------------------
Total stockholder's equity............................ 33,180
------------------
Total capitalization.................................. $569,095
------------------
</Table>
(1) The old revolving credit facility provided for borrowings of up to $75
million, and the new revolving credit facility provides for borrowings of up
to $50 million, which is undrawn as of the closing of the transactions
described in this prospectus.
49
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data as of and for the year ended December 31,
1999 have been derived from our audited consolidated financial statements (which
have not been included in this prospectus) and represents our consolidated
statement of operations and cash flow data from May 14, 1999, the date upon
which we completed the acquisition of CenturyTel's Alaska Properties and ATU,
through December 31, 1999. Certain reclassifications have been made to the 1999
consolidated operations data to conform to the current presentation of our
consolidated operations data. The selected historical financial data as of and
for the years ended December 31, 2000, 2001, and 2002 have also been derived
from our audited consolidated financial statements (which are incorporated by
reference into this prospectus). The selected historical financial data for the
nine months ended September 30, 2002 and 2003 have been derived from our
unaudited interim consolidated financial statements (which are incorporated by
reference into this prospectus) and which have been prepared on a basis
consistent with our annual consolidated financial statements. In our opinion,
the financial data for the nine months ended September 30, 2002 and 2003 reflect
all adjustments, consisting only of normal and recurring adjustments, necessary
for a fair presentation of the results for those periods. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for the full year or any future period. Separately, we have also
provided historical financial data as of and for the year ended December 31,
1998 of our predecessor companies, CenturyTel's Alaska Properties and ATU.
The following data should be read in conjunction with "Management's discussion
and analysis of financial condition and results of operations" and our
consolidated financial statements and related notes found in our Form 10-K, as
amended, for the fiscal year ended December 31, 2002 and in our Form 10-Q, as
amended, for the fiscal quarter ended September 30, 2003. See "Certain documents
incorporated by reference."
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, 2001, AND 2002, AND FOR THE
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2003
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
(DOLLARS IN THOUSANDS) 1999 2000(1) 2001 2002(2) 2002 2003(3)
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Operating revenues................. $192,786 $313,527 $332,215 $ 343,502 $ 256,736 $246,010
Operating expenses................. 176,207 279,759 285,092 364,103 221,004 286,301
Gain (loss) on disposal of
assets.......................... - - - (2,163) (2,108) 112,507
-----------------------------------------------------------------
Operating income (loss)............ 16,579 33,768 47,123 (22,764) 33,624 72,216
Interest expense................... (37,503) (61,958) (57,565) (49,113) (36,462) (49,546)
Interest income and other.......... 426 3,560 3,250 2,203 1,626 (10,749)
Equity in income (loss) of
investments..................... (198) (303) 69 - - 628
-----------------------------------------------------------------
</Table>
50
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
(DOLLARS IN THOUSANDS) 1999 2000(1) 2001 2002(2) 2002 2003(3)
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
discontinued operations, and
cumulative effect of change in
accounting principle............ (20,696) (24,933) (7,123) (69,674) (1,212) 12,549
Income tax benefit................. 301 197 195 - - -
-----------------------------------------------------------------
Income (loss) from continuing
operations...................... (20,395) (24,736) (6,928) (69,674) (1,212) 12,549
Loss from discontinued
operations(4)................... (306) (917) (1,718) (7,632) (7,523) (52)
-----------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting
principle....................... (20,701) (25,653) (8,646) (77,306) (8,735) 12,497
Cumulative effect of change in
accounting principle(5)......... - - - (105,350) (105,350) -
-----------------------------------------------------------------
Net income (loss).................. $(20,701) $(25,653) $ (8,646) $(182,656) $(114,085) $ 12,497
-----------------------------------------------------------------
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.......... $ 9,006 $ 61,896 $ 41,012 $ 18,565 $ 21,040 $121,160
Working capital(6)................. 101,374 54,727 33,721 25,686 23,518 121,999
Total assets....................... 937,711 909,306 903,542 704,982 773,456 655,611
Total debt, including current
portion......................... 598,407 599,642 596,603 592,831 591,498 535,915
Total stockholder's equity......... 266,541 231,153 208,678 18,618 89,977 33,180
-----------------------------------------------------------------
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used for)
operating activities............ $(50,648) $143,547 $ 76,638 $ 65,799 $ 49,179 $ 50,519
Net cash provided by (used for)
investing activities............ (774,368) (74,699) (94,483) (78,571) (61,547) 128,375
Net cash provided by (used for)
financing activities............ 833,741 (15,958) (3,039) (9,675) (7,604) (76,299)
OTHER FINANCIAL DATA:
Adjusted EBITDA(7)................. $ 56,821 $108,524 $128,661 $ 128,681 $ 98,484 $ 75,780
EBITDA margin(8)................... 29.5% 34.6% 38.7% 37.5% 38.4% 30.8%
Depreciation and amortization...... $ 40,141 $ 71,755 $ 79,108 $ 82,940 $ 61,690 $ 66,735
Goodwill impairment loss(2)........ - - - 64,755 - -
Capital expenditures............... 74,792 72,253 87,582 71,164 52,559 32,127
Ratio of net debt to EBITDA(9)..... 5.0x 4.3x 4.5x
Ratio of net senior debt to
EBITDA(10)...................... 3.6x 3.2x 3.3x
Ratio of earnings to fixed
charges(11)..................... 0.5x 0.6x 0.9x - 1.0x 1.25x
</Table>
51
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------
(DOLLARS IN THOUSANDS) 1999 2000(1) 2001 2002(2) 2002 2003(3)
- ---------------------------------------------------------------------------------------------------------
OTHER DATA (AT END OF PERIOD):
LOCAL TELEPHONE
Retail access lines................ 281,726 272,936 261,002 236,148 241,583 224,744
Wholesale access lines............. 15,680 17,303 22,859 22,148 25,074 18,795
Unbundled network elements......... 28,202 39,221 49,062 64,711 60,504 72,449
-----------------------------------------------------------------
Total local telephone access
lines........................... 325,608 329,460 332,923 323,007 327,161 315,988
Enterprise private network
lines(12)....................... - - - 13,050 11,747 20,188
-----------------------------------------------------------------
Total lines........................ 325,608 329,460 332,923 336,057 338,908 336,176
WIRELESS
Estimated covered population(13)... 460,802 462,057 468,622 478,413 471,863 478,413
Subscribers........................ 73,068 75,933 80,120 82,220 81,559 83,993
Penetration........................ 15.9% 16.4% 17.1% 17.2% 17.3% 17.6%
- ---------------------------------------------------------------------------------------------------------
</Table>
(1) For the year ended December 31, 2000, operating expenses include $5,288 of
unusual charges, which consisted of $3,019 of severance and restructuring
charges, $1,451 of costs incurred in connection with an attempted
acquisition, and $818 related to a legal settlement.
(2) For the year ended December 31, 2002, operating revenues include $11,066 of
previously deferred interstate access revenue related to a dispute that was
recognized during the year based on a favorable ruling by the District of
Columbia Court of Appeals. Operating expenses include a $64,755 charge
related to the impairment of goodwill incurred as a result of our annual
goodwill impairment analysis, the write-off of $875 related to a previously
deferred regulatory asset, $1,000 of severance and restructuring related
costs, and $325 of other costs.
(3) The nine months ended September 30, 2003 include $54,539 in contract
termination and asset impairment charges, which is included in operating
expenses, $113,518 in gains related to the sales of the Directories Business
on May 8, 2003 and September 4, 2003, which is included in gain (loss) on
disposal of assets, $4,261 in foreign currency gains realized on settlement
of the sales of the Directories Business and a non-operating asset
impairment charge of $15,924, which are both included in interest income and
other, and a $13,053 write-off of deferred financing costs related to the
early extinguishment of our old bank credit facilities, which is included in
interest expense.
(4) In March of 2002, we approved a plan to discontinue and sell our wireless
television segment. As a result, the operating income and expense of this
segment has been classified as a discontinued operation for all periods
presented.
(5) Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. As part of this
adoption, we recorded a goodwill impairment charge of $105,350 on January 1,
2002 as a cumulative effect of a change in accounting principle.
(6) Working capital represents total current assets less total current
liabilities.
52
(7) Adjusted EBITDA represents net income (loss) before interest expense, income
tax benefit, depreciation and amortization, and certain non-cash charges and
unusual gains as defined in our bank credit facility agreement as described
in the following table:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 2002 2003
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss).................................... $(20,701) $(25,653) $ (8,646) $(182,656) $(114,085) $ 12,497
Add (subtract):
Interest expense.................................. 37,503 61,958 57,565 49,113 36,462 49,546
Income tax benefit................................ (301) (197) (195) - - -
Depreciation and amortization..................... 40,141 71,755 79,108 82,940 61,690 66,735
Other non-cash charges and unusual gains:
Loss from discontinued operations.............. 179 661 829 7,016 6,959 11
(Gain) loss on disposal of assets.............. - - - 2,163 2,108 (112,507)
Asset impairment charges....................... - - - - - 63,759
Goodwill impairment loss....................... - - - 64,755 - -
Change in accounting principle................. - - - 105,350 105,350 -
Gain on foreign exchange....................... - - - - - (4,261)
------------------------------------------------------------------
Adjusted EBITDA...................................... $ 56,821 $108,524 $128,661 $ 128,681 $ 98,484 $ 75,780
- --------------------------------------------------------------------------------------------------------------------------
</Table>
Adjusted EBITDA is included in this prospectus because it is an operating
performance measure used in determining our compliance with our debt covenants
and it is an important performance measure for our current and future lenders.
While EBITDA and similar variations thereof are frequently used as a measure of
operations and the ability to meet debt service requirements, these terms are
not necessarily comparable to other similarly titled captions of other companies
due to the potential inconsistencies in the method of calculation.
(8) "EBITDA margin" is defined as Adjusted EBITDA as a percentage of operating
revenues.
(9) "Ratio of net debt to EBITDA" is defined as net debt, which includes total
debt less cash and cash equivalents, divided by Adjusted EBITDA.
(10) "Ratio of net senior debt to EBITDA" is defined as (a) total debt less (1)
senior subordinated debt of $150 million and (2) cash and cash equivalents,
divided by (b) Adjusted EBITDA.
(11) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income before income tax benefit plus fixed charges.
"Fixed charges" consist of interest expensed and capitalized, amortization
of debt issuance costs, and the portion of rental expense which we believe
is representative of the interest component of lease expense. For the years
ended December 31, 1999, 2000, 2001 and 2002, the deficiency of earnings to
fixed charges was $20,197, $24,433, $6,997 and $69,674, respectively.
(12) Revenues from enterprise private network lines are recognized in the
Internet segment, and not in the local telephone segment.
(13) Estimated covered population figures are based on population data published
by the State of Alaska on an annual basis.
53
PREDECESSOR SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical combined financial data of
CenturyTel's Alaska Properties and ATU as of and for the year ended December 31,
1998, (dollars in thousands). CenturyTel's Alaska Properties and ATU are the
primary predecessor operating companies of Alaska Communications Systems
Holdings, Inc. and subsidiaries prior to their acquisition on May 14, 1999.
We derived the selected historical combined financial data for CenturyTel's
Alaska Properties from the audited combined financial statements and the related
notes of CenturyTel's Alaska Properties and are presented on CenturyTel's basis
of accounting.
We derived the selected historical financial data for ATU from the audited
financial statements and the related notes of ATU. Consider the following points
for ATU in connection with the table:
- "Other income (expense)" includes the equity in earnings (losses) from
minority investments.
- During the periods presented, ATU was a public utility of the
Municipality of Anchorage and was exempt from federal and state taxes
on income.
- ATU financial data were prepared in accordance with governmental
accounting standards. Under Governmental Accounting Standards Board, or
GASB, Statement No. 20, ACCOUNTING AND FINANCIAL REPORTING FOR
PROPRIETARY FUNDS AND OTHER GOVERNMENTAL ENTITIES THAT USE PROPRIETARY
FUND ACCOUNTING, ATU applied all applicable GASB pronouncements and all
Financial Accounting Standards Board, or FASB, Statements and
Interpretations, Accounting Principles, Board Opinions and Accounting
Research Bulletins, unless they conflict with or contradict GASB
pronouncements. ATU followed the provisions of GASB Statement No. 27 to
account for pension and post-retirement costs, which differ from FASB
Statement No. 87 and FASB Statement No. 106 regarding the methodology
for calculation of such costs and how they are recorded and disclosed.
It is not practicable to quantify the differences between the
statements without an additional complete actuarial valuation, because
the actuarial calculations for FASB Statement No. 87 purposes require
different assumptions and represent different measurement bases. Other
differences between GASB and FASB have been evaluated and have been
determined not to be material for the periods presented.
54
<Table>
<Caption>
- -------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------
CENTURYTEL'S
ALASKA
(DOLLARS IN THOUSANDS) ATU PROPERTIES
- -------------------------------------------------------------------------------------
OPERATING DATA:
Operating revenues.......................................... $157,097 $124,509
Operating expenses.......................................... 134,204 104,595
-----------------------
Operating income............................................ 22,893 19,914
Other income (expense)...................................... (9,323) (1,049)
-----------------------
Income before income taxes.................................. 13,570 18,865
Income taxes................................................ - 9,218
-----------------------
Net income.................................................. $ 13,570 $ 9,647
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $350,245 $472,660
Long-term debt including current portion.................... 172,521 43,408
Stockholders' equity........................................ 141,884 400,962
OTHER FINANCIAL DATA:
Cash provided by operating activities....................... $ 53,207 $ 38,291
Cash used by investing activities........................... (5,659) (26,664)
Cash used by financing activities........................... (25,480) (6,770)
Capital expenditures........................................ 29,644 26,799
- -------------------------------------------------------------------------------------
</Table>
55
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed consolidated statements of
operations have been prepared to give effect to the offering of the old notes,
the borrowings under the new bank credit facilities that were entered into
simultaneously with the completion of the offering of the old notes, and the
application of a portion of the net proceeds from such transactions to repay
borrowings under the old bank credit facilities, all of which were completed on
August 26, 2003, and the sale of substantially all of our interest in the
Directories Business, of which 87.4% was completed on May 8, 2003 and 12.5% was
completed on September 4, 2003, as if all had been completed as of January 1,
2002. The pro forma transactions described herein were reflected in our
September 30, 2003 condensed consolidated balance sheet. Therefore, no pro forma
balance sheet is presented. On August 26, 2003, we recorded a write-off of $9.7
million of debt issuance costs associated with the early extinguishment of our
old bank credit facilities. This write-off is not reflected in the unaudited pro
forma condensed statements of operations for the year ended December 31, 2002.
The following unaudited pro forma condensed statements of operations for the
nine months ended September 30, 2003 and the year ended December 31, 2002 have
been prepared based upon currently available information and assumptions which
we deem appropriate and which are described in the accompanying notes. The
unaudited pro forma condensed consolidated statements of operations are for
informational purposes only and are not necessarily indicative of the results of
operations that would have been achieved had the transactions for which we are
giving pro forma effect actually occurred on the dates described in the
accompanying notes, nor is such unaudited pro forma condensed consolidated
statements of operations necessarily indicative of the results to be expected
for the full year or any future period.
A number of factors may affect our results. See "Cautionary notice regarding
forward-looking statements." The unaudited pro forma condensed consolidated
statements of operations should be read in conjunction with "Management's
discussion and analysis of financial condition and results of operations" and
the separate historical consolidated financial statements and accompanying notes
found in our Form 10-K, as amended, for the fiscal year ended December 31, 2002,
and in our Form 10-Q, as amended, for the fiscal quarter ended September 30,
2003. See "Certain documents incorporated by reference."
56
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
(DOLLARS IN THOUSANDS) CONSOLIDATED ADJUSTMENTS CONSOLIDATED
- -------------------------------------------------------------------------------------------------------
Operating revenues:
Local telephone................................... $ 162,472 $ - $ 162,472
Wireless.......................................... 34,868 - 34,868
Directory......................................... 11,631 (11,631)(d) -
Internet.......................................... 24,416 - 24,416
Interexchange...................................... 12,623 - 12,623
------------------------------------------------
Total operating revenues.................... 246,010 (11,631) 234,379
Operating expenses:
Local telephone (exclusive of depreciation and
amortization)............................... 84,267 - 84,267
Wireless (exclusive of depreciation and
amortization)............................... 21,796 - 21,796
Directory (exclusive of depreciation and
amortization)............................... 5,249 (5,249)(d) -
Internet (exclusive of depreciation and
amortization)............................... 35,829 - 35,829
Interexchange (exclusive of depreciation and
amortization)............................... 17,886 - 17,886
Depreciation and amortization..................... 66,735 (2)(d) 66,733
Contract termination and asset impairment
charges........................................ 54,539 - 54,539
------------------------------------------------
Total operating expenses.................... 286,301 (5,251) 281,050
Gain (loss) on disposal of assets.................... 112,507 (113,518)(d) (1,011)
------------------------------------------------
Operating income..................................... 72,216 (119,898) (47,682)
Other income and expense:
Interest expense.................................. (49,546) 4,394(abc) (45,152)
Interest income and other......................... (10,749) (4,261)(d) (15,010)
Equity in earnings of investment.................. 628 (618)(d) 10
------------------------------------------------
Total other income (expense)................ (59,667) (485) (60,152)
------------------------------------------------
Income (loss) before income taxes.................... 12,549 (120,383) (107,834)
Income taxes......................................... - - -
------------------------------------------------
Income (loss) from continuing operations............. $ 12,549 $ (120,383) $ (107,834)
- -------------------------------------------------------------------------------------------------------
</Table>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION
PRESENTED.
57
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
(DOLLARS IN THOUSANDS) CONSOLIDATED ADJUSTMENTS CONSOLIDATED
- -------------------------------------------------------------------------------------------------------
Operating revenues:
Local telephone................................... $ 226,447 $ - $ 226,447
Wireless.......................................... 43,180 - 43,180
Directory......................................... 33,604 (33,604)(h) -
Internet.......................................... 20,847 - 20,847
Interexchange..................................... 19,424 - 19,424
------------------------------------------------
Total operating revenues....................... 343,502 (33,604) 309,898
Operating expenses:
Local telephone (exclusive of depreciation and
amortization).................................. 117,277 - 117,277
Wireless (exclusive of depreciation and
amortization).................................. 27,912 - 27,912
Directory (exclusive of depreciation and
amortization).................................. 14,170 (14,170)(h) -
Internet (exclusive of depreciation and
amortization).................................. 29,502 - 29,502
Interexchange (exclusive of depreciation and
amortization).................................. 27,547 - 27,547
Depreciation and amortization..................... 82,940 (11)(h) 82,929
Goodwill impairment loss.......................... 64,755 - 64,755
------------------------------------------------
Total operating expenses....................... 364,103 (14,181) 349,922
Gain (loss) on disposal of assets.................... (2,163) - (2,163)
------------------------------------------------
Operating income..................................... (22,764) (19,423) (42,187)
Other income and expense:
Interest expense.................................. (49,113) (7,008)(efg) (56,121)
Interest income and other......................... 2,203 - 2,203
Equity in earnings of investment.................. - 14(h) 14
------------------------------------------------
Total other income (expense)................... (46,910) (6,994) (53,904)
------------------------------------------------
Loss before income taxes............................. (69,674) (26,417) (96,091)
Income taxes......................................... - - -
------------------------------------------------
Loss from continuing operations...................... $ (69,674) $ (26,417) $ (96,091)(h)
- -------------------------------------------------------------------------------------------------------
</Table>
THE NOTES TO THIS UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL INFORMATION
PRESENTED.
58
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The unaudited pro forma condensed consolidated statements of operations for the
nine months ended September 30, 2003 and the year ended December 31, 2002
present our consolidated results of operations assuming that we entered into our
new bank credit facilities, issued the old notes, and repaid our old bank credit
facilities, all of which were completed on August 26, 2003 (collectively, the
"Refinancing"), and the sale of substantially all our interest in the
Directories Business, of which 87.4% was completed on May 8, 2003 and 12.5% was
completed on September 4, 2003 (the "Directories Transactions"), had all been
completed as of January 1, 2002. In our opinion, these statements of operations
include all material adjustments necessary to reflect, on a pro forma basis, the
impact of the Refinancing and the Directories Transactions on the historical
statements of operations of our company. The adjustments set forth in the "Pro
Forma Adjustments" column are described more fully in Note 2 to the unaudited
pro forma condensed consolidated statements of operations.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2003
The unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 2003 has been prepared to reflect the following
transactions as if they had occurred on January 1, 2002. Actual amounts could
vary from these pro forma adjustments.
(a) Entering into of new bank credit facilities
Represents $6,398 of interest expense associated with the term loan
portion of our new bank credit facilities, $599 of amortization of debt
issue costs, and $248 of commitment fees associated with our new bank
credit facilities. Interest expense for the nine months ended September
30, 2003 is based on an assumed rate per annum of 4.84% for the term loan
portion of our new bank credit facilities. A 0.125% increase (decrease)
in the assumed interest rate applicable to this borrowing would change
the pro forma interest expense by approximately $165.
(b) Issuance of the old notes
Represents $13,479 of interest expense, $381 of amortization of original
issue discount, $616 of amortization of debt issue costs, and $45 of
other fees associated with the old notes.
(c) Repayment of our old bank credit facilities
Represents $11,047 of avoided interest expense, $1,847 of avoided debt
issue costs amortization, $13,053 for the write-off of the debt issue
costs associated with the prepayment of our old bank credit facilities
that occurred on May 13, 2003 and August 28, 2003, and $213 of avoided
commitment fees associated with our old bank credit facilities.
59
(d) Directories transactions
Represents the effect of eliminating the results of operations of the
Directories Business from the unaudited pro forma condensed consolidated
statement of operations as a result of the sales of 87.42% and 12.48% of
that business, which were completed on May 8, 2003 and September 4, 2003,
respectively, eliminating the equity in earnings booked on the 12.48%
interest through September 30, 2003 and the recording of our retained
0.1% interest in the earnings of the Directories Business on a
stand-alone basis under the equity method of accounting for partnership
interest. The pro forma adjustment also eliminates the gains on the sale
of the Directories Business of $113,518 and the gains on foreign exchange
of $4,261 from the May 8, 2003 and September 4, 2003 sales since these
amounts are non-recurring.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 2002
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 2002 has been prepared to reflect the following
transactions as if they had occurred on January 1, 2002. Actual amounts could
vary from these pro forma adjustments.
(e) Entering into of new bank credit facilities
Represents $10,470 of interest expense based on an assumed interest
associated with the term loan portion of our new bank credit facilities,
$919 of amortization of debt issue costs, and $380 of commitment fees
associated with the new bank credit facilities. Interest expense for the
year ended December 31, 2002 is based on an assumed rate per annum of
5.16% for the term loan portion of our new bank credit facilities. A
0.125% increase (decrease) in the assumed interest rate applicable to
these borrowings would change the pro forma interest expense by
approximately $250.
(f) Issuance of the old notes
Represents $17,973 of interest expense, $513 of amortization of original
issue discount, $944 of amortization of debt issue costs, and $60 of
other fees associated with the old notes.
(g) Repayment of our old bank credit facilities
Represents $20,753 of avoided interest expense, $3,213 of amortization
of avoided debt issue costs, and $285 of avoided commitment fees
associated with our old bank credit facilities.
(h) Directories transactions
Represents the effect of eliminating the results of operations of the
Directories Business from the unaudited pro forma condensed consolidated
statement of operations as a result of the sales of 87.42% and 12.48% of
that business, which were completed on May 8, 2003 and September 4,
2003, respectively, and the recording of our retained 0.1% interest in
the earnings of the Directories Business on a stand-alone basis under
the equity method of accounting for partnership interest.
60
BUSINESS
GENERAL
We are the leading integrated, facilities-based telecommunications services
provider in Alaska, offering a diverse mix of telecommunications services,
including local telephone, wireless, Internet, and interexchange services, to
business and residential customers throughout the state. We are the largest
telecommunications services provider in Alaska that uses its own network
facilities to provide full service end-to-end communications to its customers.
LOCAL TELEPHONE. With approximately 316,000 local telephone access lines
representing approximately two-thirds of the local telephone access lines
provisioned in Alaska, we are the largest LEC in Alaska and the 13th largest in
the U.S. We provide service to most of the state's major population centers,
including Anchorage, Fairbanks, and Juneau.
WIRELESS. We are the second-largest statewide provider of wireless services in
Alaska, serving approximately 84,000 subscribers. Our wireless network covers
over 478,000 residents, including all major population centers and highway
corridors. We have upgraded to a fully digital network in substantially all of
our service areas.
INTERNET. We are the second-largest provider of Internet access services in
Alaska. We offer dial-up and broadband Internet access services to approximately
45,000 customers, including high-speed DSL services to approximately 16,000
customers.
INTEREXCHANGE. We provide long distance and other interexchange services to
approximately 43,500 customers in Alaska. We have migrated long distance traffic
from leased circuits onto our own network infrastructure where possible,
principally between our major markets of Anchorage, Fairbanks, and Juneau.
COMPANY BACKGROUND
We are a wholly owned subsidiary of Alaska Communications Systems Group, Inc.
(NASDAQ: ALSK), which we refer to in this prospectus as "Parent." We were formed
in 1998 by Fox Paine, members of the former senior management team of Pacific
Telecom, Inc., and other experienced telecommunications industry executives. In
May 1999, we acquired the Alaska telecommunications properties of Century
Telephone Enterprises, Inc., or CenturyTel, and substantially all of the assets
and liabilities of the Anchorage Telephone Utility, or ATU. CenturyTel's Alaska
properties were the incumbent provider of local telephone services in Fairbanks,
Juneau, and more than 70 rural communities in Alaska and provided Internet
services to customers statewide. ATU was the largest LEC in Alaska and provided
local telephone and long distance services primarily in Anchorage and cellular
services statewide.
On April 28, 2003, we entered into an underwriting agreement with a syndicate of
Canadian investment banks to complete the sale of a majority interest in our
Directories Business. On April 29, 2003, we filed a final prospectus with
Canadian securities regulators to sell a majority interest in the Directories
Business in a public offering in Canada to the ACS Media Income Fund, which is a
Canadian income fund. We sponsored this offering. The transaction closed on May
8, 2003, with our selling an 87.42% interest and retaining a 12.58% interest in
the Directories Business. The offering raised approximately $160 million of
gross proceeds, of which $107 million was used to repay outstanding amounts
under our old bank credit facilities.
61
Subsequently, on August 27, 2003, we were released from a lockup agreement
relating to our remaining interest in the Directories Business and we disposed
of substantially all of our remaining interest in the Directories Business
through the exercise of our right to convert 99.23% of our then-remaining 12.58%
interest in the Directories Business to 2.5 million units of the ACS Media
Income Fund, which were then sold in an underwritten offering. The transaction
settled on September 4, 2003, generating $17.3 million in net proceeds and a
gain on disposition of approximately $16 million.
THE SPONSOR
Fox Paine & Company, LLC, or Fox Paine, manages investment funds in excess of
$1.5 billion that provide equity capital for (1) management buyouts, (2)
going-private transactions, and (3) company expansion and growth programs, which
we refer to collectively as MBOs. Fox Paine was founded in 1997 by Saul A. Fox,
a former general partner of Kohlberg Kravis Roberts & Co., and W. Dexter Paine,
III, a former general partner of Kohlberg & Co., and includes 14 principal
members with significant experience in MBOs, private and public equity,
corporate finance, business and tax law, commercial and investment banking, and
mergers and acquisitions. Investment funds managed by Fox Paine invested
approximately $100 million in us in May 1999.
COMPETITIVE STRENGTHS
LEADING COMPETITIVE POSITION. We are the leading integrated, facilities-based
telecommunications services provider in Alaska, offering a diverse mix of
telecommunications services to business and residential customers throughout the
state. Our strong brand name recognition within Alaska provides us with a loyal
customer base and strong local market positions.
- We are the ILEC in Anchorage, Fairbanks, Juneau, and more than 70 other
communities. Servicing approximately 316,000 local telephone access
lines representing approximately two-thirds of the local telephone
access lines in Alaska, we are the largest LEC in Alaska and the 13th
largest in the United States.
- We are the second-largest statewide provider of wireless services in
Alaska, serving approximately 84,000 subscribers as of September 30,
2003. Our wireless network covers over 478,000 residents as of
September 30, 2003, including all major population centers and highway
corridors.
- We are the second-largest provider of Internet access services in
Alaska with approximately 45,000 customers as of September 30, 2003.
INTEGRATED PORTFOLIO OF SERVICE OFFERINGS. We offer a diverse mix of
telecommunications services, including local telephone, wireless, Internet,
messaging, and long distance services, to business and residential customers
throughout Alaska. We believe that as the communications marketplace continues
to converge, our ability to offer an integrated package, or bundle, of
communications services provides a distinct competitive advantage. We believe
that bundled offerings are popular with customers because they allow for a
single customer interface, including fewer billing statements, as well as
pricing benefits across a number of services. We are aggressively marketing and
defending our position in local telephone services by actively selling our
wireless, Internet, long distance, messaging, and other services in bundles that
are attractive to our customers.
62
HIGH-QUALITY, ADVANCED NETWORKS AND FACILITIES. Since the management buyout in
1999, we have invested over $320 million in our telecommunications networks and
facilities, growing the total investment in these facilities to approximately
$1.1 billion. Our advanced telecommunications infrastructure includes over 65
carrier-class wireline switches, an advanced statewide IP network comprised of
over 35 switches and routers, 111 cellular sites, four digital wireless
switches, and 638 sheath miles of fiber-optic cable. We have made significant
incremental investments in our networks, including extensive utilization of
fiber in order to interconnect and integrate these facilities within Alaska as
well as to provide long-haul transport and connectivity between our major
markets and the rest of the United States. We have also implemented an advanced
information technology system to support our ability to deliver our services
through a single point of customer care. Our advanced customer service platform
allows us to provide varying levels of service to different customer categories,
ranging from highly automated service for residential customers to tailored
service for large enterprise customers. These investments allow us to offer our
customers a broad range of enhanced communications services in bundled packages,
where possible, and to provide high reliability and high-quality services to our
customers.
STRONG OPERATING PERFORMANCE AND SOLID CREDIT PROFILE. We operate a strong,
stable business that has performed well in a difficult telecom environment. From
2000, the first full year after our management buyout, through 2002, we have
grown revenue and Adjusted EBITDA (see "Selected historical financial data") by
approximately 10% and 19%, respectively, through a combination of investment in
new services and cost reductions in our traditional local telephone business.
Our credit profile has also improved significantly since our management buyout,
having reduced net debt (as defined) to Adjusted EBITDA from 5.0x (based on 2000
operating performance) to 4.4x as of September 30, 2003, on a pro forma basis.
Our liquidity on a pro forma basis continues to be strong, with $50 million
available under our new bank credit facilities and $121 million in available
cash. The recapitalization of our balance sheet in August 2003 decreased senior
secured leverage from 3.1x Adjusted EBITDA to 2.2x Adjusted EBITDA on a pro
forma basis for the twelve months ended September 30, 2003, extended the next
significant maturities of our indebtedness to 2009, and increased our future
financial flexibility.
EXPERIENCED MANAGEMENT TEAM. Management has a demonstrated track record of
operating, managing and acquiring telecommunications companies. Members of our
senior management team provide us with an average of approximately 20 years of
telecommunications experience. Our executive management team has a wealth of
knowledge in the telecommunications industry, as well as a deep understanding of
the dynamics of the Alaskan markets and our customers.
BUSINESS STRATEGY
Our competitive position as the leading integrated, facilities-based
telecommunications services provider in Alaska allows us to capitalize on the
growing demand for communications services in the state. Through promotion of
our service offerings under the "Alaska Communications Systems" brand name, we
take advantage of our statewide presence and integrated marketing to build
superior brand awareness, drive greater penetration of our services, and sell a
comprehensive bundle of services to our customers. With the ability to deliver a
broad array of communications services, an extensive facilities-based network,
and a long history of meeting the communication needs of our unique state, our
goal is to be the premier telecommunica-
63
tions services provider in our markets. We consider the following strategies to
be integral to achieving our goal:
- Increase revenues from existing customers by offering multiple services
in a single package to residential and small business customers, which
we refer to as bundling, and increasing the utilization by our
customers of our services;
- Continue to capitalize on our technologically advanced networks to
provide feature-rich, high-quality, and highly reliable
telecommunications services to our customers;
- Grow our wireless services by increasing marketing, expanding coverage,
rolling out next-generation CDMA technology, and providing data related
services;
- Expand our private line and data networks business by offering
customized solutions to large commercial enterprise and governmental
customers;
- Increase our margins, reduce costs, and improve operating efficiency in
each of our business lines; and
- Pursue strategic acquisitions of and investments in other
telecommunications businesses in Alaska and elsewhere in the United
States.
PRODUCTS, SERVICES AND REVENUE SOURCES
We offer a broad portfolio of telecommunications services to residential and
business customers in our markets. We believe that, as the communications
marketplace continues to converge and competition continues to enter the market,
the ability to offer an integrated package of communications products will
provide a distinct competitive advantage, as well as increase customer loyalty,
and thereby decrease customer turnover. We complement our local telephone
services by actively marketing our wireless, Internet, interexchange and other
service offerings.
Profit or loss and total assets for each of our segments is disclosed in Note 10
"Business segments" in the Notes to Consolidated Financial Statements in our
Form 10-Q, as amended, for the fiscal quarter ended September 30, 2003. See
"Certain documents incorporated by reference." The following table sets forth
the components of our consolidated revenues for the years ended December 31,
2000, 2001, and 2002 and for the nine months ended September 30, 2002 and 2003.
<Table>
<Caption>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------ -----------------------------------
2000 2001 2002 2002 2003
- ------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------------------
Revenue by source:
Local network
service............. $ 94.1 30.0% $ 96.3 29.0% $ 99.5 29.0% $ 74.9 29.2% $ 73.4 29.8%
Network access......... 105.2 33.6 103.0 31.0 108.3 31.5 83.8 32.6 73.9 30.1
Deregulated and other
revenue............. 23.0 7.3 22.2 6.7 18.6 5.4 13.4 5.2 15.2 6.2
--------------------------------------------------------------------------------------------
Local telephone........ 222.3 70.9 221.4 66.6 226.4 65.9 172.1 67.0 112.5 66.1
Wireless............... 41.2 13.1 41.9 12.6 43.2 12.6 32.4 12.6 34.9 14.2
Directory(1)........... 29.2 9.3 33.9 10.2 33.6 9.8 25.4 9.9 11.6 4.7
Internet............... 9.2 2.9 13.7 4.1 20.8 6.1 14.8 5.8 24.4 9.9
Interexchange.......... 11.8 3.8 21.3 6.4 19.4 5.7 12.0 4.7 12.6 5.1
--------------------------------------------------------------------------------------------
Total............... $313.5 100.0% $332.2 100.0% $343.5 100.0% $256.7 100.0% $246.0 100.0%
- ------------------------------------------------------------------------------------------------------------------------
</Table>
(1) DISPOSITION OF OUR DIRECTORIES BUSINESS. On April 28, 2003, we entered into
an underwriting agreement with a syndicate of Canadian investment banks to
complete the sale of a majority interest in our Directories Business. The
transaction closed on May 8, 2003, with us selling an 87.42% interest and
retaining a 12.58% interest in the Directories Business. Subsequently, on
August 27, 2003, we were released from a lockup agreement relating to our
then-remaining interest in the Directories Business, and we disposed of
substantially all of our remaining interest in the Directories Business. As
a result of this transaction, we now own less than 0.1% of the Directories
Business.
64
LOCAL TELEPHONE
We provide local telephone service through our four LECs. Local telephone
revenue consists of local network service, network access (including universal
service revenue), and deregulated and other revenue, each of which is described
below.
LOCAL NETWORK SERVICE. Basic local network service enables customers to
originate and receive telephone calls within a defined "exchange" area. We
provide basic local services on a retail basis to residential and business
customers, generally for a fixed monthly charge. The maximum amount that can be
charged to a customer for basic local services is determined by rate proceedings
involving the RCA. We charge business customers higher rates to recover a
portion of the costs of providing local service to residential customers, as is
customary in the industry. On average, U.S. business rates for basic local
services have been over two times the rates of residential customers. Basic
local service also includes non-recurring charges to customers for the
installation of new products and services and recurring charges for enhanced
features such as call waiting and caller identification.
At September 30, 2003, approximately 47% of our retail access lines served
business customers and 53% served residential customers. As of September 30,
2003, monthly charges for basic local service for residential customers range
from $9.42 to $16.30 in our service areas, compared to the national average for
urban areas of $14.11 for 2001. As of September 30, 2002, monthly charges for
business customers range from $17.65 to $35.00 in our service areas compared to
the national average for urban areas of $33.84 for 2001. In November 2001, we
were authorized by the RCA to increase on an interim basis certain rates in our
largest market, Anchorage, by 24%. As a result, we increased residential service
rates in Anchorage from $9.70 to $12.05 per month as of December 31, 2002. See
"Regulation" for further discussion of regulatory matters including our local
network service rate proceedings. The table below sets forth the annual growth
in access lines for us and our predecessor entities from December 31, 1998 to
December 31, 2002 and access lines as of September 30, 2002 and 2003.
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------- -------------------
1998 1999 2000 2001 2002 2002 2003
- ------------------------------------------------------------------------------------------------------
Retail access lines............ 266,704 281,726 272,936 261,002 236,148 241,583 224,744
Wholesale access lines......... 13,010 15,680 17,303 22,859 24,768 25,074 18,795
Unbundled network elements..... 20,680 28,202 39,221 49,062 62,091 60,504 72,449
---------------------------------------------------------------------
Total local telephone access
lines........................ 300,394 325,608 329,460 332,923 323,007 327,161 315,988
Enterprise private network
lines(1)..................... -- -- -- -- 13,050 11,747 20,188
---------------------------------------------------------------------
Total access lines............. 300,394 325,608 329,460 332,923 336,057 338,908 336,176
Percentage growth.............. 6.0% 8.4% 1.2% 1.1% 0.9% -- --
- ------------------------------------------------------------------------------------------------------
</Table>
(1) Revenues from enterprise private network lines are recognized in the
Internet segment, and not in the local telephone segment.
We believe that future access line growth is dependent on, among other things,
the economic outlook in Alaska and the United States, the impact of technology
and competition on line demand and population growth in our service areas.
Competitive local network service provides interconnection through wholesale
access to our basic local service and through the leasing of UNEs to other
service providers as required by the Telecommunications Act of 1996. Revenues
for these services are included in local network
65
service revenues. In November of 2001, we were authorized by the RCA to
implement an interim and refundable rate increase of $1.07 per UNE loop for our
Anchorage serving area, increasing the total rate to $14.92 from $13.85. The RCA
has also lifted our rural exemption for the Fairbanks and Juneau serving areas
and awarded interconnection rates to another service provider on a UNE basis of
$19.19 and $16.71, respectively. As of September 30, 2003, we were reselling or
leasing approximately 90,000 lines to other service providers in the Anchorage,
Fairbanks, and Juneau service areas. We believe the UNE rates in place in all of
our markets are below our embedded and forward-looking cost and are therefore
non-compensatory. See "Regulation" for further discussion of regulatory matters,
including interconnection under the Telecommunications Act of 1996.
While there is some seasonality in local network service, represented primarily
by reduced line demand in the Alaskan winter as seasonal workers leave the
state, operating results for local telephone services are not materially
impacted by seasonal factors.
NETWORK ACCESS. Network access services arise in connection with the origination
and termination of long distance, or toll, calls and typically involve more than
one company in the provision of such long distance service on an end-to-end
basis. Since toll calls are generally billed to the customer originating the
call, a mechanism is required to compensate each company providing services
relating to the call. This mechanism is the access charge, which we bill to each
interexchange carrier for the use of our facilities to access the customer. In
addition, we bill a component of access charges directly to our customers. We
also receive USF associated with the provision of services to high-cost rural
areas, which we include in our network access revenue. These components of
network access revenue are described below.
INTRASTATE ACCESS CHARGES. We generate intrastate access revenue when an
intrastate long distance call that involves one of our LECs and an interexchange
carrier is originated and terminated within the same state. The interexchange
carrier pays us an intrastate access payment for either terminating or
originating the call. We record the details of the call through our carrier
access billing system and receive the access payment from the interexchange
carrier. We also provide billing and collection services for interexchange
carriers through negotiated billing and collection agreements for certain types
of toll calls placed by our local customers. Our LECs in competitive areas are
under their own stand-alone tariffs for intrastate access. In non-competitive
areas, our LECs participate in a statewide tariff and access charge pooling
arrangement that is administered by the Alaska Exchange Carriers Association, or
AECA. The access charge for our intrastate service is regulated by the RCA.
INTERSTATE ACCESS CHARGES. We generate interstate access revenue when an
interstate long distance call is originated from an Alaskan local calling area
served by one of our LECs and is terminated in a local calling area in another
state, and vice versa. We bill interstate access charges in a manner similar to
intrastate access charges. However, interstate access charges are regulated by
the Federal Communications Commission, or FCC, rather than the RCA. Our LECs
participate in a nationwide tariff and access charge pooling arrangement that is
administered by the National Exchange Carrier Association, or NECA, for all our
LECs except ACSA. ACSA participates in the NECA common-line tariff, but has its
own interstate access tariff for traffic sensitive and special access services.
UNIVERSAL SERVICE REVENUE. Universal service revenue supplements the amount of
local service revenue we receive to ensure that basic local service rates for
customers in high cost rural areas are not significantly higher than rates
charged in lower cost urban and suburban areas. The 1996 Act prescribed new
standards applicable to universal service, including mechanisms for
66
defining the types of services to be provided as part of a universal service
program, specific goals or criteria applicable to universal service programs,
new qualifications for receipt of universal service funding and new requirements
for contributions to universal service funding. The FCC, in conjunction with a
federal-state joint board composed of FCC and state commission members, has been
working since passage of the 1996 Act to implement these new statutory
provisions. The FCC has chosen to address universal service matters, initially
for non-rural telephone companies, and subsequently for rural telephone
companies. While new cost-identification models for non-rural local carriers
were adopted effective on January 1, 2000, similar models for rural carriers
were rejected by the FCC, leaving previous USF calculations in place for the
Federal High-Cost Fund. In accordance with the 1996 Act's requirement to
eliminate implicit subsidies, the FCC has created additional USF support
mechanisms to compensate for support that had previously been provided
implicitly through access revenue. While the joint board and the FCC continue to
examine modifications to the universal service funding mechanisms, it is
unlikely that any changes will have a near-term impact on our revenue.
Interstate access, intrastate access, and universal service funding are all
influenced by both LEC cost levels and competitive local market penetration.
Toll traffic originating or terminating on a competitor's network does not
generate access billings to interexchange carriers for us. Many of the
underlying factors in jurisdictional cost separations studies that allow network
costs to be recovered through access charges are diminished as competitive
market penetration increases. Universal service funding may also diminish as a
result of competitive local market penetration. Under FCC rules, when a CLEC is
named an ETC, as GCI has been in Anchorage, Fairbanks and Juneau, universal
service funding becomes portable to the CLEC on a per-line basis, further
eroding the ILECs' revenue.
Operating results for network access services are not materially impacted by
seasonal factors.
DEREGULATED AND OTHER REVENUE. Deregulated and other revenues consist of billing
and collection contracts, space and power rents, pay telephone service, CPE
sales, and other miscellaneous revenues generated by our LECs. We seek to
capitalize on our local presence and network infrastructure by offering these
additional services to customers and interexchange carriers. Deregulated and
other revenue is generally not subject to seasonal impacts on operating results.
WIRELESS
We provide mobile and fixed voice and data communications services over our
wireless network facilities. These wireless services are provided statewide
under the ACS Wireless brand name to approximately 84,000 subscribers. The
sources of wireless revenue include subscriber access charges, airtime usage,
toll charges, connection fees, roaming revenues, communications equipment, and
enhanced features, such as caller identification and call waiting. A subscriber
may purchase services separately or may purchase rate plans that package these
services in different ways to fit different calling patterns and desired
features.
67
The table below sets forth the annual growth in the number of wireless
subscribers served and total covered population for us and our predecessor
entities from December 31, 1998 to December 31, 2002, and for the periods ended
September 30, 2002 and September 30, 2003.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------- -------------------
1998 1999 2000 2001 2002 2002 2003
- --------------------------------------------------------------------------------------------
Estimated covered
population(1)..... 460,162 460,802 462,057 468,622 478,413 471,863 478,413
Ending subscribers... 66,572 73,068 75,933 80,120 82,220 81,559 83,993
Ending penetration... 14.5% 15.9% 16.4% 17.1% 17.2% 17.3% 17.6%
- --------------------------------------------------------------------------------------------
</Table>
(1) Estimated covered population figures are based on population data published
by the state of Alaska on an annual basis.
We believe there are opportunities to improve the penetration rates of our
wireless operations in Southeastern Alaska and, in particular, Juneau. We also
believe that the market for wireless services will continue to grow with the
expansion of the wireless industry as a whole.
As of December 31, 2002, we also own 10 megahertz E Block PCS licenses covering
Anchorage, Fairbanks and Juneau which were purchased by CenturyTel's Alaska
Properties in 1997 and acquired by us when we purchased CenturyTel's Alaska
Properties on May 14, 1999. During 2002, we purchased 10 megahertz F Block PCS
licenses. In 2002, ACS Wireless, in accordance with FCC requirements, deployed a
limited turn-up of its CDMA 1X services in all E and F Block markets. We are
analyzing the further build-out of these services to enhance our offerings in
our overall business.
Wireless revenue declines in the winter months and increases in the summer
months due to Alaska's northern latitude and the wide swing in available
daylight and changes in weather patterns between summer and winter and their
effect on business, tourism and subscriber calling patterns. However, operating
results for wireless services are not materially impacted by seasonal factors.
INTERNET
We provide dial-up or broadband Internet access services to approximately 45,000
customers as of September 30, 2003, including high-speed DSL services to
approximately 16,000 customers in our major LEC service territories, such as
Anchorage, Fairbanks, and Juneau. Our local dial-up numbers and dedicated
broadband connections allow customers access to a series of computer servers we
own and maintain to access their e-mail accounts and to connect to the Internet.
We are also a single-source provider of advanced IP-based private networks to
large enterprise and governmental customers in Alaska. We charge customers
either a flat rate for unlimited Internet usage or a usage sensitive rate.
Operating results for Internet access services are not materially impacted by
seasonal factors.
INTEREXCHANGE
Our predecessors began offering long distance services on a resale basis in
October 1997, primarily in Anchorage. We have approximately 43,500 long distance
customers as of September 30, 2003. Before August 1998, CenturyTel's Alaska
Properties were precluded from entering the long distance business by a
non-competition agreement with AT&T Alascom, which was signed when Pacific
Telecom sold Alascom, Inc. to AT&T in 1995.
68
In April 1999, we entered into a settlement agreement with GCI under which we
agreed to enter into a number of new business arrangements and to settle a
number of outstanding disputes, including GCI's opposition to our acquisitions
of CenturyTel's Alaska Properties and ATU. As part of this agreement and to
support other aspects of our business strategy, we purchased from GCI $19.5
million of fiber capacity for high-speed links within Alaska and for termination
of traffic in the lower 49 states. Subsequently, we entered into an amendment to
the purchase agreement with GCI, whereby, among other things, we agreed to
purchase additional capacity for $19.5 million. We fulfilled this commitment to
purchase additional capacity on January 12, 2001.
We are subject to numerous conditions imposed by the RCA and, to a lesser
degree, by the FCC on the manner in which we conduct our long distance
operations. The restrictions are intended to prohibit cross-subsidization from
the regulated LEC to the long distance affiliate and discrimination against
other long distance providers in favor of a LEC's long distance affiliate. Among
the conditions applied to our long distance affiliate are those which:
- require us to hold all books and records, management, employees and
administrative services separate, except that services may be provided
among affiliates through arm's-length affiliated interest agreements;
- prohibit ACSA, ACSAK, ACSN and ACSF from bundling local and intra-state
long distance services until competition develops in their local
markets; and
- prevent us from joint ownership of telephone transmission or switching
facilities with the LEC and from using the LEC's assets as collateral
for our own indebtedness.
Although there is some seasonal impact on customer usage patterns for long
distance, operating results are not materially impacted by seasonal factors.
NETWORK FACILITIES
As of September 30, 2003, we owned 65 host switches serving approximately
316,000 local telephone access lines. All of our access lines are served by
digital switches provided predominantly by Nortel Networks. Our switches are
linked through a combination of extensive aerial, underground and buried cable,
including 638 sheath miles of fiber-optic cable, as well as digital microwave
and satellite links. We have 100% single-party services (one customer per access
line), and believe substantially all of our major switches have current generic
software upgrades installed, allowing for the full range of enhanced customer
features.
We have integrated numerous network elements to offer a variety of services and
applications that meet the increasingly sophisticated needs of customers. These
elements include Signal System 7 signaling networks, voice messaging platforms,
digital switching, DSL, and, in some communities, integrated service digital
network access. As the telecommunications industry experiences significant
changes in technology, customer demand, and competition, we intend to introduce
additional enhancements.
Network operations and monitoring are provided by our network operating control
center located in Anchorage. The network operating control center has
technicians staffed seven days a week, 24 hours a day. We also have customer
care call center facilities in Anchorage and Fairbanks along with additional
customer care facilities in Juneau, Sitka, Kenai/Soldotna, and Kodiak. All of
these facilities offer extended business hours to efficiently handle customer
inquiries and orders for service.
69
As of December 31, 2002, our wireless operations consist of four digital
switching centers, 111 cell sites, and three repeaters covering substantially
all major population centers and highway corridors in Alaska plus one analog
switch and cell site covering Barrow, Alaska. Our switching and cell site
infrastructure is linked by fiber and digital microwave. Our network operating
control center located in Anchorage also supports all wireless switches in our
markets. Customer care centers are located in Anchorage, Fairbanks, Juneau,
North Pole, Homer, and Kenai/Soldotna.
We have enhanced our network to accommodate developing products and technology.
We completed our Multi-Protocol Label Switching over Asynchronous Transfer Mode
network, or MPLS/ATM network, in early 2002. Core MPLS/ATM nodes were installed
in Anchorage, Fairbanks, Kenai, Juneau, the Mat-Su valley, and Seattle. We
believe the MPLS/ATM network enhances our capability to provide a complete suite
of converged telecommunications, data and video services and achieve significant
operating efficiencies. We currently offer a variety of products and services
and are able to converge them all over our MPLS core network:
- virtual private networks and lines;
- voice-over IP services;
- transparent local area networks, or LANs, and proprietary LANs and
wide-area networks, or WANs;
- high-speed Internet access;
- managed services; and
- video and video conferencing.
CUSTOMERS
We have three basic types of customers for the services of our LECs:
- business and residential customers located in their local service areas
that pay for local phone service and a portion of network access;
- interexchange carriers that pay for access to long distance calling
customers located within our local service areas; and
- CLECs that pay for wholesale access to our network in order to provide
competitive local service on either a resale or UNE basis as prescribed
under the 1996 Act.
As of September 30, 2003, approximately 53% of our retail access lines served
residential customers, while 47% served business customers.
As of September 30, 2003, we also had approximately 84,000 wireless subscribers,
45,000 Internet subscribers, and 43,500 long-distance subscribers consisting
substantially of retail residential and business consumers.
During 2002, one customer accounted for 11% of consolidated revenues, and no
other customers accounted for more than 10% of consolidated revenue.
70
COMPETITION
LOCAL TELEPHONE SERVICE
ILECs may be subject to any of several types of competition:
- facilities-based competition from providers with their own local
service network;
- resale competition from resale interconnection, or providers who
purchase local service from the ILEC at wholesale rates and resell
these services to their customers;
- competition from UNE interconnection, that is, providers who lease UNEs
from the ILEC; and
- alternatives to local service networks, including wireless, IP,
satellite, and cable telephony.
The geographic characteristics of rural areas presently make the entrance of
most facilities-based competitors uneconomical because of the significant
capital investment required and the limited market size. Therefore, we believe
competition is likely to come from resale interconnection or UNE
interconnection. However, in the future, competition though other means, such as
cable or wireless telephony, may become economically feasible. There are no
regional Bell operating companies in Alaska.
In September 1997, GCI and AT&T Alascom, the two largest long distance carriers
in Alaska, began providing competitive local telephone services in Anchorage.
GCI competes principally through UNE interconnection with ACSA facilities, while
AT&T Alascom competes primarily by reselling ACSA's services. Competition is
based upon price and pricing plans, types of services offered, customer service,
billing services, and quality and reliability of service. GCI has focused
principally on advertising discount plans for bundled services. AT&T Alascom's
strategy has been to resell ACSA's service as part of a package of local and
long distance services. As a result, ACSA now has approximately 50% competitive
market penetration as of December 31, 2003. We expect GCI and AT&T Alascom to
continue to compete for local telephone business.
As "rural telephone companies" under the 1996 Act, our rural LECs have
historically been exempt from the obligation to lease their facilities or resell
their services on a wholesale discount basis to CLECs seeking interconnection.
However, on June 30, 1999 the APUC, ordered these exemptions terminated for
certain of our rural service areas, and on October 11, 1999, the RCA, which
replaced the APUC on July 1, 1999, sustained the APUC's order. As a result, our
rural LECs entered into interconnection arbitration with GCI. This arbitration
resulted in interconnection agreements for certain of our rural service areas.
See "Regulation" for further discussion.
In October 2000, the RCA approved interconnection agreements under the 1996 Act
between ACSF, ACSN and ACSAK and GCI for its Fairbanks and Juneau markets.
Commencing in April 2001, we received our first orders for resale of local
services in Fairbanks. As of September 30, 2003, we estimate that we now have
approximately a 77% market share in Fairbanks. GCI has competed in Fairbanks
primarily through reselling services and through UNE interconnection. Similar
trends are being experienced by ACSAK in its Juneau market where, as of December
31, 2003, we have approximately a 78% market share.
In December 2003, the Alaska Supreme Court reversed the RCA's decisions lifting
the rural exemptions for ACSF, ACSN and ACSAK, and remanded the case to the RCA
for further
71
proceedings regarding the exemption of ACSF and ACSAK. ACSN's exemption is now
reinstated for the Glacial State service area at this time.
We expect increasing competition from providers of various services that provide
users the means to bypass our network. Long distance companies may construct,
modify or lease facilities to transmit traffic directly from a user to a long
distance company. Cable television companies also may be able to modify their
networks to partially or completely bypass our local network. GCI, the dominant
cable operator in Alaska and a CLEC, is currently testing cable telephony
service and recently announced plans to start switching its local phone service
customers in Anchorage over to its cable system in 2004.
In addition, while wireless telephone services have historically complemented
traditional LEC services, we anticipate that existing and emerging wireless
technologies may increasingly compete with LEC services. For example, AT&T had
introduced its fixed wireless product to the Anchorage market. Although AT&T's
fixed wireless product was subsequently abandoned, communications technology
manufacturers continue to work on alternatives to traditional LEC service. At
this time, it is not possible to predict the impact of this product on our share
of the local market. Technological developments in wireless telephone features,
personal communications services, digital microwave and other wireless
technologies are expected to further permit the development of alternatives to
traditional wireline services.
WIRELESS SERVICES
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements, and changes in consumer preferences and expectations. We believe
that the demand for wireless telecommunications services is likely to increase
significantly as equipment costs and service rates continue to decline and
equipment becomes more convenient and functional. Competition is based on price,
quality, network coverage, packaging features and brand reputation. In addition,
there are at least six PCS licensees in each of our wireless service areas. We
hold PCS licenses covering Anchorage, Fairbanks and Juneau. We currently compete
with at least one other wireless provider in each of our wireless service areas,
including Dobson Communications and Alaska DigiTel. We believe that the unique
and vast terrain and the high cost of PCS system buildout make entrance into
certain markets outside Anchorage uneconomical at this time.
As the market for simple wireless voice services approaches maturity, providers
are experiencing downward pressure on price. We are positioning ourselves to
offset this impact by bringing new higher-margin services to market. By
developing products for targeted market segments, we are leveraging the
advantage in market share and geographical coverage to attract new customers and
increase monthly revenues from existing customers. We continuously evaluate new
service offerings in order to differentiate ourselves from competitors, produce
additional revenues and increase margins.
INTERNET SERVICES
The market for Internet access services is highly competitive in most markets in
the state. There are few significant barriers to entry, and we expect that
competition will intensify in the future. We currently compete with a number of
established online services companies, interexchange carriers, LECs with
Internet subsidiaries, satellite service providers and cable television
companies. We believe that our ability to compete successfully will depend upon
a
72
number of factors, including the reliability and security of our network
infrastructure, the ease of access to the Internet, the availability of
broadband ISP access and the pricing policies of our competitors. During 2002,
we continued to feature our DSL services in Anchorage, Fairbanks, Juneau,
Kenai/Soldotna, Homer and Sitka, Alaska for both residential and business
applications.
LONG DISTANCE SERVICES
The long distance telecommunications market is highly competitive. Competition
in the long distance business is based primarily on price, although service
bundling, branding, customer service, billing services and quality play a role
in customer's choices to some extent. We currently offer long distance service
to customers located primarily in the more populous communities within our
service territory. AT&T Alascom and GCI are currently the two major competing
long distance providers in Alaska. We believe we have less than 5% of total long
distance revenue in Alaska as of September 30, 2003. We provide traditional "1+"
direct distance dialing (DDD), toll-free services, calling cards and private
line services for data and voice applications. In Spring 2001, we discontinued
our long distance "Infinite Minutes" program, and introduced several new
flat-fee programs marketed as "Easy Choices." The new programs allow customers
to purchase interstate minutes of use in blocks of time for a single monthly
fee. We expect to continue offering innovative products of this nature in the
future.
SALES AND MARKETING
We have consolidated our product and service offerings under the "Alaska
Communications Systems" and "ACS" brands, subject to regulatory and strategic
business considerations.
Key components of our sales and marketing strategy include:
- establishing name recognition of the ACS brand across all product and
service offerings;
- marketing current and future service offerings aggressively;
- providing simplified packaged service offerings;
- centralizing marketing functions;
- improving quality, reliability and customer service;
- developing and delivering to the market new products and services in
line with strategic goals; and
- enhancing direct sales efforts.
We believe that we can leverage our position as an integrated, one-stop provider
of telecommunications services with strong positions in local access, wireless,
Internet, and interexchange long distance and data markets. By pursuing, within
the bounds of any applicable regulatory constraints, a marketing strategy that
takes advantage of these characteristics and that facilitates cross-selling and
packaging of our products and services, we believe we can increase penetration
of new product offerings, improve customer retention rates, increase our share
of our customers' overall telecommunications expenditures, and achieve continued
revenue and operating cash-flow growth.
We have begun, to a limited extent, within regulatory bounds, marketing local
telephone services in attractively priced, packaged service offerings with
wireless, long distance and Internet services. We believe packaged offerings are
popular with customers, because they
73
allow customers to enjoy pricing for a number of services at a discount to a la
carte pricing of individual services. Subject to regulatory limitations, we
intend to expand this strategy, which we expect will increase the average
revenue per customer, and result in a more loyal and satisfied customer base and
in reduced churn.
We have established a sales and marketing organization where marketing
strategies are centralized and sales functions are based locally. To enhance our
direct-selling efforts, we have established additional customer and retail
service centers in our larger service areas, such as Juneau and Kenai/Soldotna,
and intend to enhance our call center operations through a combination of
technology investments, training, and incentive compensation programs for call
center employees.
EMPLOYEES
We consider employee relations to be good. As of September 30, 2003, we employed
a total of 1,084 regular full-time employees, 867 of whom were represented by
the International Brotherhood of Electrical Workers, Local 1547, or IBEW. On
November 2, 1999, the IBEW membership for ACS Holdings ratified the terms of a
master collective-bargaining agreement that governs the terms and conditions of
employment for all IBEW-represented employees working for us in the State of
Alaska. The master agreement embraces a labor-management relationship that is
founded on trust, cooperation and shared goals. The November 1999 agreement,
which expires on December 31, 2006, provides for wage increases up to 4% in
specified years based on the annual increases in the consumer price index for
Anchorage as reported by the U.S. Department of Labor CPI-U. The last wage
increase under the agreement was implemented in January 2003. The master
agreement also limits increases to our health and welfare benefit contributions
for represented employees to 4% annually. There have been no work stoppages or
strikes, and none are anticipated.
We also enjoy good relations with the non-represented employee group.
Non-represented employees qualify for wage increases based on individual and
company performance, and key employees are also eligible for performance-based
incentives. We provide a total benefits package, including health, welfare, and
retirement components, that is competitive in our market.
PROPERTIES
At December 31, 2002, our telecommunications network includes 638 sheath miles
of fiber-optic cable, over 188 switching facilities and a statewide wireless
network. In addition, we purchased fiber capacity in May of 1999 and in January
of 2001 for high-speed links within Alaska and for termination of traffic in the
lower 48 states. We plan to continue enhancing our network to meet customer
demand for increased bandwidth and advanced services. See "--Network
facilities."
LOCAL TELEPHONE
As of December 31, 2002, our primary local telephone properties consisted of 188
switching facilities. We own most of our administrative and maintenance
facilities, customer service center, central office and remote switching
platforms and transport and distribution network facilities. Our local telephone
assets are located in Alaska.
Our transport and distribution network facilities include a fiber-optic backbone
and copper wire distribution facilities that connect customers to remote switch
locations or to the central
74
office and to points of presence or interconnection with interexchange carriers.
These facilities are located on land pursuant to permits, easements,
rights-of-ways or other agreements.
WIRELESS
As of December 31, 2002, we had four digital switching centers, 111 cell sites
and three repeaters covering substantially all major population centers and
highway corridors in Alaska, plus one analog switch and cell site covering
Barrow, Alaska. In most cases, we lease the land on which these sites are
located.
INTERNET
As of December 31, 2002, we had point-of-presence facilities in over 34
communities serving the majority of Alaska's populated areas. These communities
are linked over both owned and leased facilities to the Internet at Seattle,
Washington.
INTEREXCHANGE
We are a facilities-based interexchange carrier. We have invested in fiber-optic
capacity through an indefeasible right of use that provides bandwidth between
our Anchorage, Fairbanks, and Juneau locations and Seattle, Washington. We also
lease transport facilities and have arrangements with other interexchange
carriers to terminate traffic in the lower 48 states.
Substantially all our assets (including those of our subsidiaries) are pledged
as collateral for our senior secured obligations. See Note 7, "Long-term
obligations," in the Notes to Consolidated Financial Statements in our Form
10-K, as amended, for the fiscal year ended December 31, 2002 and Note 3,
"Long-term obligations," in the Notes to Consolidated Financial Statements in
our Form 10-Q, as amended, for the fiscal quarter ended September 30, 2003 for
further discussion. See "Certain documents incorporated by reference."
LEGAL PROCEEDINGS
We are involved in various claims, legal actions and regulatory proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
our consolidated financial position, results of operations or cash flows.
As previously reported, we filed a formal appeal of the RCA's order terminating
the rural exemptions for Fairbanks, Juneau and the rural communities in the
Glacier State study area on November 10, 1999. On December 12, 2003, the Alaska
Supreme Court ruled that the termination of ACSN's rural exemption was
erroneous, and the termination of ACSF and ACSAK's rural exemptions may be
erroneous. The court remanded the original ACSF and ACSAK decision back to the
RCA for further proceedings. A decision on these remand proceedings is expected
in May 2004. During the pendency of the remand proceedings the obligation of
ACSF and ACSAK to provide UNEs to CLECs to support new customers has been
suspended.
Our LECs (ACSN, ACSF, ACSAK and ACSA) are currently negotiating and seeking
arbitration of new interconnections agreements with GCI. A hearing was held in
the ACSA matter in November 2003 and a decision is pending. Our petition to
consolidate the arbitration of new interconnection agreements for the rural
companies (ACSF and ACSAK) with the Anchorage arbitration was denied and they
were assigned to an arbitrator with direction to complete
75
these proceedings by February 2004. The agreements were scheduled to expire on
October 5, 2003 and have been extended pending arbitration of new agreements.
GCI and the arbitrator have agreed to defer further work on the interconnection
agreements for ACSF and ACSAK pending resolution of the ACSA interconnection
arbitration. As part of the agreement to defer these proceedings, it was also
agreed that final rates for ACSF and ACSAK will be effective no later than
October 6, 2004, with retroactive effect back to April 6, 2004. In light of the
pending arbitrations for new interconnection agreements for ACSF and ACSAK, the
Company dismissed its district court actions concerning the existing ACSF and
ACSAK interconnection agreements on October 14, 2003.
Following the RCA's March 25, 2003 order approving new revenue requirements for
ACSF, ACSAK, and ACSN, these entities filed cost of service and rate design
studies on May 23, 2003. A hearing in this proceeding is now scheduled for
February 9, 2004, and new rates are not expected to go into effect until the
second or third quarter of 2004. In May 2003, the RCA held a limited rehearing
in the revenue requirement phase for ACSA. The RCA subsequently reconsidered its
order and adopted service lives that more closely approximate the actual
economic lives of the assets, increasing ACSA's depreciation expense, thereby
increasing ACSA's revenue requirement. The RCA issued its final revenue
requirement order in December 2003, but the parties have agreed to defer most of
the remainder of the ACSA case until the second half of 2004. A hearing on the
ACSA rate design is scheduled for December 6, 2004 and new rates should be
expected by the first half of 2005.
We have been involved with a number of service-oriented disputes with GCI. The
RCA has ordered us, among other things, to construct new facilities for GCI to
serve GCI customers and to provide GCI with query access to our LEC ordering and
provisioning systems. An Alaska superior court remanded back to the RCA that
portion of the RCA's decision that orders our LECs to construct new facilities
for GCI to serve GCI customers. The RCA vacated that portion of its decision on
January 7, 2004. GCI also filed a complaint against us with the FCC concerning
service issues in May 2003. We are vigorously defending our actions before the
FCC. While the potential for some liability exists from GCI's complaint before
the FCC, we cannot predict the final outcome of this proceeding.
On May 14, 2001, we were served with a class action lawsuit concerning our
interstate "Infinite Minutes" long distance plan. A trial is scheduled for
September 2004. A class of approximately 24,000 plaintiffs has been certified.
We believe this suit to be without merit and we intend to maintain a vigorous
defense.
On September 15, 2003, we received notification that the State of Alaska was
terminating the CTSA, a contract under which we were obliged to provide
comprehensive telecommunications services to the State of Alaska for a period of
five years. On October 1, 2003, we announced that we had entered into a
voluntary settlement agreement with the State of Alaska under which we will make
a cash payment to the State of Alaska of approximately $3.4 million and transfer
to the State of Alaska title to certain capital equipment. The parties agreed to
cooperate to complete disentanglement by December 31, 2003. As of December 31,
2003, we and the State had completed the majority of our Settlement Agreement
disentanglement obligations. All services provided by us under the CTSA prior to
January 1, 2004 were either transitioned to other service providers at the
direction of the State or transitioned to our current commercial rates for such
services. We expect that our remaining obligations under the Settlement
Agreement will be completed in the second quarter of 2004. We cannot guarantee
that further disputes will not arise in connection with the implementation of
the disentangle-
76
ment procedures and as a result we cannot currently estimate the impact that the
termination, including the total costs of disentanglement, will have on our
revenues or results.
On October 28, 2003, ACSW was served with a complaint filed by the Alaska
Attorney General for violations of the Alaska Consumer Protection Act. On
November 17, 2003, the Alaska Attorney General asked the court to dismiss the
complaint and the matter has been resolved.
ACSW has petitioned the RCA for ETC status in two high cost areas of Alaska. The
RCA has yet to take action on this petition. Meanwhile, Dobson Communications
has also petitioned the RCA for ETC status in various parts of Alaska and has
further sought to have the RCA redefine ILEC study areas, including those served
by our LECs, based on wire centers for the purpose of targeting subsets of the
existing study areas for CETC status and receipt of universal service funding.
We were named as a defendant in an action brought by Fireweed Communications
regarding its use of our Eagles Nest communications tower. The parties have
reached an agreement in principle to settle the case and expect the case to be
dismissed in the near future.
We are involved in various other claims, legal actions, and regulatory
proceedings arising in the ordinary course of business. See Note 13,
"Commitments and contingencies," in the Notes to Consolidated Financial
Statements in our Form 10-Q, as amended, for the fiscal quarter ended September
30, 2003, for further discussion. See "Certain documents incorporated by
reference." We believe that the disposition of these matters will not have a
material adverse effect on our consolidated financial position, results of
operations, or cash flows.
77
REGULATION
OVERVIEW
Our local telephone operating subsidiaries, ACSA, ACSF, ACSAK, and ACSN, are
each "telecommunications carriers" and ILECs under the Communications Act of
1934, or the Communications Act, which was amended by the 1996 Act and are
subject to the jurisdiction of the FCC and the RCA. ACS Long Distance, Inc., or
ACSLD, our long distance subsidiary, is also a telecommunications carrier
subject to both the FCC and the RCA's regulatory jurisdiction. Our wireless
operations are also subject to FCC jurisdiction because they are
telecommunications carriers and because they hold FCC-issued licenses.
FEDERAL REGULATION
Under the federal regulatory scheme, interstate telecommunications carriers are
required to comply with the Communications Act and the applicable rules and
regulations of the FCC. In substantially overhauling the Communications Act, the
1996 Act was intended to, among other things, eliminate unproductive regulatory
burdens and promote competition. Despite this overhaul, telecommunications
carriers remain subject to extensive regulatory requirements. For instance, our
ILEC subsidiaries are required to maintain accounting records in accordance with
the Uniform System of Accounts, to structure interstate-access charges according
to FCC rules, and to charge for interstate services at a rate of return not to
exceed a rate prescribed by the FCC. Our wireless services also are subject to a
number of federal regulations, such as 911 and number portability requirements.
The FCC also must give prior consent to transfers of control and assignments of
radio-frequency licenses. The FCC requires ILECs providing interstate access
services to file tariffs with the FCC reflecting the rates, terms and conditions
of those services. These tariffs are subject to review and potential objection
by the FCC or third parties. Additionally, all of our LECs are "ILECs" within
the meaning of the 1996 Act. As such, they are subject to various additional
requirements under the 1996 Act, including specific interconnection duties such
as providing requesting telecommunications carriers with UNEs and wholesale
end-user services for resale. Long distance companies are also required to post
offers, terms and prices on their Internet web sites.
STATE REGULATION
Telecommunications companies subject to the RCA's jurisdiction are required to
obtain certificates of public convenience and necessity prior to operating as a
public utility in Alaska. The RCA is responsible for approving new certificates
and any transfers of existing certificates, including transfers of control. In
addition, the RCA is responsible for implementing a portion of the competitive
requirements of the 1996 Act, as well as for regulating intrastate access rates
and rates for local and other services of local telephone companies. After
passage of the 1996 Act, the RCA's predecessor, the APUC, adopted a plan to
address competition issues across Alaska. The APUC initiated multiple
proceedings to investigate different competition-related issues, including
revising local and long distance market structures, reforming the intrastate-
access-charge system and establishing a state universal service fund. In
addition to eliminating the participation of ILECs operating in competitive
markets in the statewide access charge pools, the RCA made operational the new
Alaska Universal Service Fund, or AUSF. In a subsequent rulemaking, the RCA
revised the eligibility standards for companies receiving high-cost switching
support from the AUSF. These rules resulted in a loss of switching support to
our rural LECs.
78
Rather than seeking interim local relief for this cost-recovery shift, we have
opted to include consideration of this issue in the more comprehensive rate
proceedings described below.
In connection with regulatory approval of our acquisitions of CenturyTel's
Alaska Properties and ATU in 1999, the APUC imposed several conditions on our
operating companies. Among those conditions was a requirement that ACSA, ACSF,
ACSAK, and ACSN each file revenue-requirement, cost-of-service, and rate-design
studies no later than July 2001. All of these companies except ACSF were also
required to file updated depreciation analyses concurrently with the rate-case
filings. The revenue-requirement studies were subsequently bifurcated from the
cost-of-service and rate-design studies. The RCA has adjudicated revenue
requirements for ACSF, ACSN, and ACSAK and, in December 2003, for ACSA. ACSF,
ACSN, and ACSAK filed their rate-design and cost-of-service studies on May 23,
2003, as well as certain proposed retail, access, wholesale, and interconnection
charges. The RCA has made rulings on confidentiality issues in the filings and
has set a schedule for the proceeding. Hearings on the ACSF, ACSN, and ACSAK
rate-design and cost-of-service study filings are scheduled to begin on February
9, 2004. Hearings on ACSA are scheduled to begin on December 6, 2004. The RCA
also granted a waiver petition filed on June 6, 2003, thereby permitting ACSA to
file retail-tariff amendments for the Anchorage market on an interim basis as if
it were a non-dominant carrier which may afford ACSA greater pricing flexibility
on an experimental basis. At this stage of the proceedings, it is not possible
to predict whether the RCA will adopt our companies' proposals. ACSAK, ACSN and
ACSF have withdrawn their wholesale and interconnection tariff proposals for
further revisions.
Having secured both LEC certification and interconnection agreements to serve
the local exchange markets in Fairbanks, Juneau, and numerous smaller
communities in Alaska, GCI has been designated an "Eligible Telecommunications
Carrier," or ETC, by the RCA for Anchorage, Fairbanks, Juneau and Fort
Wainwright. ETC designation is an essential first step in securing "portable" or
shared universal service support. Our LECs are currently designated as ETCs in
the same markets for which GCI has received this designation. Wireless carriers
have recently begun petitioning the RCA for ETC status, following the national
trend, and on August 28, 2003, the RCA granted ETC status to Alaska DigiTel for
the Matanuska Telephone Association, or MTA, service areas. Dobson Cellular
Systems has also asked the RCA to redefine our service areas on a wire center
basis as well as seeking ETC status. If this petition is granted, Dobson might
be allowed to receive USF support for serving portions of our service areas
without having an obligation to serve the entire area. Separately, in May 2003,
ACS Wireless also applied for ETC status in Fairbanks and the MTA service area.
Under existing FCC regulations, ILECs may seek, through filings with state
commissions, the disaggregation of study areas into multiple zones for purposes
of universal service support, which allows more precise targeting of universal
service support to those service areas that cost more per line to serve. Filings
reflecting two-zone disaggregation plans have already been made by ACSF and ACSN
for the Glacier State study area.
COST RECOVERY AND REVENUE RECOGNITION
As regulated common carriers, our local operating subsidiary companies have the
legal right to an opportunity to recover their allowed costs incurred in the
provision of regulated
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telecommunications services and to earn a reasonable rate of return on the
investment required to provide these services. These costs are recovered
through:
- monthly charges to end users for basic local telephone services and
enhanced service offerings;
- access charges to interexchange carriers for originating and
terminating interstate and intrastate interexchange calls, along with
an end-user access charge referred to as a subscriber-line charge;
- interconnection charges, wholesale service charges, UNE charges, and
other rates to competing carriers interconnecting with our networks or
reselling our services; and
- high-cost support mechanisms, such as USF and AUSF.
To establish rates for regulated services, a LEC must first determine its
aggregate costs and then allocate them between regulated and nonregulated
services. After identifying the regulated costs of providing local telephone
service, a LEC must further allocate those costs between state and federal
jurisdictions and among its various interstate and intrastate services. This
process is complicated by the need to allocate the costs of specific pieces of
plant and equipment between jurisdictions, because a LEC uses its plant and
equipment for different federal and state services, such as local telephone and
interstate and intrastate access. This process is referred to as "separations"
and is governed primarily by the FCC's rules and regulations. The underlying
legal purpose of separations rules is to define how a carrier's expenses are
allocated and recovered from federal and state jurisdictions. The FCC is
considering whether to modify or eliminate the current separations process. This
decision could indirectly increase or reduce earnings of carriers subject to
separations rules by reallocating costs between the federal and state
jurisdictions. Regardless of any potential reallocation, however, maximum rates
for regulated services and the amount of high-cost support are set by the FCC
with respect to interstate services and by the RCA with respect to intrastate
services.
INTERSTATE END-USER RATES
The deployment of the local telephone network from the switching facility to the
customer is known as the "local loop" and is one of the most significant costs
incurred by a LEC in providing telephone service. The FCC has established a rate
structure that provides for the recovery of a portion of the cost of the local
loop allocated to the interstate jurisdiction directly from the end-user
customer through the assessment of a subscriber-line charge. The remaining
portion of the local-loop costs are recovered from interstate-access charges to
an interexchange carrier or, in some circumstances, from the federal USF. The
FCC recently increased the cap for subscriber-line charges assessed by our LECs
as part of a comprehensive review of its rules. This review also resulted in
lower carrier-paid interstate-access charges and created explicit
universal-service support for interstate-allocated local-loop costs.
The FCC has sought comment on proposals, which the industry currently is
debating, to eliminate the current interstate access charge system and mandate
recovery of those costs from the end user. If adopted, such a change could
result in an increase in the subscriber-line charge or the imposition of a new
end-user charge.
As a result of market and geographic conditions, the costs of providing
local-loop and switching services in rural areas are often higher than in urban
areas. In the absence of special provisions in the FCC rules to address this
fact, a substantial portion of the costs of rural LECs would remain allocated to
the intrastate jurisdiction, placing substantial pressure on such
80
carriers to charge higher rates for intrastate services. Accordingly, the FCC
provides for additional cost recovery from the interstate jurisdiction through
the federal USF. The federal USF is available to carriers whose local loop costs
are significantly above the national average as calculated pursuant to FCC
rules. Recent FCC rulings have made this high-cost support available to a CLEC,
on an averaged per line basis, for those lines serving customers who have
switched to the CLEC. See "Promotion of universal service," below.
INTERSTATE ACCESS RATES
Interstate access rates are developed on the basis of an ILEC's measurement of
its interstate costs for the provision of access service to interexchange
carriers divided by its projected demand for access service. The resulting rates
are published in a company's interstate access tariff and filed with the FCC, at
which time they are subject to challenge by third parties and to review by the
FCC.
The FCC recognized that this rate-making and tariff-filing process may be
administratively burdensome for small LECs. Accordingly, the FCC established
NECA, in 1983 to, among other things, develop common interstate access service
rates, terms and conditions. NECA develops interstate access rates on the basis
of data that are provided individually by participating LECs and blended to
yield average rates. These rates are intended to generate revenue equal to the
aggregate costs plus a return on the investment of all of the participants.
Currently, the authorized maximum rate of return used in setting interstate
access rates is 11.25%.
Individual participating ILECs are likely to have costs of providing service
that are either higher or lower than the revenues generated by applying the
overall NECA tariff rate. To rectify this result, the revenues generated by
applying the NECA rates are pooled from all of the participating companies and
redistributed on the basis of each individual company's costs. The result of
this process not only eliminates the burden of individual tariff filing, but
also produces a system in which small companies can share and spread risk. For
example, if a smaller LEC filed its own tariff and subsequently suffered the
loss of major customers that utilize interstate access service, the LEC could
suffer significant under-recovery of its costs. In the NECA pool environment,
the impact of this loss is reduced, because it is spread over all of the pool
participants.
NECA operates separate pools for traffic sensitive costs, which are primarily
switching costs, and non-traffic sensitive costs, which are primarily loop
costs. Companies are also free to develop and administer their own interstate
access charges if they choose not to participate in the pools. Our rural LECs
participate in both the traffic sensitive and non-traffic sensitive NECA pools.
ACSA files its own traffic sensitive access tariffs with the FCC but
participates in the NECA non-traffic sensitive pool.
The FCC currently is considering proposals to eliminate interstate-access
charges and require carriers such as ACSA, ACSF, ACSAK and ACSN to recover their
interstate costs through a combination of end-user charges and USF.
END USER LOCAL RATES
The levels of rates charged to end users for the provision of basic local
service are generally subject to rate-of-return regulation administered by the
RCA. Local rates have historically been set at a level that will allow the
recovery of embedded costs for local service. Competitive forces, however, may
prevent local rates from being sufficient to recover costs for local service in
the future. Recognized costs include an allowance for a rate of return on
investment in
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plant used to provide local service. Rate cases are typically infrequent,
carrier-initiated and require the carrier to meet substantial burdens of proof.
All our LECs filed revenue requirement studies on July 1, 2001. A hearing
commenced on the revenue requirement for these LECs on March 4, 2002. Based on
the RCA's decision, ACSF and ACSN will have revenue requirement reductions,
while ACSAK and ACSA will have increased revenue requirements. ACSF, ACSN, and
ACSAK have filed cost-of-service and rate-design studies and testimony, and will
have a February 2004 hearing to arrive at final adjudicated rates. ACSA will
file its cost-of-service and rate-design studies and testimony in the second
half of 2004.
COMPETITIVE LOCAL EXCHANGE REGULATIONS
The APUC adopted regulations to govern competition in the local exchange
marketplace. The transitional regulations provide for, among other things:
- initial classification of all ILECs, including our rural properties and
ACSA, as dominant carriers;
- symmetrical requirements that all carriers, both dominant and
non-dominant, offer all retail services for resale at wholesale rates
(although the extent of the offerings depends on the facilities and
general service offerings of the carriers);
- dominant carrier pricing flexibility in competitive areas, under which
carriers may reduce retail rates, offer new or repackaged services and
implement special contracts for retail service upon 30 days' notice.
Only rate increases affecting existing services are subject to full
cost support showings for ILECs in areas with local competition; and
- application limited initially to the ACSA market, and in 2002, extended
to the ACSF and ACSAK markets. ACSN anticipates filing a petition with
the RCA to begin application upon the commencement of facilities-based
competition.
The RCA is also currently investigating ACSA's new facilities construction and
connection practices, which GCI claims result in disparate treatment for its
customers. Certain RCA rulings in this case were appealed to state court on
December 27, 2002. The LECs filed their initial brief in the appeal on September
22, 2003. On December 8, 2003, the court remanded the case to the RCA to
determine whether the FCC's Triennial Review order's provisions on new
facilities construction preempts its ruling in the case. Based on the parties'
joint motion, on January 7, 2004, the RCA vacated that portion of the order that
the ACS LECs had appealed requiring our LECs to modify their line extension
tariffs to include GCI customers.
On November 21, 2002, the RCA sought public comment on modifying its competitive
local market regulations in docket R-02-6. The RCA has received responses and
was expected to propose draft regulations as its next step. Instead, in response
to a legislative directive, the RCA subsequently opened a new docket R-03-3,
which also addresses competitive local market regulations. The RCA had a
statutorily imposed obligation to propose new regulations by November 15, 2003
in response to the issues raised in R-03-3. In November 2003, the RCA issued
proposed regulations which do not appear to substantially modify the existing
regulatory structure.
INTRASTATE ACCESS RATES
In the past, the APUC had required all local companies in Alaska to pool their
access costs and set a statewide average price annually for access service. Each
LEC charged fees to interexchange carriers for originating or terminating long
distance calls on its network based on the statewide average cost of access
rather than on its individual costs of access. Access
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revenues were collected in a pool administered by the AECA and then
redistributed to the LECs based on their actual costs. With the passage of the
1996 Act and increased competition in the local exchange market, the APUC began
a process of reforming intrastate access charges.
Under revisions to the Alaska access system, LECs not yet subject to local
competition continue to participate in the AECA pool. Participants in this pool
recover their costs based on the embedded cost of services most recently
approved by the RCA. These revisions also require the dominant LEC to exit the
pool and file separate, individual company access charge tariffs when a
competitor enters its service area. Our only LEC remaining in the AECA pool as
of December 31, 2003 is ACSN. The RCA is currently conducting a proceeding to
examine whether changes to the current filing process applicable to ILECs for
establishing access charges annually are warranted. The RCA sought public
comment on further substantive changes in access charge derivation in April
2001.
An additional consequence of this access reform is the continued removal of
subsidies implicit in access pricing. The RCA, for example, has adopted
regulations which limit switching support to local companies with access lines
of 20,000 or less. This change has eliminated the switching support that our
rural LECs received. The resulting cost recovery shift is being addressed in the
local service rate cases commenced in 2001.
The AUSF serves as a complement to the federal USF, but must meet federal
statutory criteria concerning consistency with federal rules and regulations.
Currently, the AUSF subsidizes a portion of certain higher cost carriers'
switching costs, the costs of lifeline service, which supports rates of low
income customers, and a portion of the cost of Public Interest Pay Telephones.
Recent proposals have targeted the AUSF as a source of funding for cost shifts
that are likely to occur as a result of in-state access charge reform. It is
unclear the degree to which the AUSF might be used to absorb cost shifts that
result if federal universal service support is scaled back in the future.
Proposals currently being debated within the industry might result in the
elimination of intrastate access charges and the requirement that carriers such
as ACSA, ACSF, ACSAK and ACSN recover those intrastate costs from a combination
of end-user charges and USF. The RCA has recently issued a spreadsheet model
developed by its staff for comment, so that it can analyze the impacts of
different methods of recovering access costs. The RCA is expected to release
proposed regulations shortly.
THE TELECOMMUNICATIONS ACT OF 1996
Among other things, the 1996 Act was enacted to enhance competition without
jeopardizing the availability of nationwide universal service at affordable
rates. These two objectives have resulted in a complex set of rules intended to
promote competitive entry in the provision of local telephone services except
where entry would adversely affect the provision of universal service or the
public interest.
PROMOTION OF LOCAL SERVICE COMPETITION AND RURAL EXEMPTIONS
The 1996 Act made competitive entry into the local telephone business more
attractive to other carriers by removing barriers to competition. In order to
promote competition, the 1996 Act established new interconnection rules
generally requiring LECs to allow competing carriers to interconnect with their
local networks. Congress recognized, however, that its goal of promoting
competition could conflict with the ability of rural carriers to provide
universal service to higher cost customers. Therefore, Congress exempted LECs
classified as "Rural
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Telephone Companies" from some of the interconnection requirements until a state
commission determined that a competitor's request for interconnection, services,
or network elements was not unduly economically burdensome, was technically
feasible, and was consistent with the universal service provisions of the 1996
Act.
Under the 1996 Act, all LECs, including both ILECs and CLECs, are required to:
- offer reasonable and nondiscriminatory resale of their
telecommunications services;
- ensure that customers can keep their telephone numbers when changing
carriers;
- ensure that competitors' customers can use the same number of digits
when dialing and receive nondiscriminatory access to telephone numbers,
operator service, directory assistance and directory listing;
- provide access to telephone poles, ducts, conduits and rights of way;
and
- compensate competitors on a reciprocal basis for the costs of
transporting and terminating telecommunications traffic.
The 1996 Act also requires ILECs to:
- negotiate in good faith the terms and conditions of interconnection
with any competitive carrier making a request for same;
- interconnect their facilities and equipment with any requesting
telecommunications carrier at any technically feasible point;
- unbundle and provide nondiscriminatory access to UNEs, such as local
loops, switches and transport facilities, at nondiscriminatory rates
and on nondiscriminatory terms and conditions, unless such carriers are
exempt as rural telephone companies;
- offer resale interconnection at wholesale rates;
- provide reasonable notice of changes in the information necessary for
transmission and routing of services over the ILEC's facilities or in
the information necessary for interoperability; and
- provide for the physical collocation of equipment necessary for
interconnection or access to UNEs at the premises of the ILEC, at
rates, terms and conditions that are just, reasonable and
nondiscriminatory.
Competitors are required to compensate an ILEC for the cost of providing
interconnection services. In the case of resale interconnection, the rules
provide that the rates charged should be on a wholesale basis and reflect the
current retail rates of the ILEC, excluding the portion of retail costs avoided
by the ILEC. In the case of UNE interconnection, rates are based on costing
methodologies that employ a forward-looking economic cost-pricing methodology
known as Total Element Long Run Incremental Cost, or TELRIC.
In February 2003, in its Triennial Review proceeding, the FCC adopted a new
order governing the network elements that an ILEC must unbundle. This order was
released on August 21, 2003. It largely reaffirms the previous list of network
elements required to be unbundled (with some exceptions that are not expected to
have a significant impact in ACS markets) and establishes new procedures for the
states to decide when a network element no longer must be unbundled. The states
have nine months to complete their initial round of proceedings analyzing
whether any of the network elements should no longer be required to be
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unbundled. We cannot predict the outcome of such proceedings. The states also
were given 90 days in which to petition the FCC to reinstate the unbundling
requirement for switching for enterprise (medium and large business) customers.
The RCA decided not to challenge the FCC's decision to eliminate the enterprise
switching unbundling requirement. The FCC Triennial Review order has been
appealed, and we cannot predict the outcome of the appeal. Regardless of the
appeal, we are participating in the RCA's Triennial Review order implementation
proceedings and we are seeking the elimination of additional unbundling
requirements, such as mass market switching. The RCA must conclude these
proceedings by July 2, 2004. We cannot predict the outcome of these proceedings.
See "Risk factors--Our business is subject to extensive governmental legislation
and regulation. Applicable legislation and regulations and changes to them could
adversely affect our business."
The 1996 Act also specifies that resale and UNE rates are to be negotiated among
the parties, or, if the parties fail to reach an agreement, arbitrated by the
relevant state regulatory commission. Under either scenario, the proposed rates
are subject to final approval by the state regulatory commission.
In January 1997, ACSA's predecessor, ATU, entered into an interconnection
agreement with GCI, which provides for resale and UNE interconnection, and with
AT&T Alascom, which provides for resale interconnection. Neither interconnection
agreement contained a defined term or a termination date. Near the end of 1999,
we notified GCI of our view that the interconnection agreements pertaining to
ACSA had reached the end of a reasonable period of availability. In January of
2000, we filed a motion with the RCA to reopen the original GCI arbitration
proceedings involving ACSA for the purpose of establishing an appropriate
forward-looking cost model and re-pricing various interconnection services and
UNEs in the Anchorage market. The RCA subsequently granted the essence of our
motion and reopened the docket for such purposes. On October 25, 2001, the RCA
granted ACSA an interim UNE rate increase of $1.07, bringing the UNE rate up
from $13.85 to $14.92. The RCA held a formal hearing on final Anchorage UNE
rates during November 2003. We cannot predict when the RCA will issue a final
order in this matter or what the outcome will be.
Certain of our local operating utilities, ACSAK, ACSN, and ACSF are defined as
"rural telephone companies" under the 1996 Act. As rural telephone companies,
they were statutorily exempted from the requirements relating to both resale
interconnection (at wholesale rates) and UNE interconnection. Under the 1996
Act, the rural exemptions continue until a state commission determined that
interconnection was technically feasible, not unduly economically burdensome and
consistent with the 1996 Act's universal service provisions. On June 30, 1999,
the APUC issued an order terminating the rural exemptions of ACSN (as to its
Glacier State Study Area), ACSAK and ACSF. On October 11, 1999, the RCA affirmed
the APUC's order. As a result, these rural LECs were no longer exempt from the
1996 Act's interconnection requirements applicable to ILECs, and our competitors
immediately requested interconnection agreements.
On November 10, 1999, we filed an appeal of the RCA's order terminating the
rural exemptions in Alaska Superior Court. The issues in the case were fully
briefed during the year 2000. The court denied our request to stay the RCA's
order terminating the rural exemptions on February 9, 2001 and subsequently
upheld the RCA's orders on November 26, 2001. We filed an appeal with the Alaska
Supreme Court on December 26, 2001, and the court heard oral argument in the
matter on February 11, 2003. On December 12, 2003, the Alaska Supreme Court
ruled that the termination of ACSN's rural exemption was erroneous, and the
termination of ACSF and ACSAK's rural exemptions may be erroneous. The court
remanded the original ACSF and ACSAK decision back to the RCA for further
proceedings. A decision on these
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remand proceedings is expected in May 2004. During the pendency of the remand
proceedings the obligation of ACSF and ACSAK to provide UNEs to CLECs to support
new customers has been suspended.
Subsequent to terminating the rural exemptions for the ACSF, ACSAK and ACSN's
Glacier State study areas, we entered into unsuccessful negotiations for
interconnection agreements with GCI. Interconnection issues, including the
pricing for UNEs, were subject to an RCA arbitration during the year 2000. On
September 5, 2000, the RCA issued orders largely ratifying the findings of the
arbiter in these interconnection arbitration proceedings. The agreements were
scheduled to expire on October 5, 2003 and have been extended pending
arbitration of new agreements. GCI and the arbitrator have agreed to defer
further work on the interconnection agreements for ACSF, ACSN and ACSAK pending
resolution of the ACSA interconnection proceeding. As part of the agreement to
defer these proceedings, it was also agreed that final rates for ACSF and ACSAK
will be in place no later than October 6, 2004. Any rates ultimately arbitrated
will be effective retroactive to April 6, 2004.
On September 10, 2003, the FCC adopted a Notice of Proposed Rulemaking
concerning pricing standards for UNEs. The FCC is seeking comment on whether it
should amend its rules to ensure that states do not set UNE prices in a manner
that understates the costs of carriers like our local companies. In particular,
the FCC is considering changes to its rules to ensure that state arbitrated UNE
pricing reflects the real world attributes of the companies' existing network,
including routing, topography and a mix of technologies as well as the location
of wire centers, rather than a purely hypothetical network using hypothetical
technology. We are participating in this proceeding, but we cannot predict the
outcome of this rulemaking.
On August 21, 2003, when the FCC released an order in its UNE Triennial Review
proceeding, it announced two immediate changes to its UNE pricing rules. The FCC
clarified that, in setting UNE prices, states should adjust their assumptions
about depreciation and cost-of-capital to reflect the realities of a competitive
marketplace. These changes might require the state, for example, to assume a
higher cost of capital than would be assumed in a non-competitive market.
Similarly, the FCC suggested that the states ought to consider whether
accelerated rather than straight-line depreciation better reflects the realities
of a competitive market. These changes became effective October 2, 2003, and the
states are directed by the FCC to adjust their rules to conform to the new FCC
rules. We cannot predict how the RCA will implement these FCC rule changes.
Since 1999, we have also entered into interconnection agreements with Alaska
Fiber Star, LLC, TelAlaska Long Distance, Inc., Level 3, and other entities.
The rural exemptions previously enjoyed by ACSF and ACSAK have been lifted by
the RCA, and the Alaska Supreme Court reinstated ACSN's exemption. The loss of
the rural exemptions, absent compensating measures, such as rate increases or
market structure reforms, including the replacement of implicit support by
explicit support mechanisms, rate deaveraging, or regulatory flexibility, could
adversely affect our operating results.
PROMOTION OF UNIVERSAL SERVICE
The 1996 Act also stated a goal of ensuring that affordable service is provided
to consumers universally in rural, high-cost areas of the country. The 1996 Act
altered the framework for providing universal service by:
- providing for the identification of services eligible for universal
service support;
- requiring the FCC to make implicit support explicit;
- expanding the types of communications carriers required to contribute
to the universal service fund; and
- allowing CLECs to be eligible to receive universal service funding.
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These and other provisions were intended to make provision of universal service
support compatible with a competitive market.
Pursuant to the 1996 Act, federal USF payments are only available to carriers
that are designated as ETCs by a state public utilities commission. In areas
served by rural telephone companies, the Telecommunications Act of 1996 provides
that a state public utilities commission may designate more than one ETC, in
addition to the ILEC, only after determining that the designation of an
additional ETC is consistent with the public interest. As a result, a rural
telephone company has an opportunity to maintain its status as the sole
recipient of federal USF payments in its service area, even if it is
subsequently subject to UNE-based competition. The RCA, however, has granted
GCI's request that it be designated an ETC in Fairbanks, Juneau, and Fort
Wainwright, all of which are currently served by our subsidiaries. The addition
of a second ETC in the service areas of our properties could reduce the amount
of funds available to us from the federal USF and could materially adversely
affect our ability to achieve a reasonable rate of return on the capital
invested in our network. The FCC has requested comment on the standards for ETC
designations, as well as whether and how it might limit USF support payments in
markets where competitive ETCs have been designated. A federal-state joint board
is expected to make recommendations to the FCC this year and the FCC will have
one year to act on these recommendations. We cannot predict the outcome of these
proceedings.
Rules for rural telephone companies' receipt of universal service funds are
being reexamined by the FCC, in consultation with a Federal-State Joint Board on
Universal Service.
Because our operating subsidiary companies provide interstate and international
services, they are required to contribute to the federal USF a percentage of
their revenue earned from their interstate and international services. Although
our rural LECs receive support from the federal USF, they cannot be certain of
how, in the future, their contributions to the fund will compare to the support
they receive from the fund. The FCC has proposed making changes to its USF
contribution methodology, and we cannot predict the outcome of that proceeding.
FCC REGULATION OF WIRELESS SERVICES
The FCC regulates the licensing, construction, operation, acquisition and sale
of personal communications services and cellular systems in the United States.
All cellular and personal communications services licenses have a 10-year term,
at the end of which they must be renewed. Licenses may be revoked for cause, and
license renewal applications may be denied if the FCC determines that renewal
would not serve the public interest. In addition, all personal communications
services licensees must satisfy certain coverage requirements. Licensees that
fail to meet the coverage requirements may be subject to forfeiture of the
license.
The Communications Act preempts state and local regulation of the entry of, or
the rates charged by, any provider of Commercial Mobile Radio Service, or CMRS,
which includes personal communications services and cellular services. The FCC
does not regulate such rates. The FCC imposes, however, a variety of additional
regulatory requirements on CMRS operators. For example CMRS operators must be
able to transmit 911 calls from any qualified handset without credit check or
validation, are required to provide the location of the 911 caller within an
increasingly narrow geographic tolerance over time, and as of December 31, 2003,
is required to provide 911 service for individuals with speech and hearing
disabilities, or TTY Service.
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ACSW has petitioned the FCC for a limited waiver of the 911 implementation
deadlines and for an extension of the TTY requirements and we cannot predict
when or how the petitions will be decided.
Local number portability allows a customer to retain his or her telephone number
when changing telecommunications carriers within the same local market. The FCC
requires local number portability for CMRS carriers under rules that distinguish
between carriers operating in the largest 100 metropolitan statistical areas and
those operating outside the top 100 markets. None of the cities in which ACS
provides wireless service is among the top 100 markets. Under the FCC's rules,
therefore, if ACS Wireless receives a request to allow an end user to retain a
telephone number while changing service providers, ACS Wireless must be capable
of allowing this number portability by May 24, 2004. The FCC also requires that
if a LEC customer wants to retain a telephone number while changing to a CMRS
service provider (such as ACS Wireless), the LEC must have the capability to
allow this wireline-to-wireless number portability by May 24, 2004, where the
requesting CMRS carrier's coverage area overlaps the geographic location of the
LEC rate center to which the number is assigned (unless the LEC can provide
specific evidence demonstrating that doing so is not technically feasible).
These number portability rules are expected to increase the level of competition
among CMRS service providers, but also to increase the ability of CMRS providers
to win customers from LECs. We cannot predict the net impact of these new rules
on us.
FCC REGULATION OF INTERSTATE LONG DISTANCE SERVICES
Our interstate long distance services are currently not subject to rate
regulation by the FCC, and we are not required to obtain FCC authorization for
the installation, acquisition or replacement of our domestic interexchange
network facilities. However, we must comply with the requirements of common
carriage under the Communications Act. ACSLD is subject to the general
requirement that its charges and terms for its telecommunications services be
"just and reasonable" and that it not make any "unjust or unreasonable
discrimination" in its charges or terms, as well as to a number of other
requirements of the Communications Act and the FCC's rules. The FCC has
jurisdiction to act upon complaints against any common carrier for failure to
comply with its statutory obligations, and it has recently levied substantial
fines on carriers that have engaged in "slamming," which is the industry term
for unauthorized switching of a customer's telecommunications service provider.
All interstate interexchange carriers, including ACSLD, were required to
de-tariff contract-type interstate, interexchange services by January 31, 2001
and were required to de-tariff interstate consumer long distance services by
April 30, 2001. These rules also require ACSLD to post the rates, terms, and
conditions of its service on its Internet web site and engage in other public
disclosure activities. The FCC has recently adopted rules that require
non-dominant international carriers to de-tariff international services. ACSLD
timely complied with these FCC requirements.
FCC POLICY ON INTERNET SERVICES
The 1996 Act establishes a distinction between telecommunications services,
which are regulated by the FCC, and information services, which remain
unregulated. Our Internet services are considered information services and are
not regulated by the FCC. Because the regulatory boundaries in this area are
somewhat unclear and subject to dispute, however, the FCC could seek to
characterize some of our information services as "telecommunications
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services." If that happens, those services would become subject to FCC
regulations. The impact of a reclassification of our Internet services is
difficult to predict.
In March of 2002, the FCC held that high-speed Internet access service delivered
using cable television facilities constitutes an "information service" (which is
not subject to common carrier regulation), with no separate offering of
"telecommunications." In accordance with this ruling, our provision of wholesale
high-speed Internet services over our telecommunications network is currently
regulated as a telecommunications service, but the FCC is considering whether to
narrow the scope of this regulation to "non-dominant" status or reclassify such
services as information services. We also offer a retail Internet service that
is an information service under the FCC's current policies. The FCC's
classification of cable modem services was recently remanded by the United
States Court of Appeals for the Ninth Circuit, which reiterated an earlier
decision finding that cable modem services constituted both a
"telecommunications service" and an "information service." The FCC is also
currently giving further consideration to its regulation of high-speed Internet
access services offered over cable facilities versus telecommunications
facilities. The FCC may decrease regulation on our broadband services or
possibly subject cable modem services to certain common carrier
responsibilities. If the FCC implements such a requirement, we may be able to
supplement our own high-speed Internet access offerings by obtaining access to
GCI's high-speed Internet access cable lines for its own Internet service
provider. In addition, the FCC has announced its intention to open a rulemaking
process to address the regulation of voice-over-Internet-protocol services. We
cannot predict the final disposition of these matters by the FCC.
ADDITIONAL FEDERAL ISSUES
ACCESS TO POLES, DUCTS, CONDUITS AND RIGHTS-OF-WAY. An area of the law that
remains in flux concerns the extent of a carrier's obligations to provide access
to poles, ducts, conduits and rights-of-way. We are obligated under Section 224
of the Communications Act to permit other carriers reasonable access to our
poles, ducts, conduits and rights-of-way, and the FCC has adopted comprehensive
rules governing how access is to be provided.
EEO REPORT. The FCC requires us to file an annual employment report to comply
with the FCC's equal employment opportunity policies.
TRUTH-IN-BILLING. The FCC has adopted new rules designed to make it easier for
customers to understand the bills of telecommunications carriers. These new
rules establish requirements regarding the formatting of bills and the
information that must be included on bills.
ANTI-SLAMMING RULES. The FCC has adopted so-called "anti-slamming" rules, which
protect consumers whose pre-subscribed carriers have been switched without their
consent. Under the rules, a carrier found to have slammed a customer is subject
to substantial fines. While we do not engage in these practices, a slamming
fine, if levied, could have a material impact on our business in the future.
CUSTOMER PROPRIETARY NETWORK INFORMATION. Section 222 of the Communications Act
of 1934 governs the use of customer proprietary network information, or CPNI, by
telecommunications carriers. CPNI generally includes any information regarding a
subscriber's use of a telecommunications service, where it is obtained by a
carrier solely by virtue of the carrier-customer relationship. This statute and
the FCC's rules limit the manner in which we and our competitors may market
services to customers. For example, in marketing its services, a
telecommunications carrier cannot use, disclose or give access to CPNI without
prior consent except in the provision of the service to which the customer
already subscribes (as well as certain services ancillary to
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those services). The FCC rules provide a method for carriers to obtain consent
using an opt-out mechanism. Under this opt-out mechanism, following proper
notification, the carrier may use customer CPNI for marketing purposes, unless
the customer indicates otherwise. We and our competitors also must share certain
subscriber information with each other upon request.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT. Under this act and related
federal statutes, telecommunications carriers are required to: (1) provide law
enforcement officials with call content and call identifying information under a
valid electronic surveillance warrant, and (2) reserve a sufficient number of
circuits for use by law enforcement officials in executing court authorized
electronic surveillance. We may incur costs in meeting both of these
requirements.
OTHER REGULATORY PROCEEDINGS
In addition to the foregoing matters, a number of other FCC, state and judicial
proceedings are currently pending or may be initiated in the future which could
materially affect our business. We cannot predict the outcome of these
proceedings before the FCC, the RCA or the courts.
For example, the RCA has proposed changes in its rules governing provision of
statewide Directory Assistance, or DA, that would alter the DA market structure,
the manner of providing DA service in Alaska and carrier-to-carrier DA
obligations. The new rules would make the provision of DA more competitive and
permit CLECs to provide DA service. If the rules are adopted, it is anticipated
that ACSA may remain the provider of DA service in some areas, at least for some
period of time, and that other competitors such as GCI may also enter the
business. Since the RCA has not yet adopted rules, it is not possible to predict
the financial impact of these DA market changes on our LECs' operating results.
Additionally, the RCA initiated a proceeding in June, 2003 in response to
recently enacted legislation to review its rules governing telecommunications
rates, charges between competing telecommunications companies and
telecommunications competition. The RCA's review must be guided by certain
principles, including that the incumbent carrier must not be placed at an unfair
competitive disadvantage and that rates charged to the public must be fair.
Additionally, the Alaska state legislature required that the RCA's regulations
implement certain policies including that there be fair payment by a user
carrier for the use of another carrier's equipment and facilities, and that in
competitive service areas, the ILEC must be subject to the same retail tariffing
standards and regulations as the new carrier. The law contains other provisions
which promote competitive goals and encourage more businesses to enter and
remain in the telecommunications business in Alaska. While we are hopeful that
the new legislation will result in some favorable regulatory changes, it is
impossible to predict the outcome of the proceeding and whether any meaningful
change in regulation will result.
ENVIRONMENTAL REGULATIONS
Our operations are subject to federal, state and local laws and regulations
governing the use, storage, disposal of, and exposure to, hazardous materials,
the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of property and a generator of hazardous
wastes, we could be subject to environmental laws that impose liability for the
entire cost of cleanup at contaminated sites, regardless of fault or the
lawfulness of the activity that resulted in contamination. We believe, however,
that our operations are in substantial compliance with applicable environmental
laws and regulations.
Many of our properties formerly contained, or currently contain, underground and
above-ground storage tanks used for the storage of fuel or wastes. Some of these
tanks have leaked.
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We believe that known contamination caused by these leaks has been, or is being,
investigated or remediated. We cannot be sure, however, that we have discovered
all contamination or that the regulatory authorities will not request additional
remediation at sites that have previously undergone remediation.
Our wireless and television operations are also subject to regulations and
guidelines that impose a variety of operational requirements relating to radio
frequency emissions. The potential connection between radio frequency emissions
and negative health effects, including some forms of cancer, has been the
subject of substantial study by the scientific community in recent years. To
date, the results of these studies have been inconclusive. Although we have not
been named in any lawsuits alleging damages from radio frequency emissions, it
is possible we could be in the future, particularly if scientific studies
conclusively determine that radio frequency emissions are harmful.
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MANAGEMENT
The following table sets forth certain information, as of January 13, 2004,
about our current executive officers and directors.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
NAME AGE TITLE
- ---------------------------------------------------------------------------------------------------
Liane Pelletier...................... 45 Chairman, Chief Executive Officer, and President
Kevin P. Hemenway.................... 43 Senior Vice President, Chief Financial Officer, and
Treasurer
Kenneth L. Sprain.................... 59 Senior Vice President for Operations
Leonard A. Steinberg................. 50 Vice President, General Counsel, and Corporate
Secretary
David C. Eisenberg................... 43 Senior Vice President, Corporate Strategy and
Development
W. Dexter Paine, III................. 43 Director
Saul A. Fox.......................... 50 Director
Byron I. Mallott..................... 60 Director
Wray T. Thorn........................ 32 Director
Brian Rogers......................... 53 Director
Charles P. Sitkin.................... 69 Director
John M. Egan......................... 56 Director
Patrick Pichette..................... 41 Director
- ---------------------------------------------------------------------------------------------------
</Table>
LIANE PELLETIER has served as Director and as our Chief Executive Officer and
President since October 6, 2003 and as our Chairman since January 1, 2004. Prior
to this appointment, Ms. Pelletier served as senior vice president and chief
integration officer at Sprint Corporation from June 2003 through September 2003.
In this position, she oversaw Sprint's transformation from a product-centric to
a more customer-centric organization. For the three years prior to that
appointment, Ms. Pelletier served as Sprint's senior vice president of Strategic
Planning & Corporate Development. Her responsibilities during that period
included driving corporate strategy, managing Sprint's broadband spectrum assets
and developing and marketing integrated products. Over the course of her 17 year
career at Sprint, Ms. Pelletier also served as a vice president in a wide
variety of departments, including in corporate strategy, customer acquisition
and retention and marketing positions to both business and consumer customers.
Before joining Sprint, she worked as a consultant at Touche Ross and Temple,
Barker, Sloane. Ms. Pelletier has an MBA from M.I.T. and B.A. from Wellesley
College.
KEVIN P. HEMENWAY has served as Senior Vice President, Chief Financial Officer
and Treasurer since November 2000. He joined us as Vice President and Treasurer
in July 1999 and served in that capacity until assuming his current role. Mr.
Hemenway has over 14 years of experience in the telecommunications industry.
Before joining us, Mr. Hemenway served as the Chief Financial Officer and
Treasurer of Atlantic Tele-Network, Inc. based in the U.S. Virgin Islands. From
January 1990 to October 1998, as an independent consultant, Mr. Hemenway
performed financial, accounting, management and rate making consulting services
for the telecommunications industry, principally for Atlantic Tele-Network, Inc.
and its subsidiaries. From 1986 through 1989, Mr. Hemenway was employed by
Deloitte & Touche LLP as a CPA and manager, performing both audit and consulting
services, and from 1983 to 1986, was employed by Grant Thornton as a CPA and
senior staff accountant. Mr. Hemenway graduated from Creighton
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University in 1982 with a Bachelor of Science in Business Administration,
majoring in accounting, and is a non-practicing CPA certificate holder
registered in the State of Nebraska.
KENNETH L. SPRAIN serves as Senior Vice President for Operations. Mr. Sprain is
responsible for operations in the local exchange, interexchange, and Internet
business units. Mr. Sprain provides us with over 35 years of telecommunications
experience. Mr. Sprain came to us in 2003 after being a consultant with us for
two years. Prior to this position, from 1997 to 2002, Mr. Sprain was the Vice
President of Operations Planning and Vice President of the Midwest Region for
CenturyTel, responsible for operations, assignments, and planning. Mr. Sprain
started his telecommunications career as a technician, moving to supervisor and
district manager positions for RCA Alaska Communications from 1968-1979. In
1979, Mr. Sprain became an Anchorage district manager for Alascom. Starting in
1983, Mr. Sprain worked for Pacific Telecom and then PTI as the Vice President
for Eastern Washington then Montana Divisions and then Executive Vice President
and General Manager for the Midwest. In these executive positions, Mr. Sprain
was responsible for local exchange operations.
LEONARD A. STEINBERG serves as Vice President, General Counsel and Corporate
Secretary, a position he has held since January 2001. Mr. Steinberg left private
practice in June 2000 to join the Company as a Senior Attorney in the Corporate
Legal Department. From 1998 to 2000, Mr. Steinberg used his expertise in
regulatory and administrative matters to represent telecommunications and energy
clients of Brena, Bell & Clarkson, P.C., an Anchorage, Alaska law firm. Prior to
that, Mr. Steinberg was a Partner in the firm of Hoise, Wes, Sacks & Brelsford
with offices in Anchorage, Alaska and San Francisco, California. Mr. Steinberg
practiced in the firm's Anchorage office from 1996-1998 and in the firm's San
Francisco office from 1988-1996 where he primarily represented large clients in
oil and gas royalty and tax disputes. Mr. Steinberg holds a Masters in Public
Administration degree from Harvard University's Kennedy School of Government, a
Masters of Business Administration degree from U.C. Berkeley's Haas School of
Business and a J.D. from the University of California's Hastings College of Law.
DAVID C. EISENBERG has served as Senior Vice President, Corporate Strategy and
Development, since November 3, 2003. Prior to this appointment, Mr. Eisenberg
served as Vice President--Corporate Strategy for Sprint Corporation where he was
responsible for helping shape that corporation's strategic direction. In his
21-year career with Sprint and Centel, Mr. Eisenberg held numerous management
positions within the Local Telecommunications Division and on Sprint's corporate
staff. These included roles in sales and marketing, finance, and regulatory and
strategic planning. Mr. Eisenberg earned his bachelor's degree in mathematics at
Northwestern University and his master's degree in business at Keller Graduate
School of Management.
W. DEXTER PAINE, III, a Director since May 1999, was a co-founder of Fox Paine
and has served as President of Fox Paine since its inception in 1997. From 1994
until founding Fox Paine, Mr. Paine served as a senior partner of Kohlberg
Kravis Roberts & Co., or KKR. Prior to joining KKR, Mr. Paine served as a
general partner at Robertson Stephens & Company. Mr. Paine has a B.A. in
economics from Williams College. Since January 2000, Mr. Paine has served as
Chairman of the Board of Directors of WJ Communications, Inc. (NASDAQ--WJCI).
SAUL A. FOX, a Director since May 1999, was a co-founder of Fox Paine and has
served as Chief Executive Officer of Fox Paine since its inception in 1997. From
1984 until founding Fox Paine, Mr. Fox was at KKR. Mr. Fox was a senior general
partner of KKR prior to retiring from the firm to form Fox Paine & Company.
Prior to joining KKR, Mr. Fox was an attorney at Latham &
93
Watkins, a law firm headquartered in Los Angeles, California. Mr. Fox has a B.S.
in communications and computer science from Temple University and a J.D. from
the University of Pennsylvania Law School.
BYRON I. MALLOTT, a Director since January 2000, is the President and Chief
Executive Officer of the First Alaskans Institute. From 1995 until January 2000,
Mr. Mallott served as the Executive Director of the Alaska Permanent Fund
Corporation. Prior to joining the Alaska Permanent Fund Corporation, Mr. Mallott
served in various capacities, including Director, Chairman and President and
Chief Executive Officer of Sealaska Corporation over a period of nearly 20
years. Mr. Mallott has also served in various appointed and elected political
positions and presently serves on the Boards of Directors of Alaska Air Group,
Inc. and Native American Bank, N.A.
WRAY T. THORN, a Director since January 2000, has also been a Director with Fox
Paine & Company, LLC since January 2000. From 1996 until joining Fox Paine, Mr.
Thorn was a principal and founding member of Dubilier & Company. Prior to
joining Dubilier & Company, Mr. Thorn was an associate in the Acquisition
Finance Group of Chase Securities, Inc. Mr. Thorn is a graduate of Harvard
University. Since January 2000, Mr. Thorn has served on the Board of Directors
of WJ Communications, Inc. (NASDAQ--WJCI).
BRIAN ROGERS, a Director since February 2001, is currently Principal Consultant
and Chief Financial Officer for Information Insights, Inc., a management and
public policy consulting firm. Mr. Rogers served as Vice President of Finance
for the University of Alaska Statewide System from 1988 to 1995. Mr. Rogers is a
former state legislator, who served in the Alaska State House of Representatives
from 1979 to 1982. Mr. Rogers chaired the State of Alaska Long-Range Planning
Commission during 1995 and 1996, and currently, as Chairman of the Board of
Regents of the University of Alaska, serves as an ex officio member of the
University's Finance and Audit Committee. He holds a Masters in Public
Administration degree from the Kennedy School of Government, Harvard University.
CHARLES P. SITKIN, a Director since February 2003, is currently an independent
consultant assisting enterprises with strategic and organizational planning.
Prior to 1994, Mr. Sitkin's experience includes being the National Director of
Management Consulting at R.W. Beck & Associates, a Partner and Office Director
of Information Technology at Ernst & Young and various leadership positions at
the Boeing Company. Mr. Sitkin is a Certified Management Consultant and is a
graduate from Lafayette College and the University of Washington.
JOHN M. EGAN has served as Director since November 19, 2003, and is the recently
retired founder and chairman/CEO of ARRIS Group (Nasdaq:ARRS). ARRIS is a global
communications technology company specializing in the design and engineering of
broadband local access networks and a leading developer and supplier of optical
transmission, cable telephony and Internet access for cable systems operators.
Mr. Egan joined ARRIS in 1973 and had been chairman of its board of directors
since 1997. Mr. Egan was President of ARRIS from 1980 to 1997 and Chief
Executive Officer of ARRIS and its predecessors from 1980 through 1999. On
January 1, 2000, Mr. Egan stepped down from his role as Chief Executive Officer
of ARRIS. He remained a full-time employee until his retirement in May 2002.
Currently, Mr. Egan serves on the Executive Committee of ARRIS. Mr. Egan served
on the Board of Directors of the National Cable Television Association, or NCTA,
for 20 years, and has been actively involved in the Walter Kaitz Foundation, an
association seeking to help the cable industry diversify its management
workforce to include minorities, as well as the Society of Cable Television
Engineers and Cable Labs, Inc. Mr. Egan currently serves on the advisory board
of KB Partners,
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a Chicago-based venture capital firm and on several boards in the technology
start-up sector. Mr. Egan has a BS degree in Economics from Boston College.
PATRICK PICHETTE, a Director since January 2004, is currently Executive
Vice-President at Bell Canada, or BCE. Mr. Pichette joined BCE in January 2001
as Executive Vice-President, Planning and Performance Management before being
appointed Chief Financial Officer in 2002. Prior to joining BCE, Mr. Pichette
was Partner at McKinsey & Company's Montreal office, from June 1996 to December
2000, where he was a lead member of McKinsey's North American Telecom Practice.
Previously, Mr. Pichette was Vice-President and Chief Financial Officer of
Call-Net Enterprises (1994-1996); and an Associate at McKinsey & Company in
Toronto (1989-1994). Mr. Pichette earned a BA Business Administration from
Universite du Quebec a Montreal (1985-1987) and a MA Philosophy Politics and
Economics from Oxford University where he attended as a Rhodes Scholar
(1987-1989). Mr. Pichette is also a board member of Manitoba Telecom Services,
Inc., or MTS, and of several non-governmental organizations, including Engineers
Without Borders and The Trudeau Foundation.
CERTAIN OTHER EMPLOYEES
RUTH SANDSTROM is the Vice President and General Manager for ACS Wireless. She
provides us with over 11 years of telecommunications experience. Ms. Sandstrom
became the Vice President and General Manager for ACS Wireless in 2002, after
being its General Manager in 2000, and its Chief Financial Officer from
1998-1999 (its name was previously MacTel Inc.). Before Ms. Sandstrom worked in
the wireless area, she was a business analyst for ATU, now ACS Local, from 1992
to 1998. Ms. Sandstrom was responsible for evaluating business opportunities and
established the company's internal audit function. From 1987-1992, Ms. Sandstrom
worked for KPMG as a CPA, performing both audit and tax consulting services. Ms.
Sandstrom holds a Bachelor of Business Arts in accounting from the University of
San Francisco. She is a non-practicing CPA certificate holder registered in the
State of Alaska.
MICHAEL E. BOWMAN serves as Vice President with responsibility for Internet,
including IP/MPLS Services. Mr. Bowman joined us in May 1999 in conjunction with
the acquisition of Anchorage Telephone Utility, or ATU. Since joining us, Mr.
Bowman has served as Vice President Operations, Central District, Vice President
Engineering and Construction and the Vice President Engineering and Operations.
His responsibilities include operations, planning, engineering and construction
activities for all ACS Local, Internet, Wireless, and Long Distance companies.
Since 1997 he had been serving as ATU's Chief Operations Officer prior to the
acquisition by us. Mr. Bowman has 28 years experience in the telecommunications
industry, starting as a telephone central office apprentice technician and
having advanced through the ranks and technical disciplines to senior management
positions.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
AGREEMENTS WITH CHARLES ROBINSON
RETIREMENT AGREEMENT
On September 14, 2003, Parent entered into an agreement with Charles Robinson,
formerly our chairman and chief executive officer and chairman and chief
executive officer of Parent, pursuant to which Mr. Robinson retired as chief
executive officer on October 6, 2003 and retired as chairman and as a member of
our board and the board of Parent on December 31, 2003. Under the agreement, Mr.
Robinson received: (1) continued base salary through December 31, 2003, (2) a
lump sum payment of $1,000,000 on October 6, 2003, (3) a 2003
95
annual bonus of no less than $250,000, plus an additional bonus of $250,000
depending on the outcome of certain business arrangements, (4) extension of the
period to exercise his vested stock options to December 31, 2004, and (5)
reimbursement for health insurance coverage for 18 months as well as certain
relocation and other retirement benefits provided under his existing agreement.
The letter agreement further provides for the purchase by Parent of Mr.
Robinson's 266,788 shares of Parent stock at a purchase price per share equal to
the highest average closing price of a share of Parent stock during any
5-consecutive day trading period in January 2004. Mr. Robinson also will
continue to be bound by the non-compete and non-solicitation covenants in his
employment agreement through December 31, 2004. The agreement also provides for
a full and mutual release by Mr. Robinson and by us from claims against the
other.
CONSULTING AGREEMENT
On September 19, 2003, Fox Paine entered into a consulting agreement with Mr.
Robinson. The consulting term will begin on January 1, 2004 and continue for one
year, after which either party may terminate the arrangement. During the
consulting term, Mr. Robinson will advise Fox Paine on and evaluate potential
opportunities in the telecommunications industry, and Fox Paine will pay him a
monthly fee of $20,000 for his services. Fox Paine may terminate the consulting
agreement if Mr. Robinson breaches his retirement agreement with us. Fox Paine
may be reimbursed by Parent for amounts incurred under this agreement, subject
to approval by the board of directors of Parent.
PELLETIER EMPLOYMENT AGREEMENT
On September 14, 2003, Parent entered into a five-year employment agreement with
Liane Pelletier, pursuant to which as of October 6, 2003, Ms. Pelletier began
serving as our president and chief executive officer and president and chief
executive officer of Parent and as a member of our board and the board of
Parent, and assumed the position of chairman of both boards as of January 1,
2004. Under the agreement, Ms. Pelletier received a signing bonus of $350,000 on
October 7, 2003, $150,000 on January 1, 2004, and 200,000 shares of Parent stock
on October 6, 2003. The agreement provides for an annual base salary of $500,000
and a target bonus equal to one times her base salary. The actual bonus for
fiscal year 2004 may be up to 200% of base salary, and thereafter it may range
up to 200% of base salary, with a minimum of $200,000, based on the achievement
of certain performance targets determined by our Parent's board. The agreement
with Ms. Pelletier provides for a partial year bonus for 2003 of $144,000.
The agreement also provides for a grant of 1,000,000 options to purchase Parent
stock, with an exercise price equal to the fair market value of a share of
Parent stock on October 6, 2003. The options will have a ten-year term, and will
vest in five equal installments on each of the first five anniversaries of
October 6, 2003. Unvested options will be forfeited upon termination of
employment. All unvested options vest upon a change of control (as defined in
the agreement). The agreement also provides for certain relocation benefits.
The agreement provides that if Ms. Pelletier is terminated by Parent without
cause or if she has a constructive termination of employment for good reason
(cause and good reason each being defined in the agreement), she will receive:
(1) severance ranging from $1,000,000 to $500,000, depending on the date of
termination to be paid in periodic installments equal to her base salary, (2) a
prorated bonus for the year of termination, as well as the signing bonus if not
yet
96
paid, (3) vesting of the next 200,000 unvested options to acquire Parent stock,
and (4) certain other benefits consistent with other executive employment
agreements entered into by Parent.
Ms. Pelletier's severance benefits are conditioned on her execution of a release
of claims against us and on her compliance with 18-month post-termination
non-compete and non-solicitation covenants as well as other covenants regarding
confidentiality and intellectual property. Additionally, if Ms. Pelletier
violates any of the restrictive covenants in the agreement or if Parent
terminates her employment for cause, Parent may repurchase her Parent stock at
prices determined in accordance with the agreement.
97
PRINCIPAL STOCKHOLDERS
All of our outstanding common stock is owned by Parent. The following table
provides information about the only known beneficial owners of more than 5% of
the outstanding common stock of Parent as of January 13, 2004 unless otherwise
noted:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------------------------------------------
FOX PAINE CAPITAL, LLC................................. 19,498,879(1) 66.45%
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 501
Foster City, CA 94404
FOX PAINE & COMPANY, LLC............................... 16,492,802(1) 56.21%
950 Tower Lane, Suite 501
Foster City, CA 94404
FOX PAINE CAPITAL FUND, L.P. .......................... 16,251,658(1) 55.39%
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 501
Foster City, CA 94404
FRANKLIN RESOURCES, INC. .............................. 3,010,234(2) 10.26%
One Franklin Parkway
San Mateo, CA 94403
FRANKLIN ADVISERS, INC. ............................... 2,835,438(2) 9.67%
One Franklin Parkway
San Mateo, CA 94403
COOK INLET REGION, INC. ............................... 1,624,907 5.54%
2525 C Street, Suite 500
Anchorage, AK 99503
- ------------------------------------------------------------------------------------------------
</Table>
(1) Fox Paine Capital, LLC is General Partner of Fox Paine Capital Fund, L.P.
and FPC Investors, L.P., and the Managing Member of ALEC Coinvestment Fund
I, LLC, ALEC Coinvestment Fund II, LLC, ALEC Coinvestment Fund III, LLC,
ALEC Coinvestment IV, LLC, and ALEC Coinvestment Fund V, LLC, and possesses
voting and investment power over all shares held by each of these entities.
Fox Paine & Company, LLC is the manager of Fox Paine Capital Fund, L.P. and
FPC Investors, L.P. Fox Paine & Company, LLC is not the record owner of any
shares of our common stock.
(2) Franklin Advisers, Inc. and Franklin Private Client Group, Inc. are
investment advisory subsidiaries of Franklin Resources, Inc. Franklin
Resources, Inc. is not the record owner of any shares of our common stock
and does not possess power to vote or dispose of any shares of our common
stock. Amounts listed are as of September 30, 2003.
The following table sets forth, as of January 13, 2004, the number of shares of
common stock of Parent beneficially owned by:
- each of our current directors;
- each of our named executive officers; and
- all of our current directors and executive officers as a group;
in each case unless otherwise noted in the footnotes to the table.
Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange
Act. Each person has sole voting and investment power with respect to the shares
indicated except as otherwise stated in the footnotes to the table.
98
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
OTHER
SHARES BENEFICIAL ACQUIRABLE PERCENT OF
NAME OF BENEFICIAL OWNER OWNED OWNERSHIP WITHIN 60 DAYS TOTAL CLASS
- --------------------------------------------------------------------------------------------------
DIRECTORS:
W. Dexter Paine, III............ - 19,598,879 - 19,598,879(1) 66.79%
Saul A. Fox..................... 17,633 19,598,879 - 19,616,512(1) 66.85%
Wray T. Thorn................... - 19,598,879 - 19,598,879(1) 66.79%
Charles E. Robinson(2).......... 329,262 - 1,248,056 1,577,318 5.16%
Liane Pelletier................. 200,000 - - 200,000 *
Byron I. Mallott................ 11,725 - - 11,725 *
Brian Rogers.................... 1,000 - - 1,000 *
Charles P. Sitkin............... - - - - -
John M. Egan.................... - - - - -
Patrick Pichette................ - - - - -
NON-DIRECTOR EXECUTIVE OFFICERS:
Wesley E. Carson(3)............. 188,000 - 264,167 452,167 1.53%
Kevin P. Hemenway............... 20,999 - 103,418 124,417 *
Kenneth L. Sprain............... 1,167 - - 1,167 *
Leonard A. Steinberg............ 1,985 - 27,639 29,624 *
David C. Eisenberg.............. - - - - -
All directors and executive
officers as a group (15
persons)..................... 771,771 19,598,879 1,643,280 22,013,930(1) 71.04%
- --------------------------------------------------------------------------------------------------
</Table>
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) Mr. Fox and Mr. Paine are members of Fox Paine Capital, LLC and share voting
power of Fox Paine Capital, LLC. Mr. Thorn is a Director of Fox Paine
Capital, LLC. In addition, Mr. Fox and Mr. Paine are the managing members of
Bucks Capital, LLC and Mr. Thorn is a member of Bucks Capital, LLC. Bucks
Capital, LLC is an investment vehicle created for the purposes of allowing
selected members of Fox Paine & Company, LLC to invest primarily in selected
portfolio companies in which investment funds managed by Fox Paine &
Company, LLC invest. None of the shares shown as beneficially owned by Mr.
Fox, Mr. Paine and Mr. Thorn are owned by record of these individuals. Mr.
Fox, Mr. Paine and Mr. Thorn each disclaim beneficial ownership of the
shares owned by Bucks Capital, LLC or the entities of which Fox Paine
Capital, LLC is General Partner or Manager, except to the extent of their
respective pecuniary interest therein.
(2) Mr. Robinson retired as Chairman of our board of directors and Parent's
board of directors on December 31, 2003. On October 6, 2003, Mr. Robinson
retired as our Chief Executive Officer.
(3) In connection with the company's recent disposition of a controlling
interest in its Directories Business on May 8, 2003, our then president and
chief operating officer, Wesley E. Carson, departed to run the Directories
Business, and is no longer employed by us.
99
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Fox Paine receives an annual management fee in the amount of 1% of our net
income before interest expense, income taxes and depreciation and amortization,
calculated without regard to the fee. This fee was $1,316,000 for 2002 and
$1,285,000 for 2001. The management fee expense for the nine months ended
September 30, 2003 and 2002 was $878,000 and $986,000, respectively. The fee is
paid not later than March 31 of the year following that for which it was earned.
As described above, Messrs. Fox and Paine are co-founders and officers of, and
Mr. Thorn is a director of, Fox Paine.
The board of directors has also approved the payment to Fox Paine of a fee equal
to 1% of the gross proceeds generated from the sale of our Directories Business,
contingent upon closing such sale, plus expenses in connection with such
transaction, including the reimbursement by us of the $250,000 consulting fee
and transaction bonus paid to Mr. Robinson under the agreement described below.
We paid Fox Paine $2,095,000 on May 8, 2003.
Fox Paine entered into a consulting agreement with Mr. Robinson for services
rendered for the benefit of us related to the sale of our Directories Business.
Under this agreement, Mr. Robinson received a lump-sum consulting fee and
transaction bonus of $250,000 in May 2003. As described above, Fox Paine was
reimbursed for this expense.
Our board of directors approved the payment of a fee to Fox Paine equal to 1% of
the funded capital raised through the old notes offering and the new bank credit
facilities, contingent upon closing such transactions, plus expenses in
connection with such transactions. On August 28, 2003, we paid to Fox Paine
$3,759,703 for this fee, excluding expenses.
On April 17, 2001, we issued an interest-bearing note receivable to Mr. Carson,
our President until May 2003, totaling $328,000 to facilitate payment by Mr.
Carson of taxes on the income deemed received in connection with exercise of
options by Mr. Carson. The note bore interest at the Mid-Term Applicable Federal
Rate and was due on April 15, 2005. The note was secured by a pledge of 100,000
shares of the our stock held in Mr. Carson's name. The largest aggregate amount
outstanding during 2002 was $342,524. Pursuant to Mr. Carson's employment
agreement, the indebtedness was subject to forgiveness over a three-year period
or in the event of termination of the employment agreement for specified
reasons. Accordingly, $114,403 was forgiven on April 16, 2002 and recognized as
compensation expense. Mr. Carson waived certain rights under his employment
agreement, contingent upon the closing of the sale of our Directories Business
for which he received a fee of $840,000. Included in these waived rights, valued
in total at approximately $700,000, Mr. Carson waived the forgiveness terms of
this indebtedness that would have occurred during 2003 and 2004. The sale was
completed during May of 2003, and Mr. Carson paid off the note balance of
$237,983, including accrued interest.
As previously described, we have entered into several long-term contracts with
ACS Media LLC, including a 50-year publishing agreement, a 50-year license
agreement, a 45-year non-compete agreement, and a 10-year billing and collection
agreement. We have a right to minority representation of one manager of the
permitted nine managers of ACS Media LLC so long as our long-term contracts with
ACS Media LLC are in effect. Currently, Wray T. Thorn, a director of the Company
and employee of Fox Paine, our majority shareholder, is a manager of ACS Media
LLC.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW BANK CREDIT FACILITIES
Simultaneously with the offering of old notes, our old bank credit facilities
were replaced by new ones under a new bank credit agreement with JPMorgan Chase
Bank, as administrative agent and collateral agent, and the lenders named
therein. This agreement provides for new bank credit facilities consisting of a
term loan facility of $200.0 million and a revolving credit facility of $50.0
million. The following is a summary description of the material terms of the new
bank credit facilities and is subject to and qualified in its entirety by
reference to the new bank credit agreement a copy of which has been filed as an
exhibit to the registration statement of which this prospectus is a part and is
incorporated by reference in this prospectus.
STRUCTURE. Loans under the new bank credit agreement consist of:
- a new term loan facility in an aggregate principal amount of $200.0
million; and
- a new revolving credit facility in an aggregate principal amount of
$50.0 million, which is available, in part, for letters of credit up to
an amount to be agreed upon and up to $10.0 million in the form of
swingline loans.
The new term loan facility and the new revolving credit facility constitute our
new bank credit facilities. We used a portion of the new term loan facility,
together with all of the net proceeds from the offering of the old notes, to
repay all of the indebtedness under our old bank credit facilities and paid the
transaction costs in connection with the offering of the old notes and our new
bank credit facilities. We will use the new revolving loan portion of our new
bank credit facilities for general corporate purposes, including permitted
acquisitions.
SECURITY; GUARANTEES. Our obligations under our new bank credit facilities are
unconditionally and irrevocably guaranteed, jointly and severally, by Parent and
by each of Parent's other existing and subsequently acquired or organized
domestic subsidiaries, other than ACS Media Holdings LLC. In addition, the new
bank credit facilities and the related guarantees are secured by collateral that
includes substantially all of the assets of Parent, us, and our domestic
subsidiaries, other than ACS Media Holdings LLC, including a first-priority
pledge:
- by Parent of all of our capital stock;
- to the extent not prohibited by law or any existing contract, by us of
the capital stock of companies in which we hold a minority stake;
- by us of all of the capital stock of all our domestic subsidiaries and,
under limited circumstances, some of our foreign subsidiaries, which
pledge, in the case of any foreign subsidiary, will, except in limited
circumstances, be limited to 65% of the capital stock of the foreign
subsidiary; and
- of, and mortgage on, substantially all of the tangible and intangible
assets of the guarantors and us, including accounts receivable,
documents, inventory, equipment, intellectual property, investment
property, general intangibles, real property, cash and cash accounts,
and proceeds of the foregoing, in each case subject to limited
exceptions.
Our new bank credit agreement provides for the release of guarantees under
limited circumstances.
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AVAILABILITY. The availability of our new bank credit facilities is subject to
various conditions precedent typical of bank loans including, among other
things, the absence of any material adverse change in our business. The full
amount of the new term loan facility was drawn in a single drawing
simultaneously with the completion of the offering of the old notes. Amounts
repaid or prepaid under the term loan facility may not be reborrowed. Amounts
repaid under our new revolving credit facility are available for reborrowing on
a revolving basis, subject to the terms of such facility.
AMORTIZATION AND INTEREST. Our new term loan facility is repayable in annual
principal payments of 1.00% of the outstanding principal each year, with the
balance of this facility payable at maturity. The final maturity of the new term
loan facility is the earlier of the date that is (a) seven years after the
closing of our new bank credit facilities and (b) if our senior subordinated
notes have not been refinanced, 90 days prior to the maturity of such senior
subordinated notes. The new term loan facility bears interest at an annual rate
equal (at our option) to (1) an adjusted London interbank offered rate, or
LIBOR, plus 3.25%, or (2) a rate equal to 2.25% plus the greater of the
administrative agent's prime rate and the federal funds effective rate plus
0.50%.
Our new revolving credit facility is a five-year facility, and any outstanding
balances incurred thereunder would bear interest at an annual rate equal (at our
option) to (1) an adjusted LIBOR plus 2.75%, or (2) a rate equal to 1.75% plus
the greater of the administrative agent's prime rate and the federal funds
effective rate plus 0.50%, in each case subject to adjustment based on our
financial performance.
Amounts under the new bank credit facilities not paid when due bear interest at
a default rate equal to 2.00% above the otherwise applicable rate.
PREPAYMENTS. Our new bank credit facilities permit us to prepay loans and to
permanently reduce revolving credit commitments, in whole or in part, at any
time.
We are also required to make mandatory prepayments of our new term loan
facility, subject to limited exceptions, with the net cash proceeds of
dispositions of assets or issuances of debt of us or any of our subsidiaries.
Mandatory and optional prepayments will be applied ratably to the remaining
amortization payments under the new bank credit facilities. Any prepayment of
adjusted LIBOR loans other than at the end of an interest period will be subject
to reimbursement of breakage costs as described in the new bank credit
agreement.
FEES. We are required to pay the lenders, on a quarterly basis, a commitment fee
equal to 0.75% annually on the undrawn portion of the unused commitments,
subject to adjustment based upon our financial performance. We are also required
to pay:
- on a quarterly basis, a commission on the face amount of all
outstanding letters of credit equal to the applicable margin then in
effect for adjusted LIBOR loans under the revolving credit facility;
- on a quarterly basis, a fronting fee in an amount to be agreed to on
each letter of credit to the issuing bank;
- standard fees of the issuing bank with respect to issuance, amendment,
renewal, or extension of any letters of credit; and
- fees payable to the administrative agent.
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COVENANTS, EVENTS OF DEFAULT. The new bank credit agreement contains customary
covenants that, among other things, restrict our ability to dispose of assets,
incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into sale-and-leaseback transactions, make acquisitions, engage in
mergers or consolidations, change our business, make capital expenditures,
engage in transactions with affiliates, or make investments, loans, or advances.
The new bank credit facilities allow us, subject to certain conditions, to have
up to an aggregate of $110 million, plus 50% of our cumulative annual excess
cash flow, to make restricted payments (e.g., dividends, distributions, stock
buy-backs, repurchases of indebtedness, or other restricted payments). In
addition, under the new bank credit facilities, we are required to comply with
specified financial ratios, including minimum interest-coverage ratios and
maximum adjusted leverage ratios, including a senior leverage ratio.
The new bank credit agreement also contains provisions that prohibit any
modification of the indenture relating to our senior subordinated notes and any
modification of the indenture relating to the exchange notes offered hereby or
the old notes, as well as customary representations and warranties, affirmative
covenants, and events of default, including cross-default, material judgments,
and change in control.
THE 9 3/8% SENIOR SUBORDINATED NOTES DUE 2009
On May 14, 1999, we issued $150.0 million in aggregate principal amount of
senior subordinated notes due 2009 in a private transaction not subject to the
registration requirements of the Securities Act. Cash interest is payable on the
outstanding principal amount of the senior subordinated notes at the annual rate
of 9 3/8%. This interest has been payable on May 15th and November 15th of each
year since November 15, 1999. In November of 1999, the holders of the senior
subordinated notes exchanged them for registered notes in an exchange offer.
The senior subordinated notes rank junior in right of payment to all of our
current and future senior indebtedness, rank equally in right of payment to all
of our current and future senior subordinated indebtedness, and rank senior in
right of payment to all of our current and future subordinated indebtedness. As
obligations of a holding company, the senior subordinated notes are effectively
subordinated to all of the obligations of our subsidiaries.
The senior subordinated notes are not redeemable until May 15, 2004. Thereafter,
the senior subordinated notes will be redeemable at our option for a price equal
to 104.688% of the principal amount of the notes declining to 100% of the
principal amount of the notes on or after May 15, 2007, in each case plus
accrued and unpaid interest. Upon a change of control, as described in the
indenture governing the senior subordinated notes, each holder will be able to
require us to offer to redeem that holder's senior subordinated notes at a price
equal to 101% of the principal amount, subject to restrictions contained in our
new bank credit facilities.
The indenture contains various covenants that, among other things, limit:
- the incurrence of indebtedness by us;
- the payment of restricted payments, as described in the indenture
relating to the senior subordinated notes;
- the payment of dividends on stock and purchases of stock;
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- the sale of our assets or stock;
- transactions with affiliates;
- mergers, consolidations, and sales of assets; and
- the business activities in which we may engage.
The indenture also limits the extent to which we may permit restrictions on the
ability of our subsidiaries to pay dividends and make other distributions. Each
of these limitations, however, is subject to qualifications set forth fully in
the indenture.
The indenture also contains events of default customary for obligations of this
type, including:
- a default in the payment of interest on the senior subordinated notes
when due and payable;
- the acceleration of debt in an amount in excess of $5.0 million; and
- the rendering of any judgment for the payment of money in excess of
$5.0 million against us,
subject, in each case, to applicable grace periods.
Payment of all amounts outstanding under the senior subordinated notes could be
accelerated in the event of a default under the indenture governing them.
PARENT'S DISCOUNT DEBENTURES DUE 2011
On May 14, 1999, Parent issued $46.9 million in aggregate principal amount of
senior discount debentures due 2011 and 828,261 warrants, for gross proceeds of
$25.0 million, in a private transaction not subject to the registration
requirements of the Securities Act. As of September 30, 2003, $17.3 million in
aggregate principal amount of the debentures remained outstanding. No cash
interest is payable on the discount debentures for five years following
issuance, but deferred interest accrues at the annual rate of 13%. On and after
May 15, 2004, cash interest will be payable on the outstanding principal amount
of the discount debentures, including accrued deferred interest, at the annual
rate of 13% payable on May 15th and November 15th of each year, subject to
restrictions on dividends from us to Parent contained in the bank credit
facilities and the indenture relating to the senior subordinated notes. In
October 1999, the holders of the discount debentures exchanged them for
registered debentures in an exchange offer. On October 29, 1999, Parent amended
the indenture relating to the discount debentures to provide for optional cash
interest payments by Parent prior to May 15, 2004.
The discount debentures rank equally in right of payment to all of Parent's
current and future senior indebtedness and senior in right of payment to all of
Parent's current and future subordinated indebtedness. As obligations of a
holding company, the discount debentures are effectively subordinated to all
obligations of Parent's subsidiaries, including our obligations under the
exchange notes offered hereby, the senior subordinated notes and borrowings
under our new bank credit facilities.
The discount debentures are not redeemable until May 15, 2004. Thereafter, the
discount debentures will be redeemable at Parent's option at 106.5% of the
principal amount declining to 100% of the principal amount on or after May 15,
2009, in each case plus accrued and unpaid interest. Upon a change of control as
described in the indenture governing the discount
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debentures, each holder will be able to require Parent to offer to redeem the
holder's discount debentures at a price equal to 101% of accreted value or, if
after May 15, 2004, of the principal amount thereof plus accrued and unpaid
interest thereon, subject to restrictions contained in our new bank credit
facilities and the indenture relating to the senior subordinated notes.
The indenture relating to the discount debentures contains various covenants
that, among other things, limit:
- the incurrence of indebtedness by Parent and its subsidiaries;
- the payment of restricted payments, as described in the indenture
relating to the discount debentures;
- the payment of dividends on stock and purchases of stock;
- the sale of assets or stock of Parent's subsidiaries;
- transactions with affiliates;
- mergers, consolidations, and sales of assets; and
- the business activities in which Parent and its subsidiaries may
engage.
Each of these limitations, however, is subject to qualifications set forth fully
in that indenture.
The indenture relating to the discount debentures also contains events of
default customary for obligations of this type, including:
- a default in the payment of interest on the discount debentures when
due and payable;
- the acceleration of the debt of Parent or any of its subsidiaries,
including us, in excess of $5.0 million; and
- the rendering of any judgment for the payment of money in excess of
$5.0 million against Parent,
subject, in each case, to applicable grace periods.
Payment of all amounts outstanding under the discount debentures could be
accelerated in the event of a default under the indenture governing them.
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DESCRIPTION OF THE EXCHANGE NOTES
Definitions of certain terms used in this description of the exchange notes may
be found under "Certain definitions." For purposes of this section, the "Issuer"
refers only to Alaska Communications Systems Holdings, Inc., and Parent refers
only to Alaska Communications Systems Group, Inc. but none of their respective
subsidiaries. Parent, certain Subsidiaries of the Issuer and certain future
Subsidiaries of the Issuer will guarantee the Exchange Notes and therefore will
be subject to many of the provisions contained in this description of the
exchange notes. Each company that guarantees the Exchange Notes is referred to
in this section as a "Guarantor," and each guarantee of the obligations with
respect to the Exchange Notes issued by a Guarantor is termed a "Guarantee."
GENERAL
The Issuer will issue the Exchange Notes under the same Indenture, dated as of
August 26, 2003 (the "Indenture"), among the Issuer, the Guarantors and The Bank
of New York, as Trustee (the "Trustee"), under which the old notes were issued.
The Indenture has been filed as an exhibit to the registration statement of
which this prospectus is a part and is incorporated by reference in this
prospectus. We will provide you with a copy of the Indenture upon request. See
"Additional information." The Indenture contains provisions that define your
rights under the Exchange Notes. In addition, the Indenture governs the
obligations of the Issuer and of each Guarantor under the Exchange Notes. The
terms of the Exchange Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act.
The following description is meant to be only a summary of certain provisions of
the Indenture. It does not restate the terms of the Indenture in their entirety.
We urge that you carefully read the Indenture as it, and not this description,
governs your rights as Holders.
OVERVIEW OF THE EXCHANGE NOTES AND THE GUARANTEES
The Exchange Notes:
- will be general unsecured obligations of the Issuer;
- will rank equally in right of payment with all existing and future
Senior Indebtedness of the Issuer;
- will be senior in right of payment to all existing and future
Subordinated Obligations of the Issuer;
- will be effectively subordinated to all Secured Indebtedness of the
Issuer and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness;
- will be effectively subordinated to all liabilities (including trade
payables) and Preferred Stock of each Subsidiary of the Issuer that is
not a Guarantor; and
- will be guaranteed by Parent and each of the Domestic Subsidiaries of
the Issuer.
The Guarantees of each Guarantor:
- will be general unsecured obligations of such Guarantor;
- will rank equally in right of payment with all existing and future
Senior Indebtedness of such Guarantor;
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- will be senior in right of payment to all existing and future
Subordinated Obligations of such Guarantor; and
- will be effectively subordinated to any Secured Indebtedness of such
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
We will initially issue Exchange Notes in an aggregate principal amount of $182
million. The Exchange Notes will mature on August 15, 2011. We will issue the
Exchange Notes in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple of $1,000.
Each Exchange Note we issue will bear interest at a rate of 9 7/8% beginning on
August 26, 2003, or from the most recent date to which interest has been paid or
provided for. We will pay interest semiannually to Holders of record at the
close of business on the August 1 or February 1 immediately preceding the
interest payment date on August 15 and February 15 of each year. The first
interest payment date will be August 15, 2004. We will pay interest on overdue
principal at 1% per annum in excess of such rate, and we will pay interest on
overdue installments of interest at such higher rate to the extent lawful.
The old notes were issued with original issue discount. A Holder of an Exchange
Note will be required to include such discount in taxable income on a constant
yield basis over the life of the Exchange Note without regard to when cash
attributable to such income is actually received by the Holder. See "Certain
federal income tax considerations" for a more detailed discussion of the
taxation of the original issue discount.
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may issue additional Notes having identical terms and conditions to the
Exchange Notes we are offering hereby (the "Additional Notes"). We will only be
permitted to issue such Additional Notes if at the time of such issuance we are
in compliance with the covenants contained in the Indenture. Any Additional
Notes will be part of the same issue as the Exchange Notes that we are currently
offering and will vote on all matters with such Exchange Notes.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, and interest (including
additional interest, if any) on the Exchange Notes at any office of ours or any
agency designated by us which is located in the Borough of Manhattan, the City
of New York. We have initially designated the corporate trust office of the
Trustee to act as the agent of the Issuer in such matters (the "Paying Agent").
The location of the corporate trust office is 101 Barclay Street, Floor 8W, New
York, New York 10286. We reserve the right, however, to pay interest to Holders
by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their Exchange Notes at the location given in
the preceding paragraph. No service charge will be made for any registration of
transfer or exchange of Notes. We may, however, require Holders to pay any
transfer tax or other similar governmental charge payable in connection with
such transfer or exchange.
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OPTIONAL REDEMPTION
Except as set forth in the following paragraph, we may not redeem the Exchange
Notes at our option prior to August 15, 2007. After this date, we may redeem the
Exchange Notes in whole or in part, on not less than 30 nor more than 60 days'
prior notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest (including additional
interest, if any) thereon, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve-month period
commencing on August 15 of the years set forth below:
<Table>
<Caption>
- ------------------------------------------------------------------------
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------
2007........................................................ 104.938%
2008........................................................ 103.292%
2009........................................................ 101.646%
2010 and thereafter......................................... 100.000%
- ------------------------------------------------------------------------
</Table>
Prior to August 15, 2006, we may, at our option, on one or more occasions, also
redeem up to a maximum of 35% of the original aggregate principal amount of the
Exchange Notes with the Net Cash Proceeds of one or more Equity Offerings (1) by
the Issuer or (2) by Parent to the extent the Net Cash Proceeds thereof are
contributed to the Issuer or used to purchase Capital Stock (other than
Disqualified Stock) of the Issuer from the Issuer, at a redemption price equal
to 109.875% of the principal amount thereof, plus accrued and unpaid interest
(including additional interest, if any) thereon, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); PROVIDED, HOWEVER, that
after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) remains
outstanding; and
(2) any such redemption by the Issuer must be made within 90 days of such
related Equity Offering by the Issuer or Parent, as the case may be, and
must be made upon not less than 30 nor more than 60 days' notice mailed
to each Holder of Exchange Notes being redeemed and otherwise in
accordance with certain procedures set forth in the Indenture.
SELECTION
If we partially redeem the Exchange Notes, the Trustee will select the Exchange
Notes to be redeemed on a pro rata basis, by lot or by such other method as the
Trustee shall deem to be fair and appropriate (and in such manner as complies
with applicable legal requirements); PROVIDED that no Exchange Note of $1,000 in
original principal amount or less will be redeemed in part. If we redeem any
Exchange Note in part only, the notice of redemption relating to such Exchange
Note shall state the portion of the principal amount of such Exchange Note to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion of such Exchange Note will be issued in the name of the Holder upon
cancellation of the original Exchange Note. On and after the redemption date,
interest will cease to accrue on Exchange Notes or portions of Exchange Notes
called for redemption so long as we have deposited with
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the Paying Agent funds sufficient to pay the principal of, plus accrued and
unpaid interest (including additional interest, if any) on, the Exchange Notes
to be redeemed.
RANKING
The indebtedness evidenced by the Exchange Notes (and any additional interest)
will be unsecured Senior Indebtedness of the Issuer, will rank equally in right
of payment with all existing and future Senior Indebtedness of the Issuer and
will be senior in right of payment to all existing and future Subordinated
Obligations of the Issuer. The Exchange Notes also will be effectively
subordinated to any Secured Indebtedness of the Issuer and its Subsidiaries to
the extent of the value of the assets securing such Indebtedness. The Exchange
Notes and the Guarantees will constitute Designated Senior Indebtedness for
purposes of the indenture governing our 9 3/8% Senior Subordinated Notes due
2009 and guarantees thereof.
The Guarantees will be unsecured Senior Indebtedness of the applicable
Guarantor, will rank equally in right of payment with all existing and future
Senior Indebtedness of such Guarantor and will be senior in right of payment to
all existing and future Subordinated Obligations of such Guarantor. The
Guarantees also will be effectively subordinated to any Secured Indebtedness of
the applicable Guarantor and its Subsidiaries to the extent of the value of the
assets securing such Secured Indebtedness.
As of September 30, 2003, there was outstanding:
- $385.9 million of Senior Indebtedness of the Issuer, of which $208.9
million was Secured Indebtedness (exclusive of unused commitments under
the Credit Agreement);
- $17.3 million of Senior Indebtedness of Parent (one of the Guarantors),
none of which was Secured Indebtedness (exclusive of guarantees of
unused commitments under the Credit Agreement);
- $6.1 million of Senior Indebtedness of the Subsidiary Guarantors, of
which $5.1 million was Secured Indebtedness (exclusive of guarantees of
unused commitments under the Credit Agreement), and $50.9 million of
total liabilities, including trade payables, of the Subsidiary
Guarantors;
- no liabilities (including trade payables) and preferred stock of the
Subsidiaries that are not Guarantors; and
- $150.0 million of Subordinated Indebtedness of the Issuer, Parent and
the Subsidiary Guarantors, consisting of our 9 3/8% Senior Subordinated
Notes due 2009 and guarantees thereof.
Although the amount of additional Indebtedness we can Incur is limited by the
terms of our financing arrangements, we and our Subsidiaries may be able to
Incur substantial amounts of Indebtedness in certain circumstances. Such
Indebtedness may be Senior Indebtedness and may also be Secured Indebtedness. In
addition, the Indenture will not limit the incurrence of Indebtedness by Parent.
See "--Restrictive covenants--Limitation on indebtedness" below.
GUARANTEES
We currently conduct all of our operations through our Subsidiaries. Parent and
all of the Domestic Subsidiaries of the Issuer existing on the Closing Date and
certain future Subsidiaries of the Issuer (collectively referred to as the
"Guarantors"), as primary obligors and not merely
109
as sureties, will, jointly and severally and irrevocably and unconditionally,
guarantee on an unsecured senior basis the performance and full and punctual
payment when due, whether at Stated Maturity, by acceleration, by redemption or
otherwise, of all obligations of the Issuer under the Indenture (including
obligations to the Trustee) and the Exchange Notes, whether for payment of
principal of, or interest (including additional interest, if any) on, the
Exchange Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by such Guarantors, the "Guaranteed Obligations"). Such Guarantors
will agree to pay, in addition to the amount stated above, any and all costs and
expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under the Guarantees. Each
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Guarantor without rendering the
Guarantee, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. After the Closing Date, the Issuer
will cause each Domestic Subsidiary to execute and deliver to the Trustee a
supplemental indenture pursuant to which such Domestic Subsidiary will guarantee
payment of the Exchange Notes. See "--Restrictive covenants--Future guarantors."
Each Guarantee is a continuing guarantee and shall, except as described in the
immediately succeeding paragraph, (1) remain in full force and effect until
payment in full of all the Guaranteed Obligations, (2) be binding upon each
Guarantor and its successors, and (3) inure to the benefit of, and be
enforceable by, the Trustee, the Holders and their successors, transferees and
assigns.
Any Guarantee by a Subsidiary of the Issuer will be automatically released upon
the sale (including through merger or consolidation) of the Capital Stock, or
all or substantially all the assets, of the applicable Subsidiary if such sale
is made in compliance with the covenant described under " --Restrictive
covenants--Limitation on sales of assets and subsidiary stock." In addition, if
any such Subsidiary is released from its guarantees of, and all pledges and
security guaranteed in connection with, the Credit Agreement and any other
Indebtedness of the Issuer or any Subsidiary of the Issuer, then such Guarantor
shall be automatically released and relieved of any obligations under its
Guarantee. A Guarantee by a Subsidiary of the Issuer also will be automatically
released upon the applicable Subsidiary ceasing to be a Subsidiary of the Issuer
as a result of any foreclosure of any pledge or security interest securing Bank
Indebtedness or other exercise of remedies in respect thereof if such Subsidiary
is released from its guarantees of, and all pledges and security interests
granted in connection with, the Credit Agreement.
ACS Media Holdings LLC is the only Subsidiary of the Issuer that is an
Unrestricted Subsidiary of the Issuer. Under certain circumstances, the Issuer
will be able to designate other current or future direct or indirect
Subsidiaries of the Company as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be Guarantors of the Exchange Notes or subject to any of
the restrictive covenants set forth in the Indenture. As of September 30, 2003,
ACS Media Holdings LLC had assets of $10 thousand on a book-value basis. On a
pro forma basis, ACS Media Holdings LLC would have generated $14 thousand in
other non-operating income and EBITDA for fiscal year 2002, and $10 thousand in
other non-operating income and EBITDA for the nine months ended September 30,
2003.
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CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of Control"),
each Holder will have the right to require the Issuer to repurchase all or any
part of such Holder's Exchange Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest (including
additional interest, if any) thereon to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); PROVIDED, HOWEVER, that notwithstanding
the occurrence of a Change of Control, the Issuer shall not be obligated to
repurchase the Exchange Notes pursuant to this section in the event that it has
exercised its right to redeem all the Exchange Notes under the terms described
under "--Optional redemption":
(1) (a) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that for purposes of this clause (1) such
person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting
Stock of Parent or the Issuer and (b) the Permitted Holders beneficially
own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Parent or the Issuer than such
other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of
the Board of Directors of Parent or the Issuer, as the case may be (for
the purposes of this clause (1), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in
clause (a) above), directly or indirectly, of more than 35% of the
voting power of the Voting Stock of such parent entity and the Permitted
Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent entity);
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Issuer or Parent, as the case may be (together with any new directors
(a) whose election by such Board of Directors of Parent or the Issuer,
as the case may be, or whose nomination for election by the shareholders
of Parent or the Issuer, as the case may be, was approved by a majority
vote of the directors of Parent or the Issuer, as the case may be, then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved or (b) who are designees of the Permitted Holders or were
nominated by the Permitted Holders), cease for any reason to constitute
a majority of the Board of Directors of the Issuer or Parent, as the
case may be, then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
Parent or the Issuer;
(4) the merger or consolidation of Parent or the Issuer with or into another
Person or the merger of another Person with or into Parent or the
Issuer, or the sale of all or substantially all the assets of Parent or
the Issuer to another Person (other than a
111
Person that is controlled by the Permitted Holders), and, in the case of
any such merger or consolidation, the securities of Parent or the Issuer
that are outstanding immediately prior to such transaction and that
represent 100% of the aggregate voting power of the Voting Stock of
Parent or the Issuer are changed into or exchanged for cash, securities
or property, unless pursuant to such transaction such securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving Person or transferee that represent,
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving Person or transferee;
or
(5) the Issuer ceases to be a Wholly Owned Subsidiary of Parent.
In the event that at the time of such Change of Control the terms of the Bank
Indebtedness restrict or prohibit the repurchase of Exchange Notes pursuant to
this covenant, then prior to the mailing of the notice to Holders provided for
in the immediately succeeding paragraph but in any event within 30 days
following any Change of Control, the Issuer shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow the
repurchase of Exchange Notes, offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has
accepted such offer; or
(2) obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Exchange Notes as provided
for in the immediately succeeding paragraph.
Within 30 days following any Change of Control, the Issuer shall mail a notice
to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating:
(1) that a Change of Control has occurred and that such Holder has the right
to require the Issuer to purchase such Holder's Exchange Notes at a
purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest (including additional interest, if any)
thereon to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant
interest payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuer, consistent with this
covenant, that a Holder must follow in order to have its Exchange Notes
purchased.
In the event that Holders of not less than 98% of the principal amount of the
outstanding Exchange Notes accept a Change of Control Offer and the Issuer
purchases all of the Exchange Notes held by such Holders, the Issuer will have
the right, on not less than 30 nor more than 60 days' prior notice, given not
more than 30 days following the purchase pursuant to the Change of Control Offer
described below, to redeem all of the Exchange Notes that remain outstanding
following such purchase at the purchase price specified in the Change of Control
Offer plus, to the extent not included in the purchase price specified in the
Change of Control Offer, accrued and unpaid interest (including additional
interest, if any) thereon, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest on the
relevant interest payment date).
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The Issuer will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Exchange Notes pursuant to this covenant. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the
Issuer and the initial purchasers. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that the
Issuer would decide to do so in the future. Subject to the limitations discussed
below, the Issuer could, in the future, enter into certain transactions,
including acquisitions, refinancings or recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of Indebtedness outstanding at such time or otherwise affect the Issuer's
capital structure or credit ratings. Restrictions on the ability of the Issuer
to Incur additional Indebtedness and related matters are contained in the
covenant described under "--Restrictive covenants--Limitation on indebtedness,"
"--Restrictive covenants--Limitation on liens" and "--Restrictive
covenants--Limitation on sale/leaseback transactions." Such restrictions can
only be waived with the consent of the Holders of a majority in principal amount
of the Exchange Notes then outstanding. Except for the limitations contained in
such covenants, however, the Indenture will not contain any covenants or
provisions that may afford Holders protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Issuer may contain prohibitions of certain events that would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Issuer to repurchase the Exchange Notes
could cause a default under such Senior Indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Issuer. Finally, the Issuer's ability to pay cash to the Holders upon a
repurchase may be limited by the Issuer's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. The provisions under the Indenture relative to
the Issuer's obligation to make an offer to repurchase the Exchange Notes as a
result of a Change of Control may be waived or modified with the written consent
of the Holders of a majority in principal amount of the Exchange Notes.
RESTRICTIVE COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS.
(1) The Issuer will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness; PROVIDED, HOWEVER, that the Issuer or any
Restricted Subsidiary may Incur
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Indebtedness if on the date of such Incurrence and after giving effect
thereto the Debt to EBITDA Ratio would be less than 6:1; PROVIDED
FURTHER, HOWEVER, that, if such Indebtedness proposed to be Incurred
pursuant to the preceding proviso is Senior Indebtedness, such Senior
Indebtedness may not be Incurred unless on the date of such Incurrence
and after giving effect thereto the Senior Debt to EBITDA Ratio would be
less than 4.5:1.
(2) Notwithstanding the foregoing paragraph (1), the Issuer and its
Restricted Subsidiaries may Incur the following Indebtedness:
(a) Bank Indebtedness in an aggregate principal amount not to exceed $325
million less the aggregate amount of all prepayments of principal
applied to permanently reduce any such Indebtedness; PROVIDED,
HOWEVER, that Bank Indebtedness in excess of $250 million may only be
incurred if, after giving effect to such Incurrence, the Senior Debt
to EBITDA Ratio would be less than 4.5:1;
(b) Indebtedness of the Issuer owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and
held by the Issuer or any Wholly Owned Subsidiary; PROVIDED, HOWEVER,
that (i) any subsequent issuance or transfer of any Capital Stock or
any other event that results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to the Issuer or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof and (ii) if the
Issuer is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Exchange Notes;
(c) Indebtedness (i) represented by the Exchange Notes (not including any
Additional Notes) and the Guarantees, (ii) outstanding on the Closing
Date (other than the Indebtedness described in clauses (a) and (b)
above), (iii) consisting of Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (c) (including
Indebtedness Refinancing Indebtedness) or the foregoing paragraph
(1), or (iv) consisting of guarantees of any Indebtedness permitted
under clauses (a) and (b) of this paragraph (2);
(d) (i) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was
acquired by the Issuer (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary of, or was otherwise acquired by, the Issuer);
PROVIDED, HOWEVER, that on the date that such Restricted Subsidiary
is acquired by the Issuer, the Issuer would have been able to Incur
$1.00 of additional Indebtedness pursuant to the foregoing paragraph
(1) after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (d) and (ii) Refinancing Indebtedness
Incurred by the Issuer or a Restricted Subsidiary in respect of
Indebtedness Incurred pursuant to this clause (d);
(e) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds provided by the Issuer
and the Restricted Subsidiaries in the ordinary course of their
business;
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(f) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $20 million at any time
outstanding;
(g) Hedging Obligations of the Issuer or any Guarantor directly related
to Indebtedness permitted to be Incurred by the Issuer or any
Guarantor pursuant to the Indenture for the purpose of fixing or
hedging interest rate risk or currency fluctuations; or
(h) (i) Indebtedness of another Person Incurred and outstanding on or
prior to the date on which such Person consolidates with or merges
with or into the Issuer (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Person consolidates with
or merges with or into the Issuer); PROVIDED, HOWEVER, that on the
date that such transaction is consummated, the Issuer would have been
able to Incur $1.00 of additional Indebtedness pursuant to the
foregoing paragraph (1) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (h) and (ii) Refinancing
Indebtedness Incurred by the Issuer or the Successor Issuer (as
defined under "--Merger and consolidation") in respect of
Indebtedness Incurred pursuant to subclause (i) of this clause (h).
(3) Notwithstanding the foregoing, the Issuer may not Incur any Indebtedness
pursuant to paragraph (2) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any Subordinated Obligations, unless such
Indebtedness will be subordinated to the Exchange Notes to at least the
same extent as such Subordinated Obligations.
(4) Notwithstanding any other provision of this covenant, the maximum amount
of Indebtedness that the Issuer or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a
result of fluctuations in the exchange rates of currencies. For purposes
of determining the outstanding principal amount of any particular
Indebtedness Incurred pursuant to this covenant:
(a) Indebtedness Incurred pursuant to the Credit Agreement prior to or
on the Closing Date shall be treated as Incurred pursuant to clause
(2)(a) above;
(b) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness; and
(c) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in this covenant, the Issuer,
in its sole discretion, shall classify such Indebtedness and only be
required to include the amount of such Indebtedness in one of such
clauses.
LIMITATION ON RESTRICTED PAYMENTS.
(1) The Issuer will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to:
(a) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Issuer or any
Subsidiary of the Issuer) or similar payment to the direct
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or indirect holders of its Capital Stock except dividends or
distributions payable solely in its Capital Stock (other than
Disqualified Stock or Preferred Stock) and except dividends or
distributions payable to the Issuer or another Restricted Subsidiary
(and, if such Restricted Subsidiary has shareholders other than the
Issuer or other Restricted Subsidiaries, to its other shareholders on
a pro rata basis);
(b) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Parent, the Issuer or any Restricted Subsidiary held by
Persons other than the Issuer or another Restricted Subsidiary;
(c) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case,
due within one year of the date of acquisition); or
(d) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, payment, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a "Restricted Payment") if at the time
the Issuer or such Restricted Subsidiary makes such Restricted
Payment:
(i) a Default will have occurred and be continuing (or would result
therefrom);
(ii) the Issuer could not Incur at least $1.00 of additional
Indebtedness under paragraph (1) of the covenant described under
"--Limitation on indebtedness"; or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a
resolution of the Board of Directors) declared or made
subsequent to the Closing Date would exceed the sum of, without
duplication:
(A) (i) 100% of EBITDA accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the
Closing Date occurred to the end of the most recent fiscal
quarter for which financial statements are publicly available
(or, in case such EBITDA will be a deficit, minus 100% of such
deficit); minus
(ii) 140% of Consolidated Interest Expense accrued during the
period (treated as one accounting period) from the beginning
of the fiscal quarter immediately following the fiscal quarter
during which the Closing Date occurred to the end of the most
recent fiscal quarter for which financial statements are
publicly available; plus
(iii) $120 million; plus
(B) the aggregate Net Cash Proceeds received by the Issuer from
the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Closing Date (other
than (x) an issuance or sale to a Subsidiary of the Issuer,
(y) an issuance or sale to an employee stock ownership plan
or other trust
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established by the Issuer or any of its Subsidiaries or (z) to
the extent used in accordance with clause (2)(e)(ii) or
(2)(f)(iii)(B) below); plus
(C) the aggregate Net Cash Proceeds received by the Issuer from
the sale or other disposition (other than to the Issuer or a
Restricted Subsidiary) of any Investments previously made by
the Issuer or a Restricted Subsidiary and treated as a
Restricted Payment; PROVIDED that the amount added pursuant
to this clause (C) shall not exceed the amount treated as a
Restricted Payment and not previously added pursuant to this
paragraph (iii); plus
(D) the amount by which Indebtedness of the Issuer or its
Restricted Subsidiaries is reduced on the Issuer's balance
sheet upon the conversion or exchange (other than by a
Subsidiary of the Issuer) subsequent to the Closing Date of
any Indebtedness of the Issuer or its Restricted Subsidiaries
issued after the Closing Date that is convertible or
exchangeable for Capital Stock (other than Disqualified Stock)
of the Issuer (less the amount of any cash or the fair market
value of other property distributed by the Issuer or any
Restricted Subsidiary upon such conversion or exchange); plus
(E) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) payments of
dividends, repayments of the principal of loans or advances
or other transfers of assets to the Issuer or any Restricted
Subsidiary from Unrestricted Subsidiaries or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued, in each case, as provided in the
definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously
made by the Issuer or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments; plus
(F) $5 million.
(2) The provisions of the foregoing paragraph (1) will not prohibit:
(a) any purchase, repurchase, retirement, defeasance or other acquisition
or retirement for value of Capital Stock or Subordinated Obligations
of the Issuer made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Issuer (other
than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of the Issuer or an employee stock ownership plan or
other trust established by the Issuer or any of its Subsidiaries);
PROVIDED, HOWEVER, that:
(i) such Restricted Payment will be excluded in the calculation of
the amount of Restricted Payments; and
(ii) the Net Cash Proceeds from such sale applied in the manner set
forth in this clause (a) will be excluded from the calculation of
amounts under clause (B) of paragraph (iii) above;
(b) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of the Issuer
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Issuer that is permitted to
be Incurred pursuant to paragraph (2) of the covenant
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described under "--Limitation on indebtedness"; PROVIDED, HOWEVER,
that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value will be excluded in the
calculation of the amount of Restricted Payments;
(c) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described
under "--Limitation on sales of assets and subsidiary stock";
PROVIDED, HOWEVER, that such purchase or redemption will be excluded
in the calculation of the amount of Restricted Payments;
(d) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with
this covenant; PROVIDED, HOWEVER, that such dividend will be included
in the calculation of the amount of Restricted Payments;
(e) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Issuer or any of its
Subsidiaries from employees, former employees, consultants, former
consultants, directors or former directors of the Issuer or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, consultants, former consultants, directors or former
directors), pursuant to the terms of agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell, or are
granted the option to purchase or sell, shares of such common stock;
PROVIDED, HOWEVER, that the aggregate amount of such repurchases,
together with any amounts or other distributions to Parent under the
following paragraph (f)(iii), shall not exceed in any calendar year
the sum of (i) $5 million plus (ii) the Net Cash Proceeds (A)
received since the Closing Date by the Issuer or received by Parent
and contributed to the Issuer from the sale of Capital Stock to
employees, consultants and directors of Parent or the Issuer and (B)
not previously credited to any repurchase or other acquisition of
such shares or options to purchase shares of common stock pursuant to
this clause (2)(e)(ii) or clause (2)(f)(iii)(B) below; PROVIDED
FURTHER, HOWEVER, that such repurchases and other acquisitions of
shares, or options to purchase shares of common stock shall be
included in the calculation of the amount of Restricted Payments; and
(f) payment of dividends, other distributions or other amounts by the
Issuer solely for the purposes set forth in clauses (i) through (iv)
below; PROVIDED, HOWEVER, that such dividend, distribution or amount
set forth in clauses (i), (iii) and (iv) (but not clause (ii)) shall
be included in the calculation of the amount of Restricted Payments
for the purposes of paragraph (1) above:
(i) to Parent in amounts equal to the amounts required for Parent to
pay franchise taxes and other fees required to maintain its
corporate existence and to provide for other operating costs of
up to $7.5 million per fiscal year;
(ii) to Parent in amounts equal to amounts required for Parent to pay
U.S. federal, state and local income taxes to the extent such
income taxes are attributable to the income of the Issuer and
its Restricted Subsidiaries (and, to the extent of amounts
actually received from its Unrestricted Subsidiaries, in amounts
required to pay such taxes to the extent attributable to the
income of such Unrestricted Subsidiaries);
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(iii) to Parent in amounts equal to amounts expended by Parent to
repurchase or otherwise acquire shares of, or options to
purchase shares of, common stock of Parent from employees,
former employees, consultants, former consultants, directors or
former directors of Parent, the Issuer or any of the Issuer's
Subsidiaries (or permitted transferees of such employees, former
employees, consultants, former consultants, directors or former
directors), pursuant to the terms of agreements (including
employment agreements) or plans (or amendments thereto) approved
by the Board of Directors of Parent under which such individuals
purchase or sell, or are granted the option to purchase or sell,
shares of such common stock of Parent; PROVIDED, HOWEVER, that
the aggregate amount paid, loaned or advanced to Parent pursuant
to this clause (iii), together with the amounts of any
repurchases or other acquisitions under clause (e) above, shall
not exceed in any calendar year the sum of (A) $5 million plus
(B) the Net Cash Proceeds received (1) since the Closing Date by
the Issuer or received by Parent and contributed to the Issuer
from the sale of Capital Stock to employees, consultants and
directors of Parent or the Issuer and (2) not previously
credited to any repurchase or other acquisition of such shares
or options to purchase shares of common stock pursuant to this
clause (2)(f)(iii)(B) or clause (2)(e)(ii) above; and
(iv) to Parent in amounts equal to amounts necessary for Parent to
make loans or advances to employees in the ordinary course of
business in accordance with past practices of the Issuer, but in
any event not to exceed, when aggregated with amounts loaned or
advanced under clause (6) of the definition of "Permitted
Investments," $5 million in the aggregate outstanding at any one
time.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The
Issuer will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to the Issuer or any of
its Restricted Subsidiaries;
(2) make any loans or advances to the Issuer or any of its Restricted
Subsidiaries; or
(3) transfer any of its property or assets to the Issuer or any of its
Restricted Subsidiaries, except:
(a) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on the Closing Date;
(b) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Issuer (other than
Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Restricted Subsidiary or
was otherwise acquired by the Issuer) and outstanding on such date;
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(c) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (a) or (b) above or this clause (c) or
contained in any amendment to an agreement referred to in clause (a)
or (b) above or this clause (c); PROVIDED, HOWEVER, that the
encumbrances and restrictions contained in any such Refinancing
agreement or amendment are no less favorable to the Holders than the
encumbrances and restrictions contained in such predecessor
agreements;
(d) in the case of clause (3), any encumbrance or restriction:
(i) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease,
license or similar contract; or
(ii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to
such security agreements;
(e) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or
disposition;
(f) any encumbrance or restriction relating to Purchase Money
Indebtedness or Capitalized Lease Obligations for property acquired
in the ordinary course of business that imposes restrictions on the
ability of the Issuer or a Restricted Subsidiary to sell, lease or
transfer the acquired property to the Issuer or its Restricted
Subsidiaries;
(g) restrictions on cash or other deposits imposed by customers under
contracts entered into in the ordinary course of business; and
(h) any encumbrance or restriction contained in joint venture agreements
and other similar agreements entered into in the ordinary course of
business and customary for such types of agreements.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(1) The Issuer will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless:
(a) the Issuer or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise)
at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors,
of the shares and assets subject to such Asset Disposition;
(b) at least 75% of the consideration thereof received by the Issuer or
such Restricted Subsidiary is in the form of cash; PROVIDED that the
following shall be deemed to be cash for purposes of this clause (b):
(i) the amount of any liabilities (as shown on the Issuer's, or such
Restricted Subsidiary's, most recent balance sheet or in the notes
thereto) of the Issuer or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Exchange
Notes or the Guarantees) that are assumed by the transferee of any
such assets, (ii) the amount of any securities received by the Issuer
or such Restricted Subsidiary from such transferee that are
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converted by the Issuer or such Restricted Subsidiary into cash (to
the extent of the cash received) within 90 days following the closing
of such Asset Disposition, (iii) the fair market value of any
Telecommunications Assets received by the Issuer in such Asset
Disposition and (iv) the fair market value of any Permitted Joint
Venture Interests received by the Issuer or any Restricted Subsidiary
in such Asset Disposition; PROVIDED that the aggregate fair market
value of all Permitted Joint Venture Interests received pursuant to
this clause (iv), valued, in each case, at the time of receipt, shall
not exceed 10% of Consolidated Net Tangible Assets (for purposes of
this paragraph (b), all determinations of fair market value shall be
made in good faith by the Board of Directors and evidenced by an
Officers' Certificate delivered to the Trustee); and
(c) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Issuer (or such Restricted Subsidiary,
as the case may be):
(i) first, to the extent the Issuer elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem, purchase or
otherwise acquire Bank Indebtedness of the Issuer or of a Wholly
Owned Subsidiary within 180 days of the later of the date of such
Asset Disposition or the receipt of such Net Available Cash;
(ii) second, to the extent of the balance of Net Available Cash after
application in accordance with clause (i) above, to the extent
the Issuer or such Restricted Subsidiary elects to, or enters
into a binding agreement to, reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a
Restricted Subsidiary with cash in an amount equal to the amount
of Net Available Cash received by, or to be received by, the
Issuer or another Restricted Subsidiary) within 180 days of the
later of such Asset Disposition or the receipt of such Net
Available Cash; and
(iii) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (i) and (ii) above,
to make an Offer (as defined in clause (2) below) to purchase
Exchange Notes pursuant to and subject to the conditions set
forth in paragraph (2) below; PROVIDED, HOWEVER, that, if the
Issuer elects (or is required by the terms of any other Senior
Indebtedness), such Offer may be made ratably to purchase the
Exchange Notes and other Senior Indebtedness of the Issuer;
PROVIDED, HOWEVER, that, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (i) or
(iii) above, the Issuer or such Restricted Subsidiary will
retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased.
Upon completion of any Offer, the amount of Net Available Cash shall be reset at
zero and the Issuer shall be entitled to use any remaining proceeds for any
corporate purposes to the extent permitted under the Indenture. Notwithstanding
the foregoing provisions of this covenant, the Issuer and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $10 million.
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(2) In the event of an Asset Disposition that requires the purchase of
Exchange Notes pursuant to clause (c)(iii) above, the Issuer will be
required to offer to purchase Exchange Notes tendered pursuant to an
offer by the Issuer for the Exchange Notes (an "Offer") at a purchase
price of 100% of their principal amount plus accrued and unpaid interest
(including additional interest, if any) thereon, to the date of purchase
in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture and to purchase other
Senior Indebtedness on the terms and to the extent contemplated thereby.
The Issuer will not be required to make an Offer for Exchange Notes (and
other Senior Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (c)(i) and (c)(ii) above) is less than $10 million
for any particular Asset Disposition (which lesser amount will be
carried forward for purposes of determining whether an Offer is required
with respect to the Net Available Cash from any subsequent Asset
Disposition).
(3) The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant
to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the
Issuer will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under this
covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (1) The Issuer will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Issuer (an "Affiliate Transaction") unless
such Affiliate Transaction is on terms:
(a) that are no less favorable to the Issuer or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such
an Affiliate;
(b) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $5 million:
(i) are set forth in writing; and
(ii) have been approved by a majority of the members of the Board of
Directors having no personal stake, other than as a holder of
Capital Stock of Parent, the Issuer or such Restricted Subsidiary,
in such Affiliate Transaction; and
(c) that, in the event such Affiliate Transaction involves an amount in
excess of $15 million, have been determined by a nationally recognized
appraisal or investment banking firm to be fair, from a financial
standpoint, to the Issuer and its Restricted Subsidiaries.
(2) The provisions of paragraph (1) above will not prohibit:
(a) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on restricted payments";
(b) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors;
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(c) the grant of stock options or similar rights to employees and directors
of the Issuer pursuant to plans approved by the Board of Directors;
(d) loans or advances to employees in the ordinary course of business in
accordance with past practices of the Issuer, but in any event not to
exceed $10 million in the aggregate outstanding at any one time;
(e) the payment of reasonable fees to directors of the Issuer and its
Subsidiaries who are not employees of the Issuer or its Subsidiaries;
(f) any transaction between the Issuer and a Restricted Subsidiary or
between Restricted Subsidiaries;
(g) customary indemnification and insurance arrangements in favor of
officers, directors, employees and consultants of Parent, the Issuer or
any of the Restricted Subsidiaries;
(h) payments by the Issuer or any of its Restricted Subsidiaries to Fox
Paine and its Affiliates for any financial advisory, financing,
underwriting or other placement services or in respect of other
investment banking activities, including, without limitation, in
connection with acquisitions or divestitures, which payments are
approved by a majority of the members of the Board of Directors referred
to in clause (b)(ii) above in good faith;
(i) the existence of, or the performance by the Issuer or any of its
Restricted Subsidiaries of the obligations under the terms of, any
stockholders agreements (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the
Closing Date, as such agreements may be amended from time to time
pursuant to the terms thereof; PROVIDED, HOWEVER, that the terms of any
such amendment are no less favorable to the Holders than the terms of
any such agreements in effect as of the Closing Date; and
(j) the issuance of Capital Stock (other than Disqualified Stock) of the
Issuer for cash to any Permitted Holder.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Issuer will not sell or otherwise dispose of any shares of Capital Stock of
a Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell or otherwise dispose of any shares of its
Capital Stock except:
(1) to the Issuer or a Wholly Owned Subsidiary;
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Issuer nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto
would have been permitted to be made under the covenant described under
"--Limitation on restricted payments" if made on the date of such
issuance, sale or other disposition.
The proceeds of any sale of such Capital Stock permitted hereby will be treated
as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of the covenant described under "--Limitation on sales
of assets and subsidiary stock."
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LIMITATION ON LIENS. The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien on any
of its property or assets (including Capital Stock of a Restricted Subsidiary),
whether owned at the Closing Date or thereafter acquired, other than Permitted
Liens, without effectively providing that the Exchange Notes shall be secured
equally and ratably with (or prior to) the obligations so secured for so long as
such obligations are so secured.
SEC REPORTS. Notwithstanding that the Issuer may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuer will file
with the SEC and provide the Trustee and Holders and prospective Holders (upon
request) within 15 days after it files them with the SEC, copies of its annual
report and the information, documents and other reports that are specified in
Sections 13 and 15(d) of the Exchange Act. In addition, the Issuer shall furnish
to the Trustee and Holders, promptly upon their becoming available, copies of
the annual report to shareholders and any other information provided by the
Issuer or Parent to its public shareholders generally. The Issuer also will
comply with the other provisions of Section 314(a) of the TIA.
FUTURE GUARANTORS. The Issuer will cause each Domestic Subsidiary to become a
Guarantor and execute and deliver to the Trustee a supplemental indenture in the
form set forth in the Indenture pursuant to which such Domestic Subsidiary will
guarantee payment of the Exchange Notes. Each Guarantee will be limited to an
amount not to exceed the maximum amount that can be guaranteed by that Domestic
Subsidiary without rendering the Guarantee, as it relates to such Domestic
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
LIMITATION ON LINES OF BUSINESS. The Issuer will not, and will not permit any
Restricted Subsidiary to, engage in any business, other than a Related Business.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Issuer will not, and will not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless:
(1) the Issuer or such Restricted Subsidiary would be entitled to:
(a) Incur Indebtedness in an amount equal to the Attributable Debt with
respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "--Limitation on indebtedness" and
(b) create a Lien on such property securing such Attributable Debt
without equally and ratably securing the Exchange Notes pursuant to
the covenant described under "--Limitation on liens";
(2) the net proceeds received by the Issuer or such Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to
the fair market value of such property; and
(3) the transfer of such property is permitted by, and the Issuer applies
the proceeds of such transaction in compliance with, the covenant
described under "--Limitation on sales of assets and subsidiary stock."
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MERGER AND CONSOLIDATION
The Issuer will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Issuer")
will be a corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia,
and the Successor Issuer (if not the Issuer) will expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Issuer under the
Exchange Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Issuer or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Issuer or such Restricted Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the Successor
Issuer would be able to Incur an additional $1.00 of Indebtedness under
paragraph (1) of the covenant described under "--Restrictive
covenants--Limitation on indebtedness";
(4) the Issuer shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture (if any) comply with the
Indenture; and
(5) the Issuer shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such transaction and will be
subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such transaction
had not occurred.
Notwithstanding the foregoing clause (2) or (3), the Issuer may merge with an
Affiliate incorporated or formed solely for the purpose of reincorporating the
Issuer in another jurisdiction.
The Successor Issuer will succeed to, and be substituted for, and may exercise
every right and power of, the Issuer under the Indenture, but the Issuer, in the
case of a conveyance, transfer or lease of all or substantially all its assets,
will not be released from the obligation to pay the principal of and interest on
the Exchange Notes.
In addition, the Issuer will not permit any Guarantor to consolidate with or
merge with or into, or convey, transfer or lease all or substantially all of its
assets to any Person unless:
(1) the resulting, surviving or transferee Person will be a corporation
organized and existing under the laws of the United States of America,
any state thereof or the District of Columbia, and such Person (if not
such Guarantor) will expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Guarantor under its Guarantee;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been
Incurred by such Person at the time of such transaction), no Default
shall have occurred and be continuing; and
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(3) the Issuer will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer and such supplemental indenture (if any) comply with the
Indenture.
Notwithstanding the foregoing clause (2), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Issuer or another Restricted Subsidiary.
DEFAULTS
Each of the following is an "Event of Default":
(1) a default in any payment of interest on any Note when due and payable,
whether or not prohibited by the provisions described under "--Ranking,"
continued for 30 days;
(2) a default in the payment of principal of any Note when due and payable
at its Stated Maturity, upon required redemption or repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "--Ranking";
(3) the failure by the Issuer to comply with its obligations under the
covenant described under "--Merger and consolidation";
(4) the failure by the Issuer to comply for 30 days after notice with any of
its obligations under the covenants described under "--Change of
control" or "--Restrictive covenants" (in each case, other than a
failure to purchase Exchange Notes);
(5) the failure by the Issuer to comply for 60 days after notice with its
other agreements contained in the Exchange Notes or the Indenture;
(6) the failure by the Issuer or any Subsidiary of the Issuer to pay any
Indebtedness (other than Indebtedness owing to the Issuer or a
Subsidiary of the Issuer) within any applicable grace period after final
maturity or the acceleration of any such Indebtedness by the holders
thereof because of a default if the total amount of such Indebtedness
unpaid or accelerated exceeds $5.0 million or its foreign currency
equivalent (the "cross acceleration provision") and such failure
continues for 10 days after receipt of the notice specified in the
Indenture;
(7) certain events of bankruptcy, insolvency or reorganization of the Issuer
or a Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any judgment or decree for the payment of money in
excess of $5.0 million or its foreign currency equivalent against the
Issuer or a Subsidiary of the Issuer, to the extent such judgment or
decree is not covered by insurance or is in excess of insurance
coverage, if such judgment or decree remains outstanding for a period of
60 days following such judgment and is not discharged, waived or stayed
(the "judgment default provision"); or
(9) any Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Guarantor or Person acting by
or on behalf of such Guarantor denies or disaffirms such Guarantor's
obligations under the Indenture or any Guarantee and such Default
continues for 10 days after receipt of the notice specified in the
Indenture.
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The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (4), (5) or (6) above will not constitute an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the outstanding Exchange Notes notify the Issuer of the default and
the Issuer does not cure such default within the time specified in clauses (4),
(5) or (6) above after receipt of such notice.
If an Event of Default (other than an Event of Default under the bankruptcy
provisions) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the outstanding Exchange Notes by notice to the Issuer
may declare the principal of and accrued but unpaid interest on all the Exchange
Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default under the
bankruptcy provisions occurs, the principal of and interest on all the Exchange
Notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Exchange Notes may
rescind any such acceleration with respect to the Exchange Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable indemnity or security satisfactory to it
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the Exchange Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Exchange
Notes have requested the Trustee in writing to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity
satisfactory to it against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
Exchange Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Exchange Notes will be given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification
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satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the Trustee
must mail to each Holder notice of the Default within 30 days after it is known
to a Responsible Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note (including payments pursuant to the redemption
provisions of such Note), the Trustee may withhold notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
notice is in the interests of the Holders. In addition, the Issuer will be
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Issuer will also be required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any event that would constitute certain Events of Default, its status
and what action the Issuer is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the Exchange Notes may be
amended with the written consent of the Holders of a majority in principal
amount of the Exchange Notes then outstanding and any past default or compliance
with any provisions may be waived with the consent of the Holders of a majority
in principal amount of the Exchange Notes then outstanding. However, without the
consent of each Holder of an outstanding Note affected, no amendment may, among
other things:
(1) reduce the amount of Exchange Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or any
additional interest on any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "--Optional
redemption";
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any Holder to receive payment of principal of, and
interest or any additional interest on, such Holder's Exchange Notes on
or after the due dates therefor or to institute suit for the enforcement
of any payment on or with respect to such Holder's Exchange Notes;
(7) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions; or
(8) modify the Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Issuer and the Trustee may amend the
Indenture to:
- cure any ambiguity, omission, defect or inconsistency;
- provide for the assumption by a successor corporation of the
obligations of the Issuer under the Indenture;
- provide for uncertificated Exchange Notes in addition to or in place of
certificated Exchange Notes (PROVIDED that the uncertificated Exchange
Notes are issued in
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registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Exchange Notes are described in
Section 163(f)(2)(B) of the Code);
- add additional Guarantees with respect to the Exchange Notes;
- secure the Exchange Notes;
- add to the covenants of the Issuer for the benefit of the Holders or to
surrender any right or power conferred upon the Issuer;
- make any change that does not adversely affect the rights of any
Holder, subject to the provisions of the Indenture;
- provide for the issuance of the Exchange Notes or Additional Notes; or
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
The consent of the Holders will not be necessary to approve the particular form
of any proposed amendment. It will be sufficient if such consent approves the
substance of the proposed amendment.
After an amendment becomes effective, the Issuer will be required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Exchange Notes. Upon any transfer
or exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes required by law or permitted by the
Indenture. The Issuer will not be required to transfer or exchange any Exchange
Note selected for redemption or to transfer or exchange any Note for a period of
15 days prior to a selection of Exchange Notes to be redeemed. The Exchange
Notes will be issued in registered form and the Holder will be treated as the
owner of such Exchange Note for all purposes.
DEFEASANCE
The Issuer may at any time terminate all its obligations under the Exchange
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Exchange Notes, to replace mutilated, destroyed,
lost or stolen Exchange Notes and to maintain a registrar and paying agent in
respect of the Exchange Notes. In addition, the Issuer may at any time
terminate:
(1) its obligations under the covenants described under "--Restrictive
covenants" or
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "--Defaults" and the limitations
contained in clauses (3) and (4) under the first paragraph under
"--Merger and consolidation" ("covenant defeasance").
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In the event that the Issuer exercises its legal defeasance option or its
covenant defeasance option, each Guarantor will be released from all of its
obligations with respect to its Guarantee.
The Issuer may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If the Issuer exercises its legal
defeasance option, payment of the Exchange Notes may not be accelerated because
of an Event of Default with respect thereto. If the Issuer exercises its
covenant defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default specified in clause (4), (6), (7) (with respect
only to Significant Subsidiaries), (8) or (9) under "--Defaults" or because of
the failure of the Issuer to comply with clause (3) or (4) under the first
paragraph under "--Merger and consolidation."
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest (including additional interest, if any) on, the Exchange Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been appointed
by the Issuer as Registrar and Paying Agent with regard to the Exchange Notes.
GOVERNING LAW
The Indenture and the Exchange Notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock) to be
used by the Issuer or a Restricted Subsidiary in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Issuer or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the
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purposes of this definition, "control," when used with respect to any Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the provisions described under
"--Restrictive covenants--Limitation on transactions with affiliates" and
"--Restrictive covenants--Limitation on sales of assets and subsidiary stock"
only, "Affiliate" shall also mean any beneficial owner of shares representing 5%
or more of the total voting power of the Voting Stock (on a fully diluted basis)
of Parent or the Issuer or of rights or warrants to purchase such Voting Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Issuer or any
Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Issuer or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Issuer or any Restricted Subsidiary; or
(3) any other assets of the Issuer or any Restricted Subsidiary outside of
the ordinary course of business of the Issuer or such Restricted
Subsidiary
(other than, in the case of clauses (1), (2) and (3) above:
(a) a disposition by a Restricted Subsidiary to the Issuer or by the
Issuer or a Restricted Subsidiary to a Wholly Owned Subsidiary;
(b) for purposes of the provisions described under "--Restrictive
covenants--Limitation on sales of assets and subsidiary stock" only,
a disposition subject to the covenant described under "--Restrictive
covenants--Limitation on restricted payments";
(c) a disposition of assets with a fair market value of less than
$100,000;
(d) a disposition of Temporary Cash Investments or goods held for sale in
the ordinary course of business or obsolete equipment or other
obsolete assets in the course of business consistent with past
practices of the Issuer;
(e) the disposition of all or substantially all of the assets of the
Issuer in a manner permitted under the covenant described under
"--Merger and consolidation" or any disposition that constitutes a
Change of Control under the Indenture; and
(f) the lease, assignment or sublease of any real or personal property in
the ordinary course of business).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the
time of determination, the present value (discounted at the interest rate borne
by the Exchange Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment
by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of the
Credit Agreement, the notes issued pursuant thereto, the guarantees thereof, the
collateral documents relating thereto and any Refinancing Indebtedness with
respect thereto, as amended from time to time, including principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Issuer whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Issuer or any committee
thereof duly authorized to act on behalf of the Board of Directors of the
Issuer.
"Business Day" means each day that is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Issuer and its Consolidated Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a Consolidated basis, after eliminating:
(1) all intercompany items between the Issuer and any Restricted Subsidiary;
and
(2) all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP consistently applied.
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"Consolidated Interest Expense" means, for any period, the total interest
expense of the Issuer and its Consolidated Restricted Subsidiaries, plus, to the
extent Incurred by the Issuer and its Consolidated Restricted Subsidiaries in
such period but not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
(2) amortization of debt discount and debt issuance costs;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing;
(6) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is guaranteed by the Issuer or any Restricted
Subsidiary;
(7) amortization of net costs associated with Hedging Obligations
(including amortization of fees);
(8) dividends in respect of all Disqualified Stock of the Issuer and all
Preferred Stock of any of the Subsidiaries of the Issuer, to the extent
held by Persons other than the Issuer or a Wholly Owned Subsidiary;
(9) interest Incurred in connection with investments in discontinued
operations; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Issuer) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the Issuer
and its Consolidated Subsidiaries for such period; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Issuer) if such Person is
not a Restricted Subsidiary, except that:
(a) subject to the limitations contained in clause (4) below, the
Issuer's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash or other assets actually distributed by such Person
during such period to the Issuer or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or
other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (3) below); and
(b) the Issuer's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Issuer or a
Subsidiary of the Issuer in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of its net
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income is not, at the date of determination, permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by the operation of the terms of its charter, or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, unless such restrictions with respect to the payment of
dividends or similar distributions have been legally waived, except that
the net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition of
any asset of the Issuer or its Consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain
(but not loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) any extraordinary or otherwise nonrecurring gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"--Restrictive covenants--Limitation on restricted payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Issuer or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (1)(d)(iii)(E) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means the
total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
the Issuer and its Consolidated Restricted Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of:
(1) minority interests in Consolidated Subsidiaries held by Persons other
than the Issuer or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
(3) any revaluation or other write-up in book value of assets subsequent to
the date of the Indenture as a result of a change in the method of
valuation in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
(5) treasury stock;
(6) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of Capital Stock to
the extent such obligation is not reflected in Consolidated Current
Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
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"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Issuer in accordance with GAAP
consistently applied; PROVIDED, HOWEVER, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Issuer or any Restricted Subsidiary in an Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement entered into as of August 26, 2003
among the Issuer, Parent, the financial institutions named therein and JPMorgan
Chase Bank, as Administrative Agent, as amended, waived or otherwise modified
from time to time (except to the extent that any such amendment, waiver or other
modification thereto would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the Holders of at least a majority in aggregate principal
amount of Exchange Notes at the time outstanding), including any such amendments
or modifications (or any other credit agreement or credit agreements) that
replace, refund or refinance any or a portion of the commitments or loans
thereunder, up to a maximum principal amount not to exceed $325 million.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Debt to EBITDA Ratio" as of any date of determination means the ratio of:
(1) Total Consolidated Indebtedness as of the date of determination to
(2) EBITDA for the period of the most recent four consecutive fiscal
quarters ending at the end of the most recent fiscal quarter for which
financial statements are publicly available; PROVIDED, HOWEVER, that:
(a) if the Issuer or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning
of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case, other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced)
on the date of the transaction giving rise to the need to calculate
the Debt to EBITDA Ratio, EBITDA for such period shall be calculated
on a pro forma basis as if such discharge had occurred on the first
day of such period and as if the Issuer or such Restricted Subsidiary
has not earned the interest income actually earned during such period
in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(b) if since the beginning of such period the Issuer or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for
such period;
(c) if since the beginning of such period, the Issuer or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Person that is merged with or into the Issuer or any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA for such period shall be calculated after
giving pro forma effect
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thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period;
any such pro forma calculation may include adjustments appropriate to
reflect, without duplication, (x) any such acquisition to the extent
such adjustments may be reflected in the preparation of pro forma
financial information in accordance with the requirements of GAAP and
Article XI of Regulation S-X under the Exchange Act, (y) the
annualized amount of operating expense reductions reasonably expected
to be realized in the six months following any such acquisition made
during any of the four fiscal quarters constituting the four-quarter
reference period prior to the date of determination and (z) the
annualized amount of operating expense reductions reasonably expected
to be realized in the six months following any such acquisition made
by the Issuer during either of the two fiscal quarters immediately
preceding the four-quarter reference period prior to the date of
determination; PROVIDED that in either case such adjustments are set
forth in an Officers' Certificate that has been signed by the Issuer's
chief executive officer and chief financial officer and that states
(i) the amount of such adjustment or adjustments, (ii) that such
adjustment or adjustments are based on the reasonable good faith
beliefs of the officers executing such Officers' Certificate at the
time of such execution and (iii) that any related Incurrence of
Indebtedness is permitted pursuant to the Indenture; and
(d) if since the beginning of such period, any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Issuer
or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant
to clause (b) or (c) above if made by the Issuer or a Restricted
Subsidiary during such period, EBITDA for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition of assets occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets and the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Issuer. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of twelve months).
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock that
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) or upon the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock;
or
(3) is redeemable at the option of the holder thereof, in whole or in part;
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in each case on or prior to the first anniversary of the Stated Maturity of the
Exchange Notes; PROVIDED, HOWEVER, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Exchange Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions of the covenants described
under "--Change of control" and "--Restrictive covenants--Limitation on sale of
assets and subsidiary stock."
"Domestic Subsidiary" means any Restricted Subsidiary of the Issuer other than a
Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period, plus
the following to the extent deducted in calculating such Consolidated Net
Income:
(1) income tax expense of the Issuer and its Consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation expense of the Issuer and its Consolidated Restricted
Subsidiaries;
(4) amortization expense of the Issuer and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a prepaid
cash item that was paid in a prior period); and
(5) all other non-cash charges of the Issuer and its Consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash expenditures in any future
period, but that will not be expensed in such future periods);
in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary of the Issuer shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Issuer by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means any public or private sale of Capital Stock (other than
Disqualified Stock) of the Issuer or Parent, other than offerings of the Issuer
or Parent of the type that can be registered on Form S-8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means any Restricted Subsidiary of the Issuer that is not
organized under the laws of the United States of America or any state thereof or
the District of Columbia.
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"GAAP" means generally accepted accounting principles in the United States of
America as in effect as of the Closing Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of
the SEC.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
any Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part);
PROVIDED, HOWEVER, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a correlative meaning. The term "guarantor" shall mean any
Person guaranteeing any obligation.
"Guarantee" means each guarantee of the obligations with respect to the old
notes issued by a Guarantor pursuant to the terms of the Indenture.
"Guarantor" means Parent and the Domestic Subsidiaries of the Issuer.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name an Exchange Note is registered on the
registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable for;
PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing
at the time such Person is merged or consolidated with the Issuer or becomes a
Subsidiary of the Issuer (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Person at the time of such
merger or consolidation or at the time it becomes a Subsidiary of the Issuer.
The term "Incurrence" when used as a noun shall have a correlative meaning. The
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accretion of principal of a non-interest bearing or other discount security
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of determination
(without duplication):
(1) the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except trade payables and contingent
obligations to pay earn-outs), which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of Indebtedness of such Person shall
be the lesser of:
(a) the fair market value of such asset at such date of determination and
(b) the amount of such Indebtedness of such other Persons;
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(9) all obligations of the type referred to in clauses (1) through (8) above
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of
any guarantee.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means, with respect to any Person, any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is a party or a beneficiary.
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"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extension of
credit (including by way of guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Restrictive
covenants--Limitation on restricted payments":
(1) "Investment" shall include the portion (proportionate to the Issuer's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Issuer at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that, upon
a redesignation of such Subsidiary as a Restricted Subsidiary, the
Issuer shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary in an amount (if positive) equal to:
(a) the Issuer's Investment in such Subsidiary at the time of such
redesignation less
(b) the portion (proportionate to the Issuer's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case, as determined in good faith by the Board of Directors.
"Issuer" means Alaska Communications Systems Holdings, Inc., a Delaware
corporation, but none of its subsidiaries.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means the group consisting of current and former directors
and executive officers of the Issuer.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal fees and expenses, title and recording tax expenses,
commissions and other fees and expenses incurred, and all federal,
state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset
Disposition;
(2) all payments, including any prepayment premiums or penalties, made on
any Indebtedness that is secured by any assets subject to such Asset
Disposition, in
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accordance with the terms of any Lien upon or other security agreement of
any kind with respect to such assets, or which must by its terms, or in
order to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and
retained by the Issuer or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Issuer.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer or the Trustee.
"Parent" means Alaska Communications Systems Group, Inc., a Delaware
corporation, but none of its subsidiaries.
"Permitted Holders" means Fox Paine Capital Fund, L.P., and its Affiliates, FPC
Investors, L.P., ALEC Coinvestment Fund I, LLC, ALEC Coinvestment Fund II, LLC,
ALEC Coinvestment Fund III, LLC, ALEC Coinvestment Fund IV, LLC, ALEC
Coinvestment Fund V, LLC, the Management Group and any Person acting in the
capacity of an underwriter in connection with a public or private offering of
Parent's or the Issuer's Capital Stock.
"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in:
(1) the Issuer, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Issuer or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Issuer or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade
terms as the Issuer or any such Restricted Subsidiary deems reasonable
under the circumstances;
141
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business;
(6) any loans or advances to employees made in the ordinary course of
business consistent with past practices of the Issuer or such
Restricted Subsidiary and not exceeding, when aggregated with amounts
loaned or advanced under clause (2)(f)(iv) of "--Restrictive
covenants--Limitation on restricted payments," $5 million in the
aggregate outstanding at any one time;
(7) stock, obligations or securities received in settlement of (or
foreclosure with respect to) debts created in the ordinary course of
business and owing to the Issuer or any Restricted Subsidiary or in
satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash or
deemed cash portion of the consideration received for an Asset
Disposition that was made pursuant to and in compliance with the
covenant described under "--Restrictive Covenants--Limitation on sales
of assets and subsidiary stock";
(9) any Investment existing on the Closing Date;
(10) Hedging Obligations permitted under paragraph (2)(g) of the covenant
described under "--Restrictive covenants--Limitation on indebtedness";
(11) guarantees of Indebtedness permitted under the covenant described under
"--Restrictive covenants--Limitation on indebtedness";
(12) Investments which are made exclusively with Capital Stock of Parent or
the Issuer (other than Disqualified Stock); and
(13) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (13)
that are at the time outstanding, not to exceed $5 million at the time
of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent
changes in value).
"Permitted Joint Venture Interests" means equity interests representing at least
35% of the Voting Stock of a Person engaged in a business in which the Issuer
was engaged at the Closing Date or a Related Business.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a party,
or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to
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which such Person shall then be proceeding with an appeal or other
proceedings for review;
(3) Liens for property taxes not yet due or payable or subject to penalties
for non-payment or which are being contested in good faith by
appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; PROVIDED, HOWEVER, that such letters
of credit do not constitute Indebtedness;
(5) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real property 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 and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in
the operation of the business of such Person;
(6) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to,
property or assets of such Person; PROVIDED, HOWEVER, that the Lien may
not extend to any other property or assets owned by such Person or any
of its Subsidiaries at the time the Lien is Incurred, and the
Indebtedness (other than any interest thereon) secured by the Lien may
not be Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or
commencement of full operation of the property or assets subject to the
Lien;
(7) Liens to secure Indebtedness permitted pursuant to clause (2)(a) of the
covenant described under "--Restrictive covenants--Limitation on
indebtedness";
(8) Liens existing on the Closing Date;
(9) Liens on property, assets, or shares of stock of another Person at the
time such other Person becomes a Subsidiary of such Person; PROVIDED,
HOWEVER, that such Liens are not created, Incurred or assumed in
connection with, or in contemplation of, such other Person becoming
such a Subsidiary; PROVIDED FURTHER, HOWEVER, that such Liens do not
extend to any other property or assets owned by such Person or any of
its Subsidiaries;
(10) Liens on property or assets at the time such Person or any of its
Subsidiaries acquires the property or assets, including any acquisition
by means of a merger or consolidation with or into such Person or any
Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not
created, Incurred or assumed in connection with, or in contemplation
of, such acquisition; PROVIDED FURTHER, HOWEVER, that the Liens do not
extend to any other property or assets owned by such Person or any of
its Subsidiaries;
(11) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Wholly Owned Subsidiary of such
Person;
(12) Liens securing Indebtedness so long as the amount of outstanding
Indebtedness secured by Liens Incurred pursuant to this clause (12)
does not exceed 5% of Consolidated Net Tangible Assets, as determined
based on the consolidated balance
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sheet of the Issuer as of the end of the most recent fiscal quarter
ending at least 45 days prior thereto;
(13) Liens securing obligations under Interest Rate Agreements so long as
such obligations relate to Indebtedness that is, and is permitted under
the Indenture to be, secured by a Lien on the same property or assets
securing such obligations; and
(14) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to
in the foregoing clauses (6), (8), (9) and (10); PROVIDED, HOWEVER,
that:
(a) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements to or on such
property); and
(b) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of:
(i) the outstanding principal amount or, if greater, committed amount
of the Indebtedness secured by Liens described under clauses (6),
(8), (9) or (10) at the time the original Lien became a Permitted
Lien under the Indenture; and
(ii) an amount necessary to pay any fees and expenses, including
premiums, related to such Refinancings.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means Capital
Stock of any class or classes (however designated) that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of Capital
Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if any,
payable on the Note that is due or overdue or is to become due at the relevant
time.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional sale
obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset
being financed; and
(2) incurred to finance the acquisition by the Issuer or a Restricted
Subsidiary of such asset, including additions and improvements;
PROVIDED, HOWEVER, that such Indebtedness is incurred within 180 days
before or after the acquisition by the Issuer or such Restricted
Subsidiary of such asset.
"Refinance" means, in respect of any Indebtedness, to refinance, extend, renew,
refund, repay, replace, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, repay, redeem, retire, renew, repay or extend (including
pursuant to any defeasance or discharge mechanism) any Indebtedness of the
Issuer or any Restricted Subsidiary existing on
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the Closing Date or Incurred in compliance with the Indenture (including
Indebtedness of the Issuer that Refinances Refinancing Indebtedness); PROVIDED,
HOWEVER, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or
if issued with original issue discount, the aggregate accreted value)
then outstanding of the Indebtedness being Refinanced; and
(4) if the Indebtedness being Refinanced is subordinated in right of payment
to the Exchange Notes, such Refinancing Indebtedness is subordinated in
right of payment to the Exchange Notes at least to the same extent as
the Indebtedness being Refinanced;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not
include:
(a) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness
of the Issuer; or
(b) Indebtedness of the Issuer or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to the
businesses of the Issuer and the Restricted Subsidiaries on the Closing Date.
"Responsible Officer" means, when used with respect to the Trustee, any officer
within the corporate trust department of the Trustee, including any vice
president, assistant vice president, assistant secretary, assistant treasurer,
trust officer or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such person's knowledge of and familiarity with the particular
subject and who shall have direct responsibility for the administration of the
Indenture.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now owned
or hereafter acquired by the Issuer or a Restricted Subsidiary whereby the
Issuer or a Restricted Subsidiary transfers such property to a Person and the
Issuer or such Restricted Subsidiary leases it from such Person, other than
leases between the Issuer and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Issuer or any Guarantor
secured by a Lien.
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"Senior Debt to EBITDA Ratio" as of any date of determination means the ratio
of:
(1) Total Consolidated Senior Indebtedness as of the date of determination
to
(2) EBITDA for the period of the most recent four consecutive fiscal
quarters ending at the end of the most recent fiscal quarter for which
financial statements are publicly available; PROVIDED, HOWEVER, that:
(a) if the Issuer or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Senior Indebtedness since the
beginning of such period or if any Senior Indebtedness is to be
repaid, repurchased, defeased or otherwise discharged (in each case,
other than Senior Indebtedness Incurred under any revolving credit
facility unless such Senior Indebtedness has been permanently repaid
and has not been replaced) on the date of the transaction giving rise
to the need to calculate the Senior Debt to EBITDA Ratio, EBITDA for
such period shall be calculated on a pro forma basis as if such
discharge had occurred on the first day of such period and as if the
Issuer or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Senior Indebtedness;
(b) if since the beginning of such period the Issuer or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of
such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for
such period;
(c) if since the beginning of such period, the Issuer or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Person that is merged with or into the Issuer or any Restricted
Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period; any such pro forma calculation may include
adjustments appropriate to reflect, without duplication, (x) any such
acquisition to the extent such adjustments may be reflected in the
preparation of pro forma financial information in accordance with the
requirements of GAAP and Article XI of Regulation S-X under the
Exchange Act, (y) the annualized amount of operating expense
reductions reasonably expected to be realized (in the case of a
period not yet completed) in the six months following any such
acquisition made during any of the four fiscal quarters constituting
the four-quarter reference period prior to the date of determination
and (z) the annualized amount of operating expense reductions
reasonably expected to be realized in the six months following any
such acquisition made by the Issuer during either of the two fiscal
quarters immediately preceding the four-quarter reference period
prior to the date of determination; PROVIDED that such adjustments
are set forth in an Officers' Certificate that has been signed by the
Issuer's chief executive officer and chief financial officer and that
states (i) the amount of such adjustment or adjustments, (ii) that
such adjustment or adjustments are based on the reasonable good faith
146
beliefs of the officers executing such Officers' Certificate at the
time of such execution and (iii) that any related Incurrence of
Indebtedness is permitted pursuant to the Indenture; and
(d) if since the beginning of such period, any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Issuer
or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant
to clause (b) or (c) above if made by the Issuer or a Restricted
Subsidiary during such period, EBITDA for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition of assets occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets and the amount of income or earnings relating thereto, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Issuer. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of twelve months).
"Senior Indebtedness" means all unsubordinated Indebtedness of the Issuer or of
any Restricted Subsidiary, whether outstanding on the Closing Date or Incurred
thereafter, including, without limitation, all Bank Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Issuer or any Guarantor
(whether outstanding on the Closing Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Exchange Notes pursuant to a
written agreement.
"Subsidiary" means, with respect to any Person (the "parent") at any date, any
corporation, limited liability company, partnership, association or other entity
the accounts of which would be consolidated with those of the parent in the
parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other
entity:
(1) of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in
the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held; or
147
(2) that is, as of such date, otherwise controlled by the parent or one or
more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Telecommunications Assets" means (1) assets used or useful in the operating
businesses of the Issuer at the Closing Date or in a Related Business or (2)
equity interests representing a majority of the Voting Stock of Persons engaged
in such businesses.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company that is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250.0 million
(or the foreign currency equivalent thereof) and whose long-term debt is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an
Affiliate of the Issuer) organized and in existence under the laws of
the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc.
("S&P"); and
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by S&P or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec. 77aaa-77bbbb) as
in effect on the Closing Date.
"Total Consolidated Indebtedness" means, as of any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Issuer and its
Restricted Subsidiaries, determined on a Consolidated basis, outstanding as of
such date of determination, after giving effect to any Incurrence of
Indebtedness and the application of the proceeds therefrom giving rise to such
determination.
"Total Consolidated Senior Indebtedness" means, as of any date of determination,
an amount equal to the aggregate amount of all Senior Indebtedness of the Issuer
and its Restricted Subsidiaries, determined on a Consolidated basis, outstanding
as of such date of determination, after giving effect to any Incurrence of
Senior Indebtedness and the application of the proceeds therefrom giving rise to
such determination.
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"Transactions" means the initial borrowings under the Credit Agreement and the
issuance of the old notes.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means:
(1) ACS Media Holdings LLC;
(2) any other Subsidiary of the Issuer that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors
in the manner provided below; and
(3) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Issuer (including any
newly acquired or newly formed Subsidiary of the Issuer) to be an Unrestricted
Subsidiary pursuant to clause (2) above unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Issuer or any other Subsidiary of the Issuer that
is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER,
that either:
(a) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less; or
(b) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under "--Restrictive
covenants--Limitation on restricted payments."
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after
giving effect to such designation:
(i) the Issuer could Incur $1.00 of additional Indebtedness under
paragraph (1) of the covenant described under "--Restrictive
covenants--Limitation on indebtedness"; and
(ii) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary, and any such
designation of a Subsidiary as an Unrestricted Subsidiary pursuant to clause (2)
above, by the Board of Directors shall be evidenced to the Trustee by promptly
filing with the Trustee a copy of the resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
that are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other interests
(including partnership interests) of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
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"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Issuer all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Issuer or another Wholly Owned Subsidiary.
REGISTRATION RIGHTS
The Issuer, the Initial Purchasers in the private offering of the old notes and
the Guarantors entered into an Exchange and Registration Rights Agreement
concurrently with the issuance of the old notes on August 26, 2003. Pursuant to
the Exchange and Registration Rights Agreement, the Issuer and the Guarantors
agreed to (1) file with the SEC on or prior to 90 days after the date of
issuance of the old notes (the "Issue Date") a registration statement (the
"Exchange Offer Registration Statement") on an appropriate form under the
Securities Act relating to a registered exchange offer (the "Registered Exchange
Offer") for the old notes under the Securities Act and (2) use their reasonable
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or prior to 150 days after the Issue Date.
As soon as practicable after the effectiveness of the Exchange Offer
Registration Statement of which this prospectus forms a part, the Issuer will
offer to the holders of Transfer Restricted Securities (as defined below) who
are not prohibited by any law or policy of the SEC from participating in the
Registered Exchange Offer the opportunity to exchange their Transfer Restricted
Securities for an issue of a second series of notes (the "Exchange Notes") that
are identical in all material respects to the old notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions) and
that would be registered under the Securities Act. The Issuer and the Guarantors
will keep the Registered Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Registered Exchange Offer is mailed to the holders of the Notes.
If (1) because of any change in law or applicable interpretations thereof by the
SEC's staff, the Issuer is not permitted to effect the Registered Exchange Offer
as contemplated by the Exchange and Registration Rights Agreement, (2) any old
notes validly tendered pursuant to the Registered Exchange Offer are not
exchanged for Exchange Securities on or prior to 180 days after the Issue Date,
(3) any Initial Purchaser so requests on or prior to the 20th business day
following the date on which the Registered Exchange Offer is consummated with
respect to old notes not eligible to be exchanged for Exchange Notes in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, (4) any law or the applicable interpretations thereof
by the SEC's staff do not permit any holder of old notes to participate in the
Registered Exchange Offer, (5) any holder of old notes that participates in the
Registered Exchange Offer and does not receive freely transferable Exchange
Notes in exchange for tendered old notes so requests with respect to such old
notes on or prior to the 20th business day following the date on which the
Registered Exchange Offer is consummated, or (6) the Issuer so elects, then the
Issuer and the Guarantors will file with the SEC a shelf registration statement
(the "Shelf Registration Statement") to cover resales of Transfer Restricted
Securities by such holders who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
For purposes of the foregoing, "Transfer Restricted Securities" means each
initial note until (1) the date on which such initial note has been exchanged
for a freely transferable Exchange Note in the Registered Exchange Offer; (2)
the date on which such initial note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (3) the date on which such initial note is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act.
150
The Issuer and the Guarantors will use their reasonable best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each, a "Registration Statement") declared effective by the SEC as
promptly as practicable after the filing thereof. Unless the Registered Exchange
Offer would not be permitted by a policy of the SEC, the Issuer will commence
the Registered Exchange Offer and will use its reasonable best efforts to
consummate the Registered Exchange Offer as promptly as practicable, but in any
event prior to 180 days after the Issue Date. If applicable, the Issuer and the
Guarantors will use their reasonable best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the prospectus forming part
thereof to be used by holders of Transfer Restricted Securities for a period
ending on the earlier of (i) two years from the Issue Date or such shorter
period that will terminate when all the Transfer Restricted Securities covered
by the Shelf Registration Statement have been sold pursuant thereto and (ii) the
date on which the old notes become eligible for resale without volume
restrictions pursuant to Rule 144 under the Securities Act.
If (1) the Shelf Registration Statement is not declared effective on or prior to
180 days after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of the SEC's staff, if later, on or prior to 60 days after
publication of the change in law or interpretation); (2) the Registered Exchange
Offer is not consummated on or prior to 180 days after the Issue Date or (3) the
Shelf Registration Statement is filed and declared effective on or prior to 180
days after the Issue Date (or in the case of Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of the SEC's staff, if later, on or prior to 60 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that the Issuer and the Guarantors are obligated to
maintain the effectiveness thereof) without being succeeded within 45 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (1) through (3) above, a "Registration Default"), the
Issuer and the Guarantors will be jointly and severally obligated to pay
additional interest to each holder of Transfer Restricted Securities, during the
period of one or more such Registration Defaults, in an amount equal to $0.192
per week per $1,000 principal amount of the old notes constituting Transfer
Restricted Securities held by such holder until the Registered Exchange Offer is
consummated or the Shelf Registration Statement is declared effective or again
becomes effective, as the case may be. All accrued additional interest shall be
paid to holders in the same manner as interest payments on the old notes on
semi-annual payment dates that correspond to interest payment dates for the old
notes. Following the cure of all Registration Defaults, the accrual of
additional interest will cease.
The Exchange and Registration Rights Agreement also will provide that (1) the
Issuer shall make available for a period of 180 days after the consummation of
the Registered Exchange Offer the prospectus contained in the Exchange Offer
Registration Statement and any amendment or supplement thereto to any
broker-dealer for use in connection with any resale of any Exchange Notes and
(2) the Issuer and the Guarantors shall pay all expenses incident to the
Registered Exchange Offer (including the expense of one counsel (in addition to
any local counsel) to the holders of Notes) and will jointly and severally
indemnify certain holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
151
Each holder of old notes participating in the Registered Exchange Offer shall be
required to represent to the Issuer that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such holder will be
acquired in the ordinary course of business, (ii) such holder will have no
arrangements or understanding with any person to participate in the distribution
of the old notes or the Exchange Notes within the meaning of the Securities Act
and (iii) such holder is not an affiliate of the Issuer or, if it is such an
affiliate, such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer electing to exchange Notes,
acquired for its own account as a result of market-making activities or other
trading activities, for Exchange Notes (an "Exchanging Dealer"), it will be
required to acknowledge that it will deliver a prospectus in connection with any
sale of any such Exchange Notes received by such Exchanging Dealer pursuant to
the Registered Exchange Offer.
Holders of the old notes will be required to make certain representations to the
Issuer (as described above) in order to participate in the Registered Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement in order to have their old notes included in
the Shelf Registration Statement and benefit from the provisions regarding
additional interest set forth in the preceding paragraphs. A holder who sells
old notes pursuant to the Shelf Registration Statement generally (1) will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, (2) will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and (3) will be bound by the provisions of the Exchange and Registration
Rights Agreement that are applicable to such a holder (including certain
indemnification obligations).
If at any time the Issuer is not required to file the reports required to be
filed by it under the Securities Act and the Exchange Act, it will, upon the
written request of any holder of Transfer Restricted Securities, make publicly
available other information so long as necessary to permit sales of such
holder's Transfer Restricted Securities pursuant to Rules 144 and 144A. The
Issuer and the Guarantors have agreed that they will take such further action as
any holder of Transfer Restricted Securities may reasonably request to enable
such holder to sell Transfer Restricted Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rules 144
and 144A (including, without limitation, the informational requirements of Rule
144A(d)(4)).
The foregoing description of the Exchange and Registration Rights Agreement is a
summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the Exchange and Registration Rights
Agreement, which has been filed as an exhibit to the registration statement of
which this prospectus is a part and is incorporated by reference herein. We will
make available a copy of the Exchange and Registration Rights Agreement upon
request.
152
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
SCOPE OF DISCUSSION
The following summary describes certain U.S. federal income tax consequences
resulting from the exchange of the old notes for the exchange notes pursuant to
the exchange offer and the ownership and disposition of the exchange notes. This
general discussion applies to you if you acquired the old notes for cash at
original issue and at the "issue price" (generally, the first price at which a
substantial amount of notes is sold for cash, excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers) and hold the old notes as a
"capital asset" (generally, for investment) under Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). The discussion below is based
upon the provisions of the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified so as to result in U.S. federal income tax consequences different
from those discussed below. This discussion, however, does not address state,
local or foreign tax laws. In addition, it does not describe all of the rules
that may affect the U.S. tax treatment of your investment in the exchange notes.
For example, special rules not discussed here may apply to you if you are:
- a broker-dealer, a dealer in securities, a trader in securities who
elects to apply a mark-to-market method of accounting or a financial
institution;
- an S corporation;
- an insurance company;
- a tax-exempt organization;
- a partnership or other pass-through entity;
- subject to the alternative minimum tax provisions of the Code;
- holding the old notes as part of a hedge, straddle, conversion
transaction or other risk reduction or constructive sale transaction;
or
- an expatriate of the U.S.
If you are a partner in a partnership or other entity taxable as a partnership
that holds the old notes, your tax treatment will generally depend on your
status and the activities of the partnership, and you should consult your tax
advisor as to the tax consequences. This discussion only represents our best
attempt to describe certain federal income tax consequences that may apply to
you based on current U.S. federal tax law. This discussion may in the end
inaccurately describe the federal income tax consequences that are applicable to
you because the law may change, possibly retroactively, and because the Internal
Revenue Service (the "IRS") or any court may disagree with this discussion.
THIS DISCUSSION MAY NOT COVER YOUR PARTICULAR CIRCUMSTANCES BECAUSE IT DOES NOT
CONSIDER FOREIGN, STATE OR LOCAL TAX RULES, DISREGARDS CERTAIN SPECIAL FEDERAL
TAX RULES, AND DOES NOT DESCRIBE FUTURE CHANGES IN FEDERAL TAX RULES. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF OLD NOTES OR EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
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EXCHANGE OFFER
The issuance of the exchange notes to holders of the old notes pursuant to the
terms set forth in this prospectus will not constitute an exchange for United
States federal income tax purposes. Accordingly, a holder of old notes will not
recognize any taxable gain or loss on the exchange of the old notes for exchange
notes pursuant to the exchange offer. For purposes of determining gain or loss
upon the subsequent sale, exchange, redemption, retirement, or other disposition
of the exchange notes, the holder will have the same adjusted tax basis and
holding period in the exchange notes as such holder had in the old notes
immediately before the exchange. In general, the issue price and other tax
characteristics of the exchange notes should be identical to the issue price and
other tax characteristics of the old notes exchanged.
U.S. HOLDERS
If you are a "U.S. Holder," as defined below, this section applies to you.
Otherwise, the next section, "Non-U.S. Holders," applies to you.
DEFINITION OF U.S. HOLDER. You are a "U.S. Holder" if you are a beneficial owner
of the notes and you are:
- a citizen or resident of the U.S. for federal income tax purposes;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the U.S. or any political subdivision
thereof (including the District of Columbia);
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source;
- a trust which is subject to the supervision of a court within the U.S.
and the control of one or more U.S. persons as described in section
7701(a)(30) of the Code; or
- a person whose worldwide income or gain is otherwise subject to U.S.
federal income taxation on a net income basis.
PAYMENTS OF INTEREST. You must generally include "qualified stated interest" (as
defined below under "Original Issue Discount") on the exchange notes in ordinary
income:
- when it accrues, if you use the accrual method of accounting for U.S.
federal income tax purposes; or
- when you receive it, if you use the cash method of accounting for U.S.
federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. Because the old notes were issued at an issue price
less than their stated redemption price at maturity, the exchange notes will be
deemed to have been issued with original issue discount ("OID") and each U.S.
Holder will be required to include in income in each year, in advance of receipt
of cash payments on such notes, OID income as described below.
The amount of OID with respect to an exchange note will be equal to the excess
of (i) the note's "stated redemption price at maturity" over (ii) its issue
price. The "stated redemption price at maturity" of a note is the sum of all
payments provided by the note that are not payments of "qualified stated
interest." The term "qualified stated interest" generally includes
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stated interest that is unconditionally payable at least annually at a single
fixed rate that appropriately takes into account the length of the interval
between stated interest payments.
A U.S. Holder of an exchange note is required to include in gross income for
U.S. federal income tax purposes an amount equal to the sum of the "daily
portions" of such OID for all days during the taxable year on which the holder
holds the exchange note. The daily portions of OID required to be included in
such holder's gross income in a taxable year will be determined on a constant
yield basis by allocating, to each day during the taxable year on which the
holder holds the exchange note, a pro rata portion of the OID on such note that
is attributable to the "accrual period" in which such day is included. Accrual
periods with respect to an exchange note may be any set of periods (which may be
of varying lengths) selected by a U.S. Holder as long as (i) no accrual period
is longer than one year and (ii) each scheduled payment of interest or principal
on the note occurs on either the first or final day of an accrual period. The
amount of OID attributable to each accrual period will be equal to (A) the
product of (i) the "adjusted issue price" at the beginning of such accrual
period and (ii) the "yield to maturity" of the instrument stated in a manner
appropriately taking into account the length of the accrual period less (B) the
amount of any qualified stated interest allocable to the accrual period. The
yield to maturity is the discount rate that, when used in computing the present
value of all payments to be made under the exchange note, produces an amount
equal to the issue price of the old note. The adjusted issue price of an old
note at the beginning of an accrual period is generally defined as the issue
price of the old note plus the aggregate amount of OID that accrued in all prior
accrual periods less any cash payments made on the exchange note other than
qualified stated interest. Accordingly, a U.S. Holder of an exchange note will
be required to include OID thereon in gross income for U.S. federal income tax
purposes in advance of the receipt of cash attributable to such income. The
amount of OID allocable to an initial short accrual period may be computed using
any reasonable method if all other accrual periods, other than a final short
accrual period, are of equal length. The amount of OID allocable to the final
accrual period at maturity of an exchange note is the difference between (i) the
amount payable at the maturity of the exchange note and (ii) the exchange note's
adjusted issue price as of the beginning of the final accrual period.
A U.S. holder of an exchange note generally will not be required to include
separately in income cash payments received on the exchange note, even if
denominated as interest, to the extent such payments do not constitute qualified
stated interest.
SALE OR OTHER TAXABLE DISPOSITION OF THE EXCHANGE NOTES. You must recognize
taxable gain or loss on the sale, exchange, redemption, retirement or other
taxable disposition of an exchange note. The amount of your gain or loss equals
the difference between the amount you receive for the exchange note (in cash or
other property, valued at fair market value), minus the amount attributable to
accrued interest on the exchange note, minus your adjusted tax basis in the
note. Your adjusted tax basis in an exchange note equals the price you paid for
the old note increased by any OID previously included in income with respect to
such note (and with respect to the exchange note issued to you in exchange for
the old note) and decreased by any payments on such note (and with respect to
the exchange note issued to you in exchange for the old note) other than
qualified stated interest.
Your gain or loss will generally be a long-term capital gain or loss if you have
held the old note and the exchange note for more than one year in total.
Otherwise, it will be a short-term capital gain or loss. Payments attributable
to accrued interest which you have not yet included in income will be taxed as
ordinary income.
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NON-U.S. HOLDERS
DEFINITION OF NON-U.S. HOLDER. A "Non-U.S. Holder" is any beneficial owner of
old notes or exchange notes other than a U.S. Holder. Please be aware that if
you are subject to U.S. federal income tax on a net basis on income or gain with
respect to an old note or an exchange note because such income or gain is
effectively connected with the conduct of a U.S. trade or business, this
disclosure does not cover the U.S. federal tax rules that apply to you.
INTEREST AND OID
PORTFOLIO INTEREST EXEMPTION. Under the "portfolio interest exemption," you will
generally not be subject to U.S. federal income tax on interest (including OID)
paid on the exchange notes if either:
- you represent that you are not a U.S. person for U.S. federal income
tax purposes and you provide your name and address to us or our paying
agent on a properly executed IRS Form W-8BEN (or a suitable substitute
form) signed under penalties of perjury; or
- a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business holds the exchange notes on your behalf, certifies to us or
our paying agent under penalty of perjury that it has received IRS Form
W-8BEN (or a suitable substitute form) from you or from another
financial institution intermediary, and provides a copy to us or our
agent.
A Non-U.S. Holder that is treated as a partnership for U.S. federal income tax
purposes generally will be required to provide an IRS Form W-8IMY and to attach
an appropriate certification by each beneficial owner of the Non-U.S. Holder
(and, if applicable, such beneficial owner's beneficial owner).
You will not, however, qualify for the portfolio interest exemption described
above if:
- you own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of our capital stock which is
entitled to vote;
- you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code;
or
- you are a bank receiving interest described in Section 881(c)(3)(A) of
the Code.
WITHHOLDING TAX IF THE INTEREST IS NOT PORTFOLIO INTEREST. If you do not claim,
or do not qualify for, the benefit of the portfolio interest exemption, you may
be subject to a 30 percent withholding tax on interest (including OID) payments
made on the exchange notes. However, you may be able to claim the benefit of a
reduced withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted on IRS Form
W-8BEN (or a suitable substitute form).
If you are a Non-U.S. Holder who is engaged in a trade or business in the U.S.
and interest (including OID) on the exchange note is effectively connected with
the conduct of such trade or business, although you will be exempt from the
withholding tax discussed above, you will be subject to U.S. federal income tax
on such interest on a net income basis in the same manner as if you were a U.S.
Holder. In addition, if you are a foreign corporation, you may be subject to an
additional branch profits tax equal to 30 percent (or lower applicable treaty
rate) of your effectively connected earnings and profits for the taxable year
subject to adjustments.
156
For this purpose, interest (including OID) on an exchange note will be included
in your earnings and profits.
SALE OR OTHER DISPOSITION OF EXCHANGE NOTES. Any gain or income realized upon
the sale, exchange, retirement or other disposition of an exchange note
generally will not be subject to U.S. federal income tax unless (1) such gain or
income is effectively connected with the conduct of a trade or business in the
U.S. by the Non-U.S. holder or (2) in the case of a Non-U.S. holder who is an
individual, such individual is present in the United States for 183 days or more
in the taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
Special rules may apply to certain Non-U.S. Holders, such as "controlled foreign
corporations," "passive foreign investment companies" and "foreign personal
holding companies," that are subject to special treatment under the Code. Such
entities should consult their own tax advisors to determine the U.S. federal,
state, local and other tax consequences that may be relevant to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the exchange notes are outstanding, we, our
agents or paying agents or a broker may be required to provide the IRS with
certain information, including the holder's name, address and taxpayer
identification number, the aggregate amount of principal and interest (including
OID and premium, if any) and sales proceeds paid to that holder during the
calendar year and the amount of tax withheld, if any. This obligation, however,
does not apply with respect to certain U.S. Holders including corporations,
tax-exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts.
If a U.S. Holder subject to the reporting requirements described above fails to
supply its correct taxpayer identification number in the manner required by
applicable law or under reports its tax liability, we, our agents or paying
agents or a broker may be required to "backup" withhold at the applicable rate
(currently equal to 28 percent) on each payment of interest (including OID) and
principal (and premium, if any) and sales proceeds on or with respect to the
exchange notes.
A Non-U.S. Holder that provides an IRS Form W-8BEN (or a suitable substitute
form), together with all appropriate attachments, signed under penalties of
perjury, identifying the Non-U.S. Holder and stating that the Non-U.S. Holder is
not a U.S. person will not be subject to U.S. backup withholding and may not be
subject to information reporting requirements provided we do not have actual
knowledge or reason to know that such holder is a U.S. person. In addition, IRS
Form W-8BEN (or a suitable substitute form) will be required from the beneficial
owners of interests in a Non-U.S. Holder that is treated as a partnership for
U.S. federal income tax purposes.
The payment of the proceeds on the disposition of an exchange note to or through
the U.S. office of a broker generally will be subject to information reporting
and potential backup withholding at the applicable rate (currently 28 percent)
unless a holder either certifies its status as a Non-U.S. Holder under penalties
of perjury on IRS Form W-8BEN (or a suitable substitute form) and meets certain
other conditions or otherwise establishes an exemption. If the foreign office of
a foreign broker (as defined in applicable Treasury regulations) pays the
proceeds of the sale of an exchange note to the seller thereof, backup
withholding and information reporting generally will not apply. Information
reporting requirements (but not backup withholding) will apply, however, to a
payment of the proceeds of the sale of an
157
exchange note by (a) a foreign office of a custodian, nominee, other agent or
broker that is a U.S. person for U.S. federal income tax purposes, (b) a foreign
custodian, nominee, other agent or broker that derives 50 percent or more of its
gross income for certain periods from the conduct of a trade or business in the
U.S., (c) a foreign custodian, nominee, other agent or broker that is a
controlled foreign corporation for U.S. federal income tax purposes, or (d) a
foreign partnership if at any time during its tax year one or more of its
partners are U.S. persons who, in the aggregate, hold more than 50 percent of
the income or capital interest of the partnership or if, at any time during its
taxable year, the partnership is engaged in a U.S. trade or business, unless the
custodian, nominee, other agent, broker or foreign partnership has documentary
evidence in its records that the holder is not a U.S. person and certain other
conditions are met or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax; any amounts so withheld may be
credited against the U.S. federal income tax liability of the holder or refunded
if the amounts withheld exceed such liability, provided that the required
information is furnished to the IRS. The information reporting requirements may
apply regardless of whether withholding is required. Copies of the applicable
information returns may be made available to the tax authorities in the country
in which a Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
The regulations governing information reporting and backup withholding are
complex and this summary does not completely describe them. Please consult your
tax advisor to determine how the applicable regulations will affect your
particular circumstances.
158
BOOK-ENTRY SETTLEMENT AND CLEARANCE
THE GLOBAL NOTES
The exchange notes will be issued in global form, without interest coupons (the
"global exchange note").
Upon issuance, the global exchange note will be deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee of DTC.
Ownership of beneficial interests in the global exchange note will be limited to
persons who have accounts with DTC ("DTC participants") or persons who hold
interests through DTC participants. We expect that under procedures established
by DTC:
- upon deposit of the global exchange note with DTC's custodian, DTC will
credit portions of the principal amount of the global note to the
accounts of the DTC participants who exchange their old notes; and
- ownership of beneficial interests in the global exchange note will be
shown on, and transfer of ownership of those interests will be effected
only through, records maintained by DTC (with respect to interests of
DTC participants) and the records of DTC participants (with respect to
other owners of beneficial interests in the global exchange note).
Beneficial interests in the global exchange note may not be exchanged for notes
in physical, certificated form except in the limited circumstances described
below.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL EXCHANGE NOTE
All interests in the global exchange note will be subject to the operations and
procedures of DTC. We provide the following summaries of those operations and
procedures solely for the convenience of investors. The operations and
procedures of the settlement system are controlled by such settlement system and
may be changed at any time. We are not responsible for those operations or
procedures.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State
of New York;
- a "banking organization" within the meaning of the New York State
Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants. DTC's
participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a
159
custodial relationship with a DTC participant, either directly or indirectly.
Investors who are not DTC participants may beneficially own securities held by
or on behalf of DTC only through DTC participants or indirect participants in
DTC.
So long as DTC's nominee is the registered owner of the global exchange note,
that nominee will be considered the sole owner or holder of the notes
represented by that global note for all purposes under the indenture. Except as
provided below, owners of beneficial interests in a global exchange note:
- will not be entitled to have exchange notes represented by the global
exchange note registered in their names;
- will not receive or be entitled to receive physical, certificated
notes; and
- will not be considered the owners or holders of the exchange notes
under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee under
the indenture.
As a result, each investor who owns a beneficial interest in a global exchange
note must rely on the procedures of DTC to exercise any rights of a holder of
exchange notes under the indenture (and, if the investor is not a participant or
an indirect participant in DTC, on the procedures of the DTC participant through
which the investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the
exchange notes represented by a global exchange note will be made by the Trustee
to DTC's nominee as the registered holder of the global exchange note. Neither
we nor the Trustee will have any responsibility or liability for the payment of
amounts to owners of beneficial interests in a global exchange note, for any
aspect of the records relating to or payments made on account of those interests
by DTC, or for maintaining, supervising or reviewing any records of DTC relating
to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global exchange note will be governed by standing
instructions and customary industry practice and will be the responsibility of
those participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures
and will be settled in same-day funds.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each person
that DTC identifies as a beneficial owner of the related exchange notes only if:
- DTC notifies us at any time that it is unwilling or unable to continue
as depositary for the global exchange note and a successor depositary
is not appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
90 days;
- we, at our option, notify the Trustee that we elect to cause the
issuance of certificated notes; or
- certain other events provided in the indenture should occur.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for old notes
where such old notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the consummation of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until April 22, 2004, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the old
notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the old notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Wachtell, Lipton, Rosen & Katz, New York, New York, will pass upon the validity
of the exchange notes offered hereby.
EXPERTS
The consolidated financial statements and schedules incorporated in this
prospectus by reference from the Company's Annual Report on Form 10-K, as
amended, for the year ended December 31, 2002 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference and which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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CERTAIN DOCUMENTS INCORPORATED BY REFERENCE
Rather than include in this prospectus certain information that has been
included in reports filed with the SEC, we are incorporating this information by
reference, which means that we can disclose important information to you by
referring to those publicly filed documents containing the information. The
information that we incorporate by reference is considered to be part of this
prospectus and future information that we file with the SEC after the date of
this prospectus will automatically update and supersede the information in this
prospectus. We incorporate by reference the documents that we have, and where
indicated, Parent has, filed with the SEC and that we list below:
- Definitive Proxy Statement of Alaska Communications Systems Group,
Inc., dated April 28, 2003;
- Annual Report on Form 10-K for the fiscal year ended December 31, 2002
and as amended by our Annual Report on Form 10-K/A filed on October 3,
2003;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended September
30, 2003 (as amended by our Quarterly Report on Form 10-Q/A filed on
December 10, 2003), June 30, 2003 and March 31, 2003;
- Current Reports on Form 8-K (but excluding any materials furnished
under Item 9 thereof) filed with the SEC on March 6, 2003; April 24,
2003, May 13, 2003, July 7, 2003; July 31, 2003, August 8, 2003; August
13, 2003 and October 30, 2003; and
- All documents filed by us with the SEC under Section 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this prospectus,
including any Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Definitive Proxy Statements, and Current Reports on Form 8-K,
excluding any materials furnished pursuant to Item 9 or 12 of Current
Report on Form 8-K.
At your request, we will provide you with a free copy of any of these filings.
See "Additional information."
AVAILABLE INFORMATION
We file reports, proxy and information statements, and other information with
the SEC. The reports, proxy and information statements, and other information
may be inspected and copied at the public reference facilities of the SEC, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain copies of these materials from the SEC by mail at prescribed rates. You
should direct requests to the SEC's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. The
SEC also maintains a website (http://www.sec.gov) that contains the reports,
proxy and information statements, and other information filed by us. You may
also obtain copies of this information and the documents incorporated by
reference in this prospectus at no charge. See "Additional information."
162
GLOSSARY
The following are definitions of certain telecommunications and other terms we
use in this prospectus.
<Table>
APUC Alaska Public Utilities Commission. A state regulatory body
empowered to establish and enforce rules and regulations
governing public utility companies and others, such as the
Company, within the State of Alaska. APUC was superseded by
the Regulatory Commission of Alaska in 1999.
ARPU Average revenue per unit.
AUSF Alaska Universal Service Fund. The Alaska Universal Service
Fund was created by the Alaska Public Utilities Commission
to help maintain affordable telephone service throughout
Alaska.
CDMA Code Division Multiple Access. A digital spread-spectrum
wireless technology which allows a large number of users to
access a single frequency band that assigns a code to all
speech bits, sends a scrambled transmission of the encoded
speech over the air, and reassembles the speech to its
original format.
CLEC Competitive local exchange carrier. A company that provides
local exchange services in competition with the ILEC.
CPE Customer premises equipment.
DSL Digital Subscriber Line. An information transfer standard
for transmitting digital voice and data over telephone lines
at speeds up to 1.544 Mbps, versus 28.8 to 56 Kbps for
traditional copper telephone lines.
ETC Eligible Telecommunications Carrier. An eligible
telecommunications carrier is a common carrier that has been
designated to receive universal service support.
FCC Federal Communications Commission. A federal regulatory body
empowered to establish and enforce rules and regulations
governing public interstate communications.
ILEC Incumbent local exchange carrier. A company historically
providing local telephone service.
ISDN Integrated Services Digital Network. A network that provides
digital, voice, and data services through a single
transmission medium.
ISP Internet Service Provider. A company formed to provide
Internet access to residential and business customers via
local networks.
K or Kilobits per second. A measure of digital information
Kbps transmission rates. One kilobit equals 1,024 bits of digital
information. Normally, 10 bits are used for each
alphanumeric character.
LEC Local exchange carrier. A company providing local telephone
services.
Mbps Megabits per second. One thousand Kbps.
MHz Megahertz. A unit of measurement of bandwidth in the
radiowave spectrum.
MPLS/ATM Multi-Protocol Label Switching over Asynchronous Transfer
Mode/Asynchronous Transfer Mode. Communications protocol
standards that provide for information transfers in
packet-based formats that can be made to operate together to
improve the delivery speeds of data, video, and voice
traffic.
NECA National Exchange Carrier Association. The National Exchange
Carrier Association administers the FCC's "access charge"
plan (access charges are the fees long distance companies
pay to access the local phone network to complete calls),
the Universal Service Fund, the Interstate
Telecommunications Relay Fund, and the Lifeline/Link-Up
programs.
</Table>
163
<Table>
PCS Personal Communication Service. A wireless telephone
service, similar to cellular, allowing a person to receive
and make calls from any location via a hand-held device
within the area serviced by the personal communication
service.
RCA Regulatory Commission of Alaska. The Regulatory Commission
of Alaska is responsible for the regulation of public
utilities in Alaska.
TDMA Time Division Multiple Access. A digital spread-spectrum
technology which allocates a discrete amount of frequency
bandwidth to each user in order to permit more than one
simultaneous conversation on a single RF channel.
UNE Unbundled network element. A defined unit of the physical
telecommunications infrastructure.
USF Federal Universal Service Fund. The federal Universal
Service Fund was established under the direction of the FCC
to compensate carriers for the high cost of providing
universal telecommunications services in rural areas.
</Table>
164
(ACS LOGO)
ALASKA COMMUNICATIONS SYSTEMS
HOLDINGS, INC.
9 7/8% SENIOR NOTES DUE 2011
($182,000,000 AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING)
----------------------------------------------
OFFER TO EXCHANGE
----------------------------------------------
January , 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 145(a) and (b) of the Delaware General Corporation Law (the "DGCL")
provide generally that a corporation has the power to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and settlement amounts actually and reasonably incurred by them
in connection with specified acts, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation--a "derivative action"), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation.
Section 145(c) of the DGCL provides that to the extent that a present or former
director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
145(a) and (b) of the DGCL, as described in the preceding paragraph, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith. The statute further provides that it is not
exclusive of other indemnification that may be granted by any by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
As permitted by Section 102(b)(7) of the DGCL, the Registrant's Certificate of
Incorporation provide that a director shall not be personally liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except that a director may be liable (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
As permitted by Section 145 of the DGCL, the Registrant's Certificate of
Incorporation also provides that its directors and officers (including former
directors and officers) shall be indemnified and held harmless by the Registrant
to the fullest extent authorized by the DGCL, as the same exists or may
hereafter be amended, against all expense, liability and loss reasonably
incurred or suffered by such person in connection therewith; provided, however,
that, except in limited circumstances, the Registrant shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board.
A directors' and officers' insurance policy insures the Registrant's directors
and officers against liabilities incurred in their capacity as such for which
they are not otherwise indemnified, subject to certain exclusions. This is in
addition to the insurance coverage that the Registrant maintains in the event it
is required to indemnify a director or officer for indemnifiable claims.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated herein by
reference:
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.1 Articles of Incorporation of Alaska Communications Systems
Holdings, Inc. (formerly known as ALEC Acquisition
Corporation) (incorporated by reference to Exhibit 3.1 to
Alaska Communications Systems Holdings, Inc.'s Form 10-K/A
filed with the SEC on October 3, 2003).
3.2 By-Laws of Alaska Communications Systems Holdings, Inc.
(formerly known as ALEC Acquisition Corporation)
(incorporated by reference to Exhibit 3.2 to Alaska
Communications Systems Holdings, Inc.'s Form 10-K/A filed
with the SEC on October 3, 2003).
3.3 Amended and Restated Certificate of Incorporation of Alaska
Communications Systems Group, Inc. (incorporated by
reference to Exhibit 3.1 to Alaska Communications Systems
Group, Inc.'s Form S-1/A filed with the SEC on November 17,
1999).
3.4 Amended and Restated By-Laws of Alaska Communications
Systems Group, Inc. (incorporated by reference to Exhibit
3.2 to Alaska Communications Systems Group, Inc.'s Form
S-1/A filed with the SEC on November 17, 1999).
3.5* Certificate of Amendment to the Articles of Incorporation of
ACS of the Northland, Inc. (formerly known as Telephone
Utilities of the Northland, Inc.).
3.6 Articles of Incorporation of ACS of the Northland, Inc.
(formerly known as Telephone Utilities of the Northland,
Inc.) (incorporated by reference to Exhibit 3.9 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.7 Amended and Restated By-Laws of ACS of the Northland, Inc.
(formerly known as Telephone Utilities of the Northland,
Inc.) (incorporated by reference to Exhibit 3.10 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.8* Certificate of Amendment to the Articles of Incorporation of
ACS of Alaska, Inc. (formerly known as Telephone Utilities
of Alaska, Inc.).
3.9 Articles of Incorporation of ACS of Alaska, Inc. (formerly
known as Telephone Utilities of Alaska, Inc.) (incorporated
by reference to Exhibit 3.11 to Alaska Communications
Systems Holdings, Inc.'s Form S-4 filed with the SEC on July
7, 1999).
3.10 Amended and Restated By-Laws of ACS of Alaska, Inc.
(formerly known as Telephone Utilities of Alaska, Inc.)
(incorporated by reference to Exhibit 3.12 of Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.11* Certificate of Amendment to the Articles of Incorporation of
ACS of Fairbanks, Inc. (formerly known as PTI Communications
of Alaska, Inc.).
3.12 Articles of Incorporation of ACS of Fairbanks, Inc.
(formerly known as PTI Communications of Alaska, Inc.)
(incorporated by reference to Exhibit 3.17 of Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.13 Amended and Restated By-Laws of ACS of Fairbanks, Inc.
(formerly known as PTI Communications of Alaska, Inc.)
(incorporated by reference to Exhibit 3.18 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
</Table>
II-2
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.14* Certificate of Amendment to the Articles of Incorporation of
ACS of Anchorage, Inc. (formerly known as Alaska
Communications Systems, Inc.).
3.15 Articles of Incorporation of ACS of Anchorage, Inc.
(formerly known as Alaska Communications Systems, Inc.)
(incorporated by reference to Exhibit 3.7 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.16 By-Laws of ACS of Anchorage, Inc. (formerly known as Alaska
Communications Systems, Inc.) (incorporated by reference to
Exhibit 3.8 to Alaska Communications Systems Holdings,
Inc.'s Form S-4 filed with the SEC on July 7, 1999).
3.17* Certificates of Amendment to the Articles of Incorporation
of ACS Wireless, Inc. (formerly known as MACtel, Inc.).
3.18 Articles of Incorporation of ACS Wireless, Inc. (formerly
known as MACtel, Inc.) (incorporated by reference to Exhibit
3.19 to Alaska Communications Systems Holdings, Inc.'s Form
S-4 filed with the SEC on July 7, 1999).
3.19 Amended and Restated By-Laws of ACS Wireless, Inc. (formerly
known as MACtel, Inc.) (incorporated by reference to Exhibit
3.20 to Alaska Communications Systems Holdings, Inc.'s Form
S-4 filed with the SEC on July 7, 1999).
3.20* Certificates of Amendment to the Articles of Incorporation
of ACS Long Distance, Inc. (formerly known as ATU Long
Distance, Inc.).
3.21 Articles of Incorporation of ACS Long Distance, Inc.
(formerly known as ATU Long Distance, Inc.) (incorporated by
reference to Exhibit 3.31 to Alaska Communications Systems
Holdings, Inc.'s Form S-4 filed with the SEC on July 7,
1999).
3.22 Amended and Restated By-Laws of ACS Long Distance, Inc.
(formerly known as ATU Long Distance, Inc.) (incorporated by
reference to Exhibit 3.32 to Alaska Communications Systems
Holdings, Inc.'s Form S-4 filed with the SEC on July 7,
1999).
3.23* Articles of Incorporation of ACS Internet, Inc.
3.24* Amended and Restated By-Laws of ACS Internet, Inc.
3.25* Articles of Incorporation of ACS Messaging, Inc.
3.26* By-Laws of ACS Messaging, Inc.
3.27* Articles of Incorporation of ACS Infosource, Inc.
3.28* By-Laws of ACS Infosource, Inc.
3.29* Articles of Organization of ACS Television, L.L.C.
3.30* Amended and Restated Operating Agreement of ACS Television,
L.L.C.
3.31* Articles of Incorporation of ACS of Alaska License Sub, Inc.
3.32* By-Laws of ACS of Alaska License Sub, Inc.
3.33* Articles of Incorporation of ACS of the Northland License
Sub, Inc.
3.34* By-Laws of ACS of the Northland License Sub, Inc.
3.35* Articles of Incorporation of ACS of Fairbanks License Sub,
Inc.
3.36* By-Laws of ACS of Fairbanks License Sub, Inc.
3.37* Articles of Incorporation of ACS of Anchorage License Sub,
Inc.
3.38* By-Laws of ACS of Anchorage License Sub, Inc.
3.39* Articles of Incorporation of ACS Wireless License Sub, Inc.
3.40* By-Laws of ACS Wireless License Sub, Inc.
</Table>
II-3
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.41* Articles of Incorporation of ACS Long Distance License Sub,
Inc.
3.42* By-Laws of ACS Long Distance License Sub, Inc.
3.43* Articles of Incorporation of ACS Television License Sub,
Inc.
3.44* By-Laws of ACS Television License Sub, Inc.
3.45* Articles of Incorporation of ACS Services, Inc.
3.46* By-Laws of ACS Services, Inc.
4.1* Indenture, dated as of August 26, 2003, among Alaska
Communications Systems Holdings, Inc., as Issuer, and each
of Alaska Communications Systems Group, Inc., ACS of the
Northland, Inc., ACS of Alaska, Inc., ACS of Fairbanks,
Inc., ACS of Anchorage, Inc., ACS Wireless, Inc., ACS Long
Distance, Inc., ACS Internet, Inc., ACS Messaging, Inc., ACS
Infosource, Inc., ACS Television, L.L.C., ACS of Alaska
License Sub, Inc., ACS of the Northland License Sub, Inc.,
ACS of Fairbanks License Sub, Inc., ACS of Anchorage License
Sub, Inc., ACS Wireless License Sub, Inc., ACS Long Distance
License Sub, Inc., ACS Television License Sub, Inc., ACS
Services, Inc., as guarantors, and The Bank of New York, as
trustee.
4.2* Exchange and Registration Rights Agreement, dated August 26,
2003, by and among Alaska Communications Systems Holdings,
Inc., Alaska Communications Systems Group, Inc., ACS of the
Northland, Inc., ACS of Alaska, Inc., ACS of Fairbanks,
Inc., ACS of Anchorage, Inc., ACS Wireless, Inc., ACS Long
Distance, Inc., ACS Internet, Inc., ACS Messaging, Inc., ACS
Infosource, Inc., ACS Television, L.L.C., ACS of Alaska
License Sub, Inc., ACS of the Northland License Sub, Inc.,
ACS of Fairbanks License Sub, Inc., ACS of Anchorage License
Sub, Inc., ACS Wireless License Sub, Inc., ACS Long Distance
License Sub, Inc., ACS Television License Sub, Inc., ACS
Services, Inc., and J.P. Morgan Securities Inc. for itself
and on behalf of CIBC World Markets Corp., Citigroup Global
Markets Inc., Jefferies & Company, Inc. and Raymond James &
Associates, Inc.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1* Credit Agreement, dated August 26, 2003, among Alaska
Communications Systems Group, Inc., Alaska Communications
Systems Holdings, Inc., as the Borrower, the Lenders Party
thereto and JPMorgan Chase Bank, as Administrative Agent and
Collateral Agent, CIBC World Markets Corp., as Syndication
Agent, and Citicorp North America, Inc., as Documentation
Agent, and J.P. Morgan Securities Inc., as Arranger.
10.2* Retirement Agreement, dated as of September 14, 2003,
between Alaska Communications Systems Group, Inc. and
Charles E. Robinson.
10.3* Executive Employment Agreement, dated as of September 14,
2003, between Alaska Communications Systems Group, Inc. and
Liane Pelletier.
10.4* Settlement Agreement and Mutual Release, dated October 14,
2003, by and between the State of Alaska and Alaska
Communications Systems Group, Inc.
10.5 Executive Employment Agreement, dated as of October 17,
2003, between Alaska Communications Systems Group, Inc. and
David C. Eisenberg.
12.1 Computation of Consolidated Ratios of Earnings to Fixed
Charges (set forth on pages 18 and 51 of the prospectus
forming part of this registration statement).
23.1 Consent of Deloitte & Touche LLP, independent auditors for
Alaska Communications Systems Holdings, Inc.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1* Powers of attorney (included in the signature pages to this
Registration Statement).
</Table>
II-4
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
25.1* Form T-1 Statement of Eligibility of The Bank of New York to
act as trustee under the Indenture.
99.1* Letter of Transmittal.
99.2* Notice of Guaranteed Delivery.
99.3* Letter to brokers, dealers, commercial banks, issuer
companies and other nominees.
99.4* Form of letter from brokers, dealers, commercial banks,
issuer companies and other nominees to their clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</Table>
- --------------------------------------------------------------------------------
* Previously filed.
ITEM 22. UNDERTAKINGS
(a) 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. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change in such information in the Registration
Statement.
(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 the 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of
II-5
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the 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.
(d) The undersigned Registrant hereby undertakes 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.
(e) The undersigned Registrant hereby undertakes 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 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.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ALASKA COMMUNICATIONS SYSTEMS
HOLDINGS, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board and January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway (Principal Financial Officer
and Principal Accounting
Officer)
* Director January 21, 2004
- --------------------------------------
W. Dexter Paine, III
* Director January 21, 2004
- --------------------------------------
Saul A. Fox
* Director January 21, 2004
- --------------------------------------
Byron I. Mallot
* Director January 21, 2004
- --------------------------------------
Wray T. Thorn
</Table>
II-7
<Table>
* Director January 21, 2004
- --------------------------------------
Brian Rogers
* Director January 21, 2004
- --------------------------------------
Charles P. Sitkin
Director
- --------------------------------------
John M. Egan
Director
- --------------------------------------
Patrick Pichette
*By: /s/ KEVIN P. HEMENWAY Attorney-in-Fact
------------------------------
Kevin P. Hemenway
</Table>
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ALASKA COMMUNICATIONS SYSTEMS GROUP,
INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board and January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway (Principal Financial Officer
and Principal Accounting
Officer)
* Director January 21, 2004
- --------------------------------------
W. Dexter Paine, III
* Director January 21, 2004
- --------------------------------------
Saul A. Fox
* Director January 21, 2004
- --------------------------------------
Byron I. Mallot
* Director January 21, 2004
- --------------------------------------
Wray T. Thorn
</Table>
II-9
<Table>
* Director January 21, 2004
- --------------------------------------
Brian Rogers
* Director January 21, 2004
- --------------------------------------
Charles P. Sitkin
Director
- --------------------------------------
John M. Egan
Director
- --------------------------------------
Patrick Pichette
*By: /s/ KEVIN P. HEMENWAY Attorney-in-Fact
------------------------------
Kevin P. Hemenway
</Table>
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF THE NORTHLAND, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and Director
Leonard A. Steinberg
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF ALASKA, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and Director
Leonard A. Steinberg
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF FAIRBANKS, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and
Leonard A. Steinberg Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF ANCHORAGE, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS WIRELESS, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive
Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS LONG DISTANCE, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive
Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS INTERNET, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive
Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS MESSAGING, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS INFOSOURCE, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and
Leonard A. Steinberg Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF ALASKA LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF THE NORTHLAND LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director (Principal
Financial Officer and
Principal Accounting Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF FAIRBANKS LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS OF ANCHORAGE LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer (Principal
Liane Pelletier Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, January 21, 2004
- -------------------------------------- Chief Financial Officer,
Kevin P. Hemenway Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS WIRELESS LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer (Principal
Liane Pelletier Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director (Principal
Financial Officer and
Principal Accounting Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and
Leonard A. Steinberg Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS LONG DISTANCE LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief
Financial Officer,
Treasurer
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.
<Table>
<Caption>
* Chairman of the Board, January 21, 2004
- -------------------------------------- Chief Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway (Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, January 21, 2004
- -------------------------------------- General Counsel,
Leonard A. Steinberg Secretary and Director
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS TELEVISION LICENSE SUB, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and Director
Leonard A. Steinberg
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS SERVICES, INC.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and Director
Leonard A. Steinberg
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Anchorage, State of
Alaska, on January 21, 2004.
ACS TELEVISION, L.L.C.
By: /s/ KEVIN P. HEMENWAY
------------------------------------
Name: Kevin P. Hemenway
Title: Senior Vice President,
Chief Financial Officer,
Treasurer
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.
<Table>
* Chairman of the Board, Chief January 21, 2004
- -------------------------------------- Executive Officer
Liane Pelletier (Principal Executive Officer)
/s/ KEVIN P. HEMENWAY Senior Vice President, Chief January 21, 2004
- -------------------------------------- Financial Officer, Treasurer
Kevin P. Hemenway and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Vice President, General January 21, 2004
- -------------------------------------- Counsel, Secretary and Director
Leonard A. Steinberg
*By: /s/ KEVIN P. HEMENWAY Attorney-in-fact
------------------------------
Kevin P. Hemenway
</Table>
II-28
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.1 Articles of Incorporation of Alaska Communications Systems
Holdings, Inc. (formerly known as ALEC Acquisition
Corporation) (incorporated by reference to Exhibit 3.1 to
Alaska Communications Systems Holdings, Inc.'s Form 10-K/A
filed with the SEC on October 3, 2003).
3.2 By-Laws of Alaska Communications Systems Holdings, Inc.
(formerly known as ALEC Acquisition Corporation)
(incorporated by reference to Exhibit 3.2 to Alaska
Communications Systems Holdings, Inc.'s Form 10-K/A filed
with the SEC on October 3, 2003).
3.3 Amended and Restated Certificate of Incorporation of Alaska
Communications Systems Group, Inc. (incorporated by
reference to Exhibit 3.1 to Alaska Communications Systems
Group, Inc.'s Form S-1/A filed with the SEC on November 17,
1999).
3.4 Amended and Restated By-Laws of Alaska Communications
Systems Group, Inc. (incorporated by reference to Exhibit
3.2 to Alaska Communications Systems Group, Inc.'s Form
S-1/A filed with the SEC on November 17, 1999).
3.5* Certificate of Amendment to the Articles of Incorporation of
ACS of the Northland, Inc. (formerly known as Telephone
Utilities of the Northland, Inc.).
3.6 Articles of Incorporation of ACS of the Northland, Inc.
(formerly known as Telephone Utilities of the Northland,
Inc.) (incorporated by reference to Exhibit 3.9 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.7 Amended and Restated By-Laws of ACS of the Northland, Inc.
(formerly known as Telephone Utilities of the Northland,
Inc.) (incorporated by reference to Exhibit 3.10 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.8* Certificate of Amendment to the Articles of Incorporation of
ACS of Alaska, Inc. (formerly known as Telephone Utilities
of Alaska, Inc.).
3.9 Articles of Incorporation of ACS of Alaska, Inc. (formerly
known as Telephone Utilities of Alaska, Inc.) (incorporated
by reference to Exhibit 3.11 to Alaska Communications
Systems Holdings, Inc.'s Form S-4 filed with the SEC on July
7, 1999).
3.10 Amended and Restated By-Laws of ACS of Alaska, Inc.
(formerly known as Telephone Utilities of Alaska, Inc.)
(incorporated by reference to Exhibit 3.12 of Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.11* Certificate of Amendment to the Articles of Incorporation of
ACS of Fairbanks, Inc. (formerly known as PTI Communications
of Alaska, Inc.).
3.12 Articles of Incorporation of ACS of Fairbanks, Inc.
(formerly known as PTI Communications of Alaska, Inc.)
(incorporated by reference to Exhibit 3.17 of Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.13 Amended and Restated By-Laws of ACS of Fairbanks, Inc.
(formerly known as PTI Communications of Alaska, Inc.)
(incorporated by reference to Exhibit 3.18 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.14* Certificate of Amendment to the Articles of Incorporation of
ACS of Anchorage, Inc. (formerly known as Alaska
Communications Systems, Inc.).
</Table>
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.15 Articles of Incorporation of ACS of Anchorage, Inc.
(formerly known as Alaska Communications Systems, Inc.)
(incorporated by reference to Exhibit 3.7 to Alaska
Communications Systems Holdings, Inc.'s Form S-4 filed with
the SEC on July 7, 1999).
3.16 By-Laws of ACS of Anchorage, Inc. (formerly known as Alaska
Communications Systems, Inc.) (incorporated by reference to
Exhibit 3.8 to Alaska Communications Systems Holdings,
Inc.'s Form S-4 filed with the SEC on July 7, 1999).
3.17* Certificates of Amendment to the Articles of Incorporation
of ACS Wireless, Inc. (formerly known as MACtel, Inc.).
3.18 Articles of Incorporation of ACS Wireless, Inc. (formerly
known as MACtel, Inc.) (incorporated by reference to Exhibit
3.19 to Alaska Communications Systems Holdings, Inc.'s Form
S-4 filed with the SEC on July 7, 1999).
3.19 Amended and Restated By-Laws of ACS Wireless, Inc. (formerly
known as MACtel, Inc.) (incorporated by reference to Exhibit
3.20 to Alaska Communications Systems Holdings, Inc.'s Form
S-4 filed with the SEC on July 7, 1999).
3.20* Certificates of Amendment to the Articles of Incorporation
of ACS Long Distance, Inc. (formerly known as ATU Long
Distance, Inc.).
3.21 Articles of Incorporation of ACS Long Distance, Inc.
(formerly known as ATU Long Distance, Inc.) (incorporated by
reference to Exhibit 3.31 to Alaska Communications Systems
Holdings, Inc.'s Form S-4 filed with the SEC on July 7,
1999).
3.22 Amended and Restated By-Laws of ACS Long Distance, Inc.
(formerly known as ATU Long Distance, Inc.) (incorporated by
reference to Exhibit 3.32 to Alaska Communications Systems
Holdings, Inc.'s Form S-4 filed with the SEC on July 7,
1999).
3.23* Articles of Incorporation of ACS Internet, Inc.
3.24* Amended and Restated By-Laws of ACS Internet, Inc.
3.25* Articles of Incorporation of ACS Messaging, Inc.
3.26* By-Laws of ACS Messaging, Inc.
3.27* Articles of Incorporation of ACS Infosource, Inc.
3.28* By-Laws of ACS Infosource, Inc.
3.29* Articles of Organization of ACS Television, L.L.C.
3.30* Amended and Restated Operating Agreement of ACS Television,
L.L.C.
3.31* Articles of Incorporation of ACS of Alaska License Sub, Inc.
3.32* By-Laws of ACS of Alaska License Sub, Inc.
3.33* Articles of Incorporation of ACS of the Northland License
Sub, Inc.
3.34* By-Laws of ACS of the Northland License Sub, Inc.
3.35* Articles of Incorporation of ACS of Fairbanks License Sub,
Inc.
3.36* By-Laws of ACS of Fairbanks License Sub, Inc.
3.37* Articles of Incorporation of ACS of Anchorage License Sub,
Inc.
3.38* By-Laws of ACS of Anchorage License Sub, Inc.
3.39* Articles of Incorporation of ACS Wireless License Sub, Inc.
3.40* By-Laws of ACS Wireless License Sub, Inc.
3.41* Articles of Incorporation of ACS Long Distance License Sub,
Inc.
3.42* By-Laws of ACS Long Distance License Sub, Inc.
3.43* Articles of Incorporation of ACS Television License Sub,
Inc.
3.44* By-Laws of ACS Television License Sub, Inc.
</Table>
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
3.45* Articles of Incorporation of ACS Services, Inc.
3.46* By-Laws of ACS Services, Inc.
4.1* Indenture, dated as of August 26, 2003, among Alaska
Communications Systems Holdings, Inc., as Issuer, and each
of Alaska Communications Systems Group, Inc., ACS of the
Northland, Inc., ACS of Alaska, Inc., ACS of Fairbanks,
Inc., ACS of Anchorage, Inc., ACS Wireless, Inc., ACS Long
Distance, Inc., ACS Internet, Inc., ACS Messaging, Inc., ACS
Infosource, Inc., ACS Television, L.L.C., ACS of Alaska
License Sub, Inc., ACS of the Northland License Sub, Inc.,
ACS of Fairbanks License Sub, Inc., ACS of Anchorage License
Sub, Inc., ACS Wireless License Sub, Inc., ACS Long Distance
License Sub, Inc., ACS Television License Sub, Inc., ACS
Services, Inc., as guarantors, and The Bank of New York, as
trustee.
4.2* Exchange and Registration Rights Agreement, dated August 26,
2003, by and among Alaska Communications Systems Holdings,
Inc., Alaska Communications Systems Group, Inc., ACS of the
Northland, Inc., ACS of Alaska, Inc., ACS of Fairbanks,
Inc., ACS of Anchorage, Inc., ACS Wireless, Inc., ACS Long
Distance, Inc., ACS Internet, Inc., ACS Messaging, Inc., ACS
Infosource, Inc., ACS Television, L.L.C., ACS of Alaska
License Sub, Inc., ACS of the Northland License Sub, Inc.,
ACS of Fairbanks License Sub, Inc., ACS of Anchorage License
Sub, Inc., ACS Wireless License Sub, Inc., ACS Long Distance
License Sub, Inc., ACS Television License Sub, Inc., ACS
Services, Inc., and J.P. Morgan Securities Inc. for itself
and on behalf of CIBC World Markets Corp., Citigroup Global
Markets Inc., Jefferies & Company, Inc. and Raymond James &
Associates, Inc.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz.
10.1* Credit Agreement, dated August 26, 2003, among Alaska
Communications Systems Group, Inc., Alaska Communications
Systems Holdings, Inc., as the Borrower, the Lenders Party
thereto and JPMorgan Chase Bank, as Administrative Agent and
Collateral Agent, CIBC World Markets Corp., as Syndication
Agent, and Citicorp North America, Inc., as Documentation
Agent, and J.P. Morgan Securities Inc., as Arranger.
10.2* Retirement Agreement, dated as of September 14, 2003,
between Alaska Communications Systems Group, Inc. and
Charles E. Robinson.
10.3* Executive Employment Agreement, dated as of September 14,
2003, between Alaska Communications Systems Group, Inc. and
Liane Pelletier.
10.4* Settlement Agreement and Mutual Release, dated October 14,
2003, by and between the State of Alaska and Alaska
Communications Systems Group, Inc.
10.5 Executive Employment Agreement, dated as of October 17,
2003, between Alaska Communications Systems Group, Inc. and
David C. Eisenberg.
12.1 Computation of Consolidated Ratios of Earnings to Fixed
Charges (set forth on pages 18 and 51 of the prospectus
forming part of this registration statement).
23.1 Consent of Deloitte & Touche LLP, independent auditors for
Alaska Communications Systems Holdings, Inc.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1* Powers of attorney (included in the signature pages to this
Registration Statement).
25.1* Form T-1 Statement of Eligibility of The Bank of New York to
act as trustee under the Indenture.
99.1* Letter of Transmittal.
99.2* Notice of Guaranteed Delivery.
99.3* Letter to brokers, dealers, commercial banks, issuer
companies and other nominees.
</Table>
<Table>
<Caption>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
99.4* Form of letter from brokers, dealers, commercial banks,
issuer companies and other nominees to their clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</Table>
- --------------------------------------------------------------------------------
* Previously filed.