Cricket Wireless 2010 Annual Report Download - page 14

membership interest. In connection with the contribution of assets by Denali, Savary Island assumed $211.6 million
of the outstanding loans owed to us under the Denali senior secured credit agreement.
Cricket’s principal arrangements with Savary Island and its wholly-owned subsidiaries are summarized below:
Limited Liability Company Agreement. Under the amended and restated limited liability company
agreement of Savary Island, or the Savary Island LLC Agreement, a board of managers has the right and
power to manage, operate and control Savary Island and its business and affairs, subject to certain protective
provisions for the benefit of Cricket and Denali, including, among other things, Denali’s consent to the acquisition,
pledge or sale of wireless licenses or the issuance of any additional membership interests. The board of managers is
currently comprised of two members, both designated by Ring Island. In the event that Savary Island fails to qualify
as an “entrepreneur” and a “very small business” under FCC rules, then in certain circumstances, subject to FCC
approval, Ring Island is required to designate successor managers approved by Denali.
Under the Savary Island LLC Agreement, Ring Island generally may not transfer its membership interest in
Savary Island prior to December 2017, other than to specified permitted transferees or through the exercise of its put
rights under the Savary Island LLC Agreement. Thereafter, if Ring Island desires to transfer its interest in Savary
Island to a third party, Denali has a right of first refusal to purchase such interests.
Under the Savary Island LLC Agreement, Ring Island has the option to put its entire membership interest in
Savary Island to Cricket during the 30-day period commencing on the earlier to occur of May 1, 2012 (based on
current FCC rules) and the date of a sale of all or substantially all of the assets, or the liquidation, of Savary Island,
and during any 30-day period commencing after a breach by Cricket of its obligation to pay spectrum lease fees or
fund working capital loans under the Savary Island Credit Agreement (see below) which breach has continued for
120 days after written notice of breach. The purchase price for such sale is an amount equal to Ring Island’s equity
contributions to Savary Island less any optional distributions made pursuant to the Savary Island LLC Agreement,
plus $150,000 if the sale is consummated prior to May 1, 2017 without incurring any unjust enrichment payments. If
the put option is exercised, the consummation of the sale will be subject to FCC approval. We have recorded this
obligation to purchase Ring Island’s controlling membership interest in Savary Island as a component of
redeemable non-controlling interest in the consolidated balance sheets. As of December 31, 2010, this
redeemable interest had a carrying value of $5.3 million. Savary Island has guaranteed Cricket’s put
obligations under the Savary Island LLC Agreement, which guaranty is secured on a first-lien basis by certain
assets of Savary Island. Under the Savary Island LLC Agreement, Savary Island is also required to make monthly
mandatory distributions to Ring Island.
Senior Secured Credit Agreement. In connection with Savary Island’s assumption of $211.6 million of the
outstanding loans owed to Cricket under the Denali senior secured credit agreement, Cricket, Savary Island and
Savary Island’s wholly-owned subsidiaries entered into an amended and restated senior secured credit agreement as
of December 27, 2010, or the Savary Island Credit Agreement, to amend and restate the terms of the Denali senior
secured credit agreement applicable to the assumed loans. Under the Savary Island Credit Agreement, Cricket also
agreed to loan Savary Island up to an incremental $5.0 million to fund its working capital needs. As of December 31,
2010, borrowings under the Savary Island Credit Agreement totaled $211.6 million. Loans under the Savary Island
Credit Agreement (including the assumed loans) accrue interest at the rate of 9.5% per annum and such interest is
added to principal annually. All outstanding principal and accrued interest is due in May 2021. Outstanding
principal and accrued interest are amortized in quarterly installments commencing in May 2018. However, if Ring
Island exercises its put under the Savary Island LLC Agreement prior to such date, then the amortization
commencement date under the Savary Island Credit Agreement will be the later of the amortization
commencement date and the put closing date. Savary Island may prepay loans under the Savary Island Credit
Agreement at any time without premium or penalty. The obligations of Savary Island and its subsidiaries under the
Savary Island Credit Agreement are secured by all of the personal property, fixtures and owned real property of
Savary Island and its subsidiaries, subject to certain permitted liens. The Savary Island Credit Agreement and the
related security agreements contain customary representations, warranties, covenants and conditions.
Management Agreement. Cricket and Savary Island are parties to a management services agreement,
pursuant to which Cricket provides management services to Savary Island in exchange for a monthly fixed
management fee until Savary Island commences the build-out of its wireless spectrum, and a monthly management
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