SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 31, 1996
General Communication, Inc.
(Exact name of registrant as specified in its charter)
Alaska 0-15279 92-0072737
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2550 Denali Street, Suite 1000, Anchorage Alaska 99503-2781
(Address of principal executive offices) (Zip Code)
(907) 265-5600
(Registrant's telephone number, including area code.)
N/A
(Former name or former address, if changed since last report)
1. Changes in Control of Registrant
(a) Background. General Communication, Inc. ("Company"),
itself and through its wholly-owned subsidiaries, GCI Cable, Inc. ("GCI Cable"),
GCI Cable/Fairbanks, Inc., and GCI Cable/Juneau, Inc. (all three subsidiaries
collectively, "Cable Subsidiaries"), closed as of October 31, 1996 ("Closing
Date") on the following purchase and acquisition transactions and certain other
related agreements ("Transactions"): (1) Prime Securities Purchase and Sale
Agreement ("Prime Purchase Agreement"); (2) the Alaskan Cable Purchase Agreement
("Alaskan Cable Purchase Agreement"); (3) Alaska Cablevision Asset Purchase
Agreement ("Alaska Cablevision Purchase Agreement"); (4) McCaw/Rock Homer Asset
Purchase Agreement ("McCaw/Rock Homer Purchase Agreement"); (5) McCaw/Rock
Seward Asset Purchase Agreement ("McCaw/Rock Seward Purchase Agreement"); and
(6) MCI Stock Purchase Agreement ("MCI Purchase Agreement"). The purchase
agreements included in the previous items (1)-(6) are collectively referred to
as "Purchase Agreements." The Transactions include other agreements entered into
as of the Closing Date or otherwise implemented as of that date in conjunction
with the Prime Purchase Agreement as described elsewhere in this report (see
Item 2 of this report) and a new voting agreement entered into between certain
holders of Class A common stock ("New Voting Agreement") described elsewhere in
this Item 1.
Through the Transactions the Company, through the Cable
Subsidiaries, has acquired, as of the Closing Date, interests in seven cable
companies providing services in Alaska as follows ("Cable Companies"): (1)
directly or indirectly, all of the equity securities and equity participation
interests (characterized as profit participation rights) in Prime Cable of
Alaska, L.P., a Delaware limited partnership ("Prime"); (2) substantially all of
the assets of the Alaskan Cable companies comprised of three Alaska corporations
as follows (collectively, "Alaskan Cable"): (a) Alaskan Cable Network/Fairbanks,
Inc. ("Alaskan Cable/Fairbanks"), (b) Alaskan Cable Network/Juneau, Inc.
("Alaskan Cable/Juneau") and (c) Alaskan Cable Network/Ketchikan-Sitka, Inc.
("Alaskan Cable/Ketchikan"); (3) substantially all of the assets of Alaska
Cablevision, Inc., a Delaware corporation ("Alaska Cablevision"); (4)
substantially all of the assets of McCaw/Rock Homer Cable Systems, J.V., an
Alaska joint venture ("McCaw/Rock Homer"); and (5) substantially all of the
assets of McCaw/Rock Seward Cable Systems, J.V., an Alaska joint venture
("McCaw/Rock Seward").
As part of the consideration for the acquisition of Prime and
Alaskan Cable, the Company, as of the Closing Date, issued and sold 14,723,077
shares of Company Class A common stock ("Company Stock") which was divided
between those companies for further distribution to their respective security
holders and subject to share holdback: (1) Prime--11,800,000 shares of Company
Class A common stock ("Prime Company Shares"); and (2) Alaskan Cable--2,923,077
shares of Company Class A common stock ("Alaskan Cable Company Shares") to be
distributed between the sole shareholder of each of the three corporations
comprising Alaskan Cable in portions acceptable to the
General Communication, Inc. - Form 8-K
Page 2
Company. Through the MCI Purchase Agreement the Company issued, as of the
Closing Date, 2 million shares of Company Class A common stock ("MCI Company
Stock"). The Transactions were approved by the shareholders of the Company at
its annual meeting held on October 17, 1996. The security holders of each of the
Cable Companies approved the transaction corresponding to their respective Cable
Companies or otherwise consented to the Transactions on or prior to October 30,
1996.
Portions of the Company Stock were held back as of the Closing
Date for deposit in escrow with third-party escrow agents to secure each Cable
Company party's corresponding indemnification for breaches of representations,
warranties and covenants. If no breach of the corresponding Purchase Agreement
occurs the escrowed shares will be released to the party which deposited them
into the corresponding escrow, effective as of 180 days after the Closing Date.
A portion of the Prime Company Shares are subject to other escrow and holdback
conditions.
(b) Registration Statement. The Company's offer and sale of
the Company Stock was registered under the Securities Act of 1933, as amended
("Securities Act"), through a registration statement which became effective
October 4, 1996 (Registration No. 333-13473, "Registration Statement"). The
offer and sale of the Company Stock and the MCI Company Stock and the Company's
overall plan of acquisition of the Cable Companies ("Acquisition Plan") were
subject to approval of the shareholders of the Company. The Acquisition Plan was
further subject to approval or consent of the security holders of the Cable
Companies. The shareholders of the Company approved the Acquisition Plan
including the issuance of the Company Stock and the MCI Company Stock at the
annual meeting of shareholders held on October 17, 1996. The Acquisition Plan as
it pertains to each Cable Company was approved or consented to by the
corresponding Cable Company security holders on or prior to October 30, 1996.
The closing on the Transactions was subject to other approvals or consents
generally as described in the Registration Statement, and all material approvals
and consents had been obtained as of the Closing Date. The consent of the U.S.
military to the transfer of control of Prime was not received by the parties as
of the Closing Date. Prime and the Company (through GCI Cable) waived receipt of
this consent as a condition to the parties' obligation to close the Prime
Transaction. The Company is continuing to seek the transfer and is currently
operating under Prime's contract to provide the cable services in question to
Elmendorf Air Force Base and Fort Richardson, Alaska. The Company does not
consider this waiver as a material change to the Prime Purchase Agreement.
(c) Changes in Control.
General. With the consummation of the Prime Purchase
Agreement, the Alaskan Cable Purchase Agreement, and the MCI Purchase Agreement,
the Company has issued Company Stock and MCI Company Stock in the total
approximate amount of 16.7 million new shares of Class A common stock, and
several new persons have
General Communication, Inc. - Form 8-K
Page 3
become shareholders. The issuance of the Company Stock and the MCI Company Stock
has diluted the holdings of shareholders of the Company immediately prior to the
Closing Date, and the concentration of ownership of the Company has become even
greater in a few shareholders.
Distribution. With the issuance of the Company Stock and the
MCI Company Stock under the Transactions, the percentage ownership of the
aggregate outstanding Company Class A and Class B common stock became as
follows: (1) the Prime sellers ("Prime Sellers"), i.e., Prime Cable Growth
Partners, L.P., a Delaware limited partnership and limited partner of Prime
("Prime Growth"), Prime Venture I Holdings, L.P., a Delaware limited partnership
and limited partner of Prime and general partner of Prime Growth ("Prime
Holdings"), Prime Cable Limited Partnership, a Delaware limited partnership and
sole shareholder of Prime General Partner ("PCLP"), the shareholders of Alaska
Cable, Inc., a Delaware corporation and limited partner of Prime ("ACI"), and
the holders of the equity participation interests in Prime, i.e., BancBoston
Capital, Inc., First Chicago Investment Corporation and Madison Dearborn
Partners V, prior to any distributions to the security holders of the Prime
Sellers--29%; (2) MCI--23% (down from approximately 31% immediately prior to the
Closing Date); (3) the Company's employees and management combined--10% (down
from approximately 17% immediately prior to the closing on the Transactions);
(4) Alaskan Cable--7%; and (5) others--31%.
The Transactions provide for a distribution of the Company
Stock to certain of the Cable Companies which in turn are, pursuant to
resolutions or other appropriate action, to distribute their pro rata portions
of the Company Stock to their security holders according to their interests
under the applicable limited partnership agreements or their ownership of shares
of the applicable corporation, as the case may be. The table below sets forth
the names and addresses of certain persons who will receive shares of the
Company Stock pursuant to the Transactions, the nature of beneficial ownership,
the number of shares of Company Stock to be received by each pursuant to the
Transactions, and the percent of Company Class A common stock outstanding as of
the Closing Date received by or allocated to each such person receiving a
portion of the Company Stock pursuant to the Transactions. A beneficial owner
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, has or shares the
following powers within 60 days of the Closing Date: (1) voting power, which
includes the power to vote or to direct the voting of shares of common stock of
the Company; or (2) investment power, which includes the power to dispose of or
to direct the disposition of such shares of common stock of the Company. So far
as is known to the Company, the persons named in the table had sole voting and
investment power with respect to the shares indicated as owned by them except as
otherwise stated in the footnotes to the table.
The Prime Company Shares will ultimately be distributed to the
holders, directly or indirectly, of all of the limited and general partner
interests and equity
General Communication, Inc. - Form 8-K
Page 4
participation interests of Prime and their respective security holders
(collectively, "Prime Group"). The allocation of the Prime Company Shares to be
distributed to the Prime Group is also based upon the assumption that all such
Prime Company Shares were distributed to them by the Prime Sellers in accordance
with the distribution provisions of the respective limited partnership
agreements or other governing document of the Prime Sellers. The distribution to
the partners of the shareholders of ACI and the partners of the sole shareholder
of Prime General Partner may not take place for a period of as much as one year
and two years, respectively, to satisfy certain continuity of interest
requirements of the Internal Revenue Code of 1986, as amended ("Code") in order
to obtain tax treatment as reorganizations Type A under Section 368(a) of the
Code.
DISTRIBUTION OF COMPANY STOCK
AMONG SECURITY HOLDERS OF
CERTAIN CABLE COMPANIES
Amount and Nature
of Beneficial
Name and Address Ownership of
of Recipient of Company Stock (Relation to Company Stock to
Name of Cable Company Cable Company) Be Received Percent of Class (1,2)
- ---------------------------- --------------------------------------------- ------------------- ----------------------
Prime: (7)
Shareholders of
Alaska Cable, Inc. (3) 5,691,404 (3) 15.6%
(limited partner of Prime)
Prime Cable Limited Partnership (4) 2,227,071 (4) 6.1%
(sole shareholder of Prime General Partner)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Prime Cable Growth Partners, L.P. (5) 2,725,649 (5) 7.5%
(limited partner of Prime)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Prime Venture I Holdings, L.P. (6) 2,290,510 (6) 6.3%
(limited partner of Prime)
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
Banc Boston Capital, Inc. 332,323 *
(equity participation interest holder of
Prime)
100 Federal Street
Boston, Massachusetts 02110
First Chicago Investment Corporation 301,407 *
(equity participation interest holder of
Prime)
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
General Communication, Inc. - Form 8-K
Page 5
Madison Dearborn Partners V 30,916 *
(equity participation interest holder of
Prime)
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
Alaskan Cable/Fairbanks (8) Alaskan Cable Network, Inc. 1,110,769 3.0
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
Alaskan Cable/Juneau (8) Alaskan Cable Network/Juneau 1,110,769 3.0
Holdings, Inc.
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
Alaskan Cable/Ketchikan (8) Jack Kent Cooke Incorporated 701,539 2.0
Kent Farms
Middleburg, Virginia 20117
(sole shareholder)
===================================================================================================================
<FN>
- ----------------
1 Asterisk (*) means less than 1% of class.
2 After giving effect to the issuance of all of the Company Stock and the
MCI Company Stock.
3 To be distributed to seven shareholders of ACI as shown below, pursuant
to the ACI Merger. These shareholders will either hold the Company
Stock acquired by them in that merger or distribute such stock to their
investors, consistent with the escrow holdback provisions of the Prime
Transaction and with the restrictions on transfer in the Prime
Transaction. The seven shareholders of ACI, their addresses and the
number of shares of Company Stock to be acquired by them in connection
with the merger, are as follows: (1) PVII, 3000 One American Center,
600 Congress Avenue, Austin, Texas 78701 - 1,237,262 shares; (2)
William Blair Venture Partners III Limited Partnership, 222 West Adams,
Chicago, Illinois 60606 - 1,237,262 shares; (3) Austin Ventures, L.P.,
114 West Seventh Street, #1300, Austin, Texas 78701 - 989,809 shares;
(4) Prime Holdings, 3000 One American Center, 600 Congress Avenue,
Austin, Texas 78701 - 742,357 shares; (5) Centennial Fund III, L.P.,
1999 Broadway, #2100, Denver, Colorado 80202 - 742,357 shares; (6)
Centennial Business Development Fund, Ltd., 1999 Broadway, #2100,
Denver, Colorado 80202 - 494,905 shares; and (7) Centennial Fund II,
L.P., 1999 Broadway, #2100, Denver, Colorado 80202 - 247,452 shares.
Based on Company Class A common stock outstanding as of the Closing
Date, and with the issuance of the Prime Company Shares, the Alaskan
Cable Company Shares and the MCI Company Stock on that date, none of
the ACI shareholders will acquire 5% or more of the Company Class A
common stock.
4 To be distributed to the approximately 300 partners of PCLP, consistent
with the escrow holdback provisions of the Prime Proposed Transaction
and with the restrictions on transfer. Based on Company Class A common
stock outstanding as of the Closing Date, and with the issuance of the
Prime Company Shares, the Alaskan Cable Company Shares and the MCI
Company Stock on that date, none of the partners of PCLP will acquire
5% or more of the Company Class A common stock.
5 Includes 2,721,974 shares to be received by Prime Growth as a limited
partner of Prime, to be distributed among the partners of Prime Growth,
consistent with the escrow holdback provisions of the Prime Transaction
with the restrictions on transfer. Based on Class A common stock
outstanding as of the Closing Date, and with the issuance of the Prime
Company Shares, the Alaskan Cable Company Shares and the MCI Company
Stock on that date, none of the partners of Prime Growth will acquire
5% or more of the Company Class A common stock. In addition to the
2,721,974 shares described above, Prime Growth will ultimately receive
3,675 shares as a limited partner of the general partner of PVII (also
a shareholder of ACI). As a result, Prime Growth will acquire a total
of 2,725,649 shares of Company Stock in the Prime Transaction.
6 Includes 494,905 shares received by Prime Holdings as a limited partner
of Prime, to be distributed among the partners of Prime Holdings,
consistent with the escrow holdback provisions of the Prime Transaction
and with the restrictions on transfer. Based on Company Class A common
stock outstanding as of the Closing Date, and with the issuance of the
Prime Company Shares, the Alaskan Cable Company Shares and the MCI
Company Stock on that date, none of the
General Communication, Inc. - Form 8-K
Page 6
partners of Prime Holdings will acquire 5% or more of the Company Class
A common stock. In addition to the 494,905 shares of Company Stock
described above acquired by Prime Holdings as a limited partner of
Prime, Prime Holdings will ultimately receive 742,357 shares of Prime
Company Shares as a shareholder of ACI (see footnote 3 above) and will
ultimately receive 3,675 shares as a limited partner of the general
partner of PVII (also a shareholder of ACI) and approximately 1,049,573
shares of Company Stock as general partner of Prime Growth. As a
result, Prime Holdings will acquire a total of approximately 2,290,510
shares of Company Stock in the Prime Transaction.
7 A total of 11,800,000 shares of Company Stock were issued in the Prime
Transaction. The total number of shares to be distributed to the
various entities shown in this table with respect to Prime is greater
than 11,800,000 shares for the reason that some of the shares to be
received by the shareholders of ACI will be received by (and are
included in the number of shares shown opposite) the following other
entities shown in this table with respect to Prime: Prime Growth and
Prime Holdings.
8 All three corporations comprising Alaskan Cable are ultimately
controlled by Jack Kent Cooke Incorporated, of which Jack Kent Cooke is
a controlling shareholder.
- ----------------
</FN>
New Voting Agreement. As of the Closing Date on their
respective Transactions, the ownership of Company common stock by MCI, the Prime
Sellers (and their distributees who agree in writing to be bound thereby) became
subject to the New Voting Agreement along with certain other persons. The
parties to the New Voting Agreement, the number of shares of Company Class A and
Class B common stock and the percentage ownership of Company Class A and Class B
common stock as of the Closing Date and subsequent to the closing on the
Transactions are as follows: (1) MCI -- 8,251,509 shares and 23% of Class A and
1,275,791 shares and 31% of Class B common stock; (2) TCI GCI Inc. ("TCI") --
590,043 shares and 14% of Class B and no Class A common stock; (3) Ronald A.
Duncan, President and Chief Executive Officer of the Company -- 776,305 shares
and 3% of Class A and 248,062 and 6% of Class B common stock; (4) Robert M.
Walp, Vice Chairman of the board of directors of the Company ("Company Board")
- -- 572,845 shares and 2% of Class A and 303,457 shares and 7% of Class B common
stock; and (5) the Prime Sellers (and their distributees who elect in writing to
be bound by the agreement), through Prime II Management, L.P., a Delaware
limited partnership ("PIIM") as the designated agent of the Prime Sellers --
11,057,643 shares and 30% of Class A and no Class B common stock. The total
percentage of Company common stock outstanding subject to the New Voting
Agreement as of the Closing Date and subsequent to the closing on the
Transactions was 56% of Class A and 59% of Class B for a combined 57% of the
outstanding voting power (one vote for one share of Class A and ten votes for
one share of Class B common stock) of the Company.
The New Voting Agreement provides that the parties to it will,
to the extent possible, cause the full membership of the Company Board to be
maintained at not less than eight directors. The New Voting Agreement provides
that all of the shares subject to the agreement will be voted as one block for
so long as the full membership on the Company Board is at least eight and will
be voted for the election to the Company Board of individuals recommended by a
party to the New Voting Agreement. The allocation of recommendations for
positions on the Company Board made by parties to the agreement is as follows:
(1) for recommendations from MCI, two nominees; (2) for recommen-
General Communication, Inc. - Form 8-K
Page 7
dations from Messrs. Duncan and Walp, one nominee each; (3) for recommendations
from TCI, two nominees; and (4) for recommendations from the Prime Sellers who
are parties to that agreement through PIIM, two nominees for so long as such
Prime Sellers (and their distributees who agree in writing to be bound by the
terms of the agreement) collectively own at least 10% of the then issued and
outstanding shares of Company Class A common stock and the management agreement
entered into between PIIM and the Company ("Prime Management Agreement") is in
full force and effect. However, if either of these conditions pertaining to the
Prime Sellers is not satisfied, then the Prime Sellers (and their distributees
who elect in writing to be bound thereby) are to be entitled to recommend only
one nominee. If neither of these conditions pertaining to the Prime Sellers are
met, the Prime Sellers are not to be entitled to recommend any nominee pursuant
to the terms of the New Voting Agreement.
The shares of the Company common stock subject to the New
Voting Agreement are to be voted as one block, to the extent possible, to cause
the full membership of the Company Board to be maintained at not less than eight
members. Furthermore, under the New Voting Agreement, the shares of Company
common stock subject to it are to be voted on other matters to which the parties
to the agreement have unanimously agreed.
The stated term of the New Voting Agreement is through the
completion of the annual shareholder meeting of the Company to take place in
June, 2001 or until there remains only one party to the agreement, whichever
occurs first. However, the parties to the New Voting Agreement may extend its
term but only upon unanimous vote and written amendment to the agreement.
Parties to the New Voting Agreement are to remain parties to it as to voting for
nominees to the Company Board and to maintain at least eight members on that
board only for so long as either the Prime Sellers who are parties to the
agreement (and their distributees who agree in writing to be bound by the terms
of the agreement) collectively own at least 10% of the then issued and
outstanding Company Class A common stock or the Prime Management Agreement is in
effect. Except for the stated term and the conditions just outlined, a party to
the New Voting Agreement (other than the Prime Sellers and their distributees
who elect in writing to be bound thereby) will be subject to the agreement until
the party disposes of more than 25% of the votes represented by that party's
holdings of Company Common Stock. That is, these conditions on a term of the New
Voting Agreement control and not the stated term ending in 2001. A party to the
agreement (other than the Prime Sellers and their distributees who elect in
writing to be bound thereby) shall then be subject to the New Voting Agreement
regardless of whether the party disposes of more than 25% of its votes.
The New Voting Agreement commenced effective as of the Closing
Date. With the execution of the New Voting Agreement, the Company Board will
take such action as necessary to cause its size to increase from the present
seven to nine
General Communication, Inc. - Form 8-K
Page 8
members, and the Prime Sellers who are parties to the New Voting Agreement will
thereafter present their nominees for two positions on the Company Board.
The New Voting Agreement replaces the previous voting
agreement ("Voting Agreement") between the following parties: (1) MCI; (2) TCI;
(3) Mr. Duncan; and (4) Mr. Walp. Under the terms of the Prime Purchase
Agreement, the parties to the Voting Agreement agreed that upon closing on the
Prime Purchase Agreement, the Voting Agreement would be terminated and would be
replaced by the New Voting Agreement.
(d) Other Information on Changes in Control. The amount and
the source of consideration used by the Cable Companies in entering into these
Transactions were as follows: (1) in the case of Prime, the exchange of all of
the security interests, i.e., all of the limited and general partner interests,
directly or indirectly, and all of the equity participation interests, in Prime
for the Prime Company Shares; (2) in the case of Alaskan Cable, the sale of
substantially all of the assets of the three corporations comprising Alaskan
Cable for the Alaskan Cable Company Shares and cash; (3) in the case of Alaska
Cablevision, the sale of substantially all of the assets of Alaska Cablevision
in return for the issuance of the Cablevision Company Notes and cash; (4) in the
case of McCaw/Rock Homer, the sale of substantially all of the assets of the
Cable Company to the Company in return for cash; and (5) in the case of
McCaw/Rock Seward, the sale of substantially all of the assets of the Cable
Company in return for the payment by the Company of cash.
2. Acquisition or Disposition of Assets
(a) Brief Description, Manner of Acquisition. As of the
Closing Date, the Company closed on the seven Purchase Agreements involving the
acquisition of all of the security interests of Prime, i.e., all of the limited
and general partner interests, directly or indirectly, and all of the equity
participation interests in Prime, and substantially all of the assets of Alaskan
Cable, Alaska Cablevision, McCaw/Rock Homer and McCaw/Rock Seward. The seven
Cable Companies acquired by the Company have cable distribution systems passing
approximately 74% of households throughout Alaska. As of June 30, 1996, those
systems had more than 105,000 basic cable television subscribers in the state.
With the closing on the Transactions, the Company has through
the Cable Subsidiaries become the owner and operator of the cable systems of
Prime located in Alaska ("Prime Cable Systems") and the cable systems of the
other six Cable Companies in Alaska. The Prime Alaska Systems consist of three
cable communications systems serving several communities in Alaska: (1)
Anchorage (including Eagle River, Chugiak, Fort Richardson, and Elmendorf Air
Force Base); (2) Kenai and Soldotna; and (3) Bethel. The Alaskan Cable systems
acquired by the Company under the Alaskan Cable Purchase Agreement are comprised
of three systems serving the following
General Communication, Inc. - Form 8-K
Page 9
Alaskan communities: (1) Fairbanks (including Fort Wainwright and Eielson Air
Force Base); (2) Juneau; and (3) Ketchikan and Sitka. The Alaska Cablevision
cable systems acquired by the Company under the Alaska Cablevision Purchase
Agreement are comprised of seven systems serving the following Alaskan
communities: (1) Kodiak; (2) Valdez; (3) Cordova; (4) Petersburg; (5) Wrangell;
(6) Kotzebue; and (7) Nome. The McCaw/Rock Homer cable system acquired by the
Company under the McCaw/Rock Homer Purchase Agreement services the Homer, Alaska
area. The McCaw/Rock Seward cable system acquired by the Company under the
McCaw/Rock Seward Purchase Agreement services the Seward, Alaska area. The
acquisition by the Company of the Prime Cable Systems, and the cable systems of
Alaskan Cable and Alaska Cablevision are considered significant. However, the
acquisitions by the Company of the McCaw/Rock Homer and the McCaw/Rock Seward
cable systems are considered insignificant by the Company for purposes of
financial disclosure in the Registration Statement and in this report.
The Company will for the foreseeable future operate these
Cable Company cable systems as the Company's cable systems ("Company Cable
Systems"). Over a longer period of time, the Company intends to integrate the
cable operations of the Company Cable Systems into the Company's
telecommunication activities as a part of the Company's overall business
development. With the acquisition of substantially all of the assets of Alaskan
Cable, the Company does not envision any of the executive officers of the
corporations comprising Alaskan Cable joining the Company or assisting in the
development of the new line of cable services to be provided by the Company. As
of the Closing Date, the Company envisioned that an executive officer of Alaska
Cablevision might become an employee of the Company or a subsidiary of it.
However, as of that date, the Company did not envision that individual would
immediately become an executive officer of the Company or a subsidiary of it.
The Company anticipates with the closing on the Transactions, there will be
realignments of the personnel structure of the operation of the assets acquired
from the Cable Companies. The Company has interviewed employees of the Cable
Companies and others, and has selected in its determination the best qualified
applicant for each available position. As of the Closing Date, the Company had
made no commitment to retain any personnel of the Cable Companies other than as
previously described.
The Company has accomplished the acquisition of Prime through
an exchange of Class A common stock for certain of the limited partner interests
in Prime, all of the capital stock of Prime General Partner, all of the capital
stock of Alaska Cable, Inc., a limited partner of Prime ("ACI"), and all of the
equity participation interests in Prime as further identified elsewhere in this
report. See, Item 1 of this report. As a part of the Prime Transaction and as of
the Closing Date, the Company, through its wholly-owned subsidiary GCI Cable has
entered into the following merger agreements where GCI Cable is to be the
surviving corporation in each Transaction: (1) Agreement and Plan of Merger of
Alaska Cable, Inc. with and into GCI Cable; and (2) Agreement and Plan of Merger
of Prime Cable Fund I, Inc. with and into GCI Cable. These merger
General Communication, Inc. - Form 8-K
Page 10
agreements have been structured as Type A reorganizations under Section 368(a)
of the Code. In addition in the context of the Prime Transaction, the Company
closed on the following agreements as of the Closing Date: (1) the New Voting
Agreement with and including certain of the Prime Sellers through their
designated agent PIIM (for description, see, Item 1 of this report); (2) the
Prime Registration Rights Agreement with and including the Prime Sellers; and
(3) the Prime Management Agreement with PIIM.
Under the Prime Registration Rights Agreement, the initial
distribution to and, to the extent required, subsequent resales or distributions
by the Prime Sellers (and their distributees) of their portion of the Prime
Company Shares will be registered under the Securities Act. To the extent
subsequent resale or distributions by the Prime Sellers (and their distributees)
are required to be registered, the Company will keep the prospectus through
which such offers would be made current for a period of two years from the
Closing Date or otherwise satisfy its responsibilities for registration through
other registration formats.
Under the Alaskan Cable Purchase Agreement, Alaskan Cable has
registration rights similar to those described for the Prime Sellers. Under the
Alaska Cablevision Purchase Agreement, Alaska Cablevision and its shareholders
have registration rights similar to that described previously for the Prime
Sellers, should Alaska Cablevision or its shareholders exercise their rights to
convert the Cablevision Company Notes to Company Class A common stock.
Under the Prime Management Agreement, PIIM will manage the
Company Cable Systems. PIIM had, previous to the Closing Date, managed the Prime
Alaska Systems. The Prime Management Agreement is to continue for a term of nine
years unless earlier terminated under a number of circumstances including the
following: (1) with respect to any of the Company Cable Systems, upon the
termination or revocation of the Company's cable television certificates of
public convenience and necessity or franchises in those systems; (2) upon the
sale of all or substantially all of the assets of the Company Cable Systems or
the sale of all of the equity interests of the owner of the Company Cable
Systems; (3) upon PIIM's material breach of the agreement and failure to cure
within 30 days; (4) upon the Company's material breach of the agreement and
failure to cure within 30 days; or (5) after the second anniversary of the date
of the agreement, at the option of either PIIM or the Company.
(b) Consideration. Through the Prime Purchase Agreement, the
Company as of the Closing Date issued and delivered (subject to holdback escrow)
to the Prime Sellers, the Prime Company Shares in return for acquiring, directly
or indirectly, all of the security interests in Prime.
Through the Alaskan Cable Purchase Agreement the Company as of
the Closing Date delivered, for allocation among the three corporations
comprising Alaskan Cable in amounts to be agreed to by those corporations and
the Company for
General Communication, Inc. - Form 8-K
Page 11
subsequent distribution to the shareholders of those three corporations and as
payment for substantially all of the Alaskan Cable assets, $70,000,000 as
follows: (1) $51,000,000 in cash; and (2) issuance of the Alaskan Cable Company
Shares, subject to share holdback.
Through the Alaska Cablevision Purchase Agreement the Company
as of the Closing Date delivered to Alaska Cablevision, for distribution to its
shareholders as payment for substantially all of the Alaska Cablevision assets,
$26,650,000 as follows: (1) $16,650,000 paid in cash, subject to adjustments at
closing which were immaterial; and (2) $10,000,000 in subordinated convertible
Cablevision Company Notes issued by the Company, subject to note holdback as
provided in the agreement. The Cablevision Company Notes are convertible into as
many as 1,538,462 shares of Company Class A common stock.
Through the McCaw/Rock Homer Purchase Agreement, the Company
as of the Closing Date delivered to McCaw/Rock Homer in return for substantially
all of the McCaw/Rock Homer assets $1,466,132 paid in cash, subject to
adjustments at closing, which were immaterial, and holdback at closing as
provided in the agreement.
Through the McCaw/Rock Seward Purchase Agreement, the Company
as of the Closing Date delivered to McCaw/Rock Seward in return for
substantially all of the McCaw/Rock Seward assets $2,883,868 paid in cash,
subject to adjustments at closing, which were immaterial, and holdback at
closing as provided in the agreement.
Through the MCI Purchase Agreement, the Company as of the
Closing Date issued and sold to MCI in return for $13 million paid in cash, the
MCI Company Stock.
(c) Determination of Value.
General. For purposes of valuing the Company Stock and the MCI
Company Stock, the respective parties to the Prime Purchase Agreement, the
Alaskan Cable Purchase Agreement and the MCI Purchase Agreement agreed that the
value would be set at $6.50 per share of Company Class A common stock.
Similarly, the parties to the Alaska Cablevision Purchase Agreement agreed that
the conversion of the Cablevision Company Notes would be based upon a value of
the Company Class A common stock at $6.50 per share.
Company. Company management considered several alternative
methods to value its stock to be issued pursuant to the Transactions, including
multiples of net sales, return on equity and multiples of operating cash flow. A
range of multiples and corresponding values were derived and evaluated. For
example, the Company gathered information on six similar transactions closing
during the period from January, 1993 through December, 1995. The Company
calculated a range of net sales multiples for
General Communication, Inc. - Form 8-K
Page 12
those companies from 0.62 to 3.38. The mean multiple was 1.77 times net sales
which, if used for the Company, would result in a stock price of approximately
$8.08 per share for the year ended December 31, 1995. In general, smaller
companies in those transactions received lower multiples, and each of the
companies included in the analysis generated revenues in excess of those of the
Company. Valuations vary based upon a number of factors including the size of
the company studied, its equity structure and the nature of its products and
services.
A value of $6.50 per share was agreed upon as a fair value for
the Company Stock after considering several factors, including the following:
(1) management's evaluation of other transactions in the telecommunications
industry; (2) management's consideration of the value it would likely receive in
a sale of equity in the public markets; (3) management's broad knowledge and
experience in the telecommunications industry; and (4) arms-length negotiations
between the parties to the Transactions. This price represents a 30% premium to
its pre-acquisition price, which was approximately $5.00 per share prior to
March, 1996.
The Company's valuation of the Cable Companies, at the time of
its negotiation of the acquisition of those Cable Companies during the first
quarter of 1996, was based upon the Company Board's assessment of the Cable
Companies' value as independent cable companies at that time, using cash flow
multiples that the Company Board believed were less than other then recent
acquisitions in the cable industry. The Company Board determined that the
proposed prices and structure of the Acquisition Plan represented fair prices
for all parties and created opportunities for growth in the future value of the
equity. In making its final determination on the Acquisition Plan, the Company
Board did not seek and did not receive any independent valuations or opinions
from financial advisors as to fairness of the consideration to be paid in
connection with any of the Transactions.
Prime and Alaskan Cable. Cable television companies have
traditionally been valued on the basis of a multiple of historical or projected
operating cash flow. The particular multiple varies depending upon general
market and economic conditions, the regulatory climate for the cable television
industry, and other factors.
Prime management considered a range of multiples of
twelve-month historical or projected operating cash flow, less indebtedness owed
by the Cable Company. In determining operating cash flow, Prime used "earnings
before interest, taxes, depreciation and amortization." Using the operating cash
flow valuation method, Prime was valued by Prime management and the Company at
$186.1 million, representing a multiple of 10.7 times the net operating cash
flow for the first calendar quarter of 1996 (annualized), less indebtedness of
$109.4 million, resulting in a net equity value of $76.7 million.
General Communication, Inc. - Form 8-K
Page 13
Prime management used an assumed value of $6.50 per share for
the Company Stock for purposes of determining the fixed number of shares of
Company Stock to be issued and delivered in connection with the Prime
Transaction. The $6.50 per share valuation is equal to approximately 7.7 times
annualized budgeted operating cash flow of the Company for the first calendar
quarter of 1996, based upon budgets prepared by the Company.
The $6.50 per share value for the Company was agreed upon
after considering several valuation methods, including return on equity, a
multiple of revenues and a multiple of operating cash flow. In addition to the
information referred to in the preceding paragraph, Prime management also
gathered information regarding recent acquisitions involving telecommunications
companies, although some of the acquisitions were between long distance
companies and might have involved a synergy that might not exist in the Prime
Transaction. One group of acquired companies with annual revenues below $500
million (Link, Enhanced, WCT, and American Sharecom) were valued at an average
multiple of 1.26 times gross revenue. Using this same multiple, the Company
would be valued at $6.28 per share at the end of calendar 1995 and a $5.80 per
share value at the end of 1996. The decline in such per share valuation at the
end of 1996 is due primarily to the planned capital expenditures for 1996 which
will require the Company to incur additional indebtedness at a rate that exceeds
the increase in gross asset value based on revenues.
Management for each of the corporations comprising Alaskan
Cable has extensive experience in and knowledge of the cable communications
industry and believes that it is generally familiar with transactions involving
the purchase and sale of cable communications systems of comparable size to the
cable systems which are the subject of the Alaskan Cable Purchase Agreement.
Based upon that experience and knowledge, management for each corporation
concluded that the terms of the Alaskan Cable Purchase Agreement as negotiated
with the Company were at least as favorable as could have been obtained from any
third party.
(d) Identity of Persons from Whom Assets Were Acquired. Prime
is a Delaware limited partnership with principal offices in Austin, Texas and is
structured as follows: (1) general partner--Prime General Partner whose sole
shareholder is PCLP, a Delaware limited partnership; (2) corporate limited
partner--ACI, a Delaware corporation; and (3) two other limited partners--Prime
Growth and Prime Holdings, both Delaware limited partnerships. The holders of
equity participation interests in Prime were as follows: (1) BancBoston Capital,
Inc.; (2) First Chicago Investment Corporation; and (3) Madison Dearborn
Partners V.
Alaskan Cable is comprised of three Alaska corporations, all
with principal offices in Middleburg, Virginia: (1) Alaskan Cable/Fairbanks,
whose sole shareholder is Alaskan Cable Network, Inc., (2) Alaskan Cable/Juneau,
whose sole shareholder is Alaska Cable Network/Juneau Holdings, Inc.; and (3)
Alaskan Cable/Ketchikan, whose
General Communication, Inc. - Form 8-K
Page 14
sole shareholder is Jack Kent Cooke Incorporated. As of the Closing Date, Jack
Kent Cooke, a director and executive officer of each of the three corporations
comprising Alaskan Cable controlled directly or indirectly through affiliates
all of the shares of outstanding voting common stock of all three of these
corporations.
Alaska Cablevision is a Delaware corporation with principal
offices in Kirkland, Washington. McCaw/Rock Homer is an Alaska joint venture
with principal offices in Kirkland, Washington. McCaw/Rock Homer is comprised of
Rock Associates, Inc. and McCaw Communications of Homer, Inc., a wholly-owned
subsidiary of AT&T Corporation. McCaw/Rock Seward is an Alaska joint venture
with principal offices in Kirkland, Washington. McCaw/Rock Seward is comprised
of Rock Associates, Inc. and McCaw Communications of Seward, Inc., a
wholly-owned subsidiary of AT&T Corporation.
As of immediately prior to the Closing Date, the Company had
no material relationship with any of the Cable Companies or their affiliates,
except through the corresponding Purchase Agreements.
(e) Sources of Funds, Purchase Price. The total purchase price
(approximately $285,700,000) was paid by the Company through the issuance of the
Company Stock, bank financing of approximately $167,000,000 (including
assumption of approximately $103,000,000 of existing Prime debt and new
financing of approximately $59,000,000), sale of the MCI Company Stock to MCI
and other financing of approximately $10,000,000 in the form of issuance of the
Cablevision Company Notes. The total purchase price was approximately $5 million
higher than originally envisioned in that the debt of Prime increased by that
amount to approximately $167 million because of capital expenditures by and
refinancing costs of Prime between the time of execution of the Prime Purchase
Agreement and the Closing Date. Both Prime and the Company agreed to these
changes at closing on that agreement, and the parties did not consider the
increases material to the Prime Transaction.
Item 7. Financial Statements and Exhibits
(a) Financial Statements. The historical financial statements
for Prime, Alaskan Cable (combined for the three corporations of which it is
comprised), and Alaska Cablevision for the three- and six- month periods ended
June 30, 1996 and for the years ended December 31, 1995, 1994, and 1993 were
prepared in accordance with Regulation S-X and included in the Registration
Statement. Those historical financial statements are found at pages F-1 through
F-57 of the Registration Statement and are incorporated by reference into this
report.
The pro forma combined condensed financial statements
(unaudited) for the Company pursuant to the Transactions, including a pro forma
combined condensed balance sheet as of June 30, 1996 (unaudited), a pro forma
combined condensed
General Communication, Inc. - Form 8-K
Page 15
statement of operations for the six months ended June 30, 1996 (unaudited), a
pro forma combined condensed statement of operations for the year ended December
31, 1995 (unaudited), and notes to pro forma combined financial statements, June
30, 1996 and December 31, 1995 (unaudited), were prepared in accordance with
Regulation S-X and included in the Registration Statement. Those pro forma
combined condensed financial statements (unaudited) and notes to them are found
at pages F-58 through F-68 of the Registration Statement and are incorporated by
reference into this report.
(b) Exhibits. None thought to be appropriate, and none to be
filed with this report, other than the exhibits listed in the following table
which have not previously been filed with the Commission except as expressly
identified.
As of the Closing Date, the Company and the Prime Sellers
documented their agreement to certain non-material amendments to the Prime
Purchase Agreement by executing the Amendment No. 1 to Securities Purchase and
Sale Agreement. As of the Closing Date, the Company and Alaskan Cable documented
their agreement to certain non-material amendments to the Alaskan Cable Purchase
Agreement by executing the Amendment No. 1 to the Alaskan Cable Purchase
Agreement.
The Company and the Prime Sellers documented at closing the
waiver of certain non-material terms of the Prime Purchase Agreement through the
Waiver. As of the Closing Date, and as a part of the closing on the Company's
acquisition of the Cable Companies, the senior loan agreement for Prime and the
senior credit agreement for the Company through its subsidiary GCI Communication
Corp. were amended. The Company issued a press release dated November 7, 1996.
Copies of these documents and materials have been included as exhibits to this
report.
The Purchase Agreements, the merger agreements as described in this
report, the Prime Registration Rights Agreement, and the New Voting Agreement,
all of which are exhibits to the Registration Statement, are incorporated by
reference into this report.
General Communication, Inc. - Form 8-K
Page 16
Exhibit
Number Description
- ------ -----------
2.1 Amendment No. 1 to Securities Purchase and Sale Agreement
[Prime] (1)
2.2 Amendment No. 1 to Alaskan Cable Purchase Agreement (2)
2.3 Waiver [Prime]
23.1 Consent of Ernst & Young LLP (Prime accountant 1994, 1995 and
1996)
23.2 Consent of Coopers & Lybrand L.L.P. (Prime accountant 1993)
23.3 Consent of Ernst & Young LLP (Alaskan Cable accountant for
Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and Alaskan
Cable/Ketchikan)
23.4 Consent of Carl & Carlsen (Alaska Cablevision accountant)
23.5 Report of Independent Auditors (1994 and 1995) [Ernst & Young
LLP for Prime]
23.6 Report of Independent Accountants (1993) [Coopers & Lybrand
for Prime]
23.7 Report of Independent Auditors [Ernst & Young for Alaskan
Cable]
23.8 Report of Independent Auditors [Carl & Carlsen for Alaskan
Cablevision]
99.1 Press Release of the Company Dated November 7, 1996
99.2 Third Amended and Restated Credit Agreement Dated as of
October 31, 1996 Between GCI Communication Corp. and
NationsBank of Texas, N.A.
99.3 Loan Agreement Among GCI Cable, Inc., as Borrower;
Toronto-Dominion (Texas), Inc., et al., as of October 31, 1996
- --------------------
(1) The Prime Purchase Agreement was amended at closing as of the Closing Date.
The amendment was in major part made to cause the agreement to reflect changes
in the historical financial statements suggested by the staff of the Commission
at the time of the staff's reveiw of the Registration Statement. Those changes
were made to the financial statements included in the Registration Statement.
The Company does not consider the amendment to the Prime Purchase Agreement as
material, and the amendment is included as an exhibit to this report.
(2) The Alaskan Cable Purchase Agreement was amended at closing as of the
Closing Date. The amendment consisted in major part of miscellaneous items of
clarification of terms and conditions of the agreement. Those changes were not
included in the Registration Statement. The Company does not consider the
amendment to the Alaskan Cable Purchase Agreement as material, and the amendment
is included as an exhibit to this report.
General Communication, Inc. - Form 8-K
Page 17
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
GENERAL COMMUNICATION, INC.
(Registrant)
DATED: November 8, 1996 By: /s/
Ronald A. Duncan
Its: President and Chief Executive Officer
DATED: November 8, 1996 By: /s/
John M. Lowber
Its: Secretary and Chief Financial Officer
General Communication, Inc. - Form 8-K
Page 18
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 8-K
CURRENT REPORT
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
GENERAL COMMUNICATION, INC.
November 8, 1996
EXHIBITS
General Communication, Inc. - Form 8-K
Page 19
EXHIBIT INDEX
Page Number in
Exhibit Sequentially
Number Description Numbered Copy
- ------ ----------- -------------
2.1 Amendment No. 1 to Securities Purchase and Sale Agreement
[Prime] (1)...........................................................................21
2.2 Amendment No. 1 to Alaskan Cable Purchase Agreement (2)........................................28
2.3 Waiver [Prime].................................................................................33
23.1 Consent of Ernst & Young LLP (Prime accountant 1994, 1995
and 1996).............................................................................36
23.2 Consent of Coopers & Lybrand L.L.P. (Prime accountant 1993)....................................37
23.3 Consent of Ernst & Young LLP (Alaskan Cable accountant for
Alaskan Cable/Fairbanks, Alaskan Cable/Juneau, and
Alaskan Cable/Ketchikan)..............................................................38
23.4 Consent of Carl & Carlsen (Alaska Cablevision accountant)......................................39
23.5 Report of Independent Auditors (1994 and 1995) [Ernst &
Young LLP for Prime]..................................................................40
23.6 Report of Independent Accountants (1993) [Coopers &
Lybrand for Prime]....................................................................41
23.7 Report of Independent Auditors [Ernst & Young for
Alaskan Cable]........................................................................42
23.8 Report of Independent Auditors [Carl & Carlsen for
Alaskan Cablevision]..................................................................43
99.1 Press Release of the Company Dated November 7, 1996............................................44
99.2 Third Amended and Restated Credit Agreement Dated
as of October 31, 1996 Between GCI Communication Corp.
and NationsBank of Texas, N.A.........................................................46
99.3 Loan Agreement Among GCI Cable, Inc., as Borrower;
Toronto-Dominion (Texas), Inc., et al.,
as of October 31, 1996...............................................................154
<FN>
- --------------------
1 The Prime Purchase Agreement was amended at closing as of the Closing
Date. The amendment was in major part made to cause the agreement to reflect
changes in the historical financial statements suggested by the staff of the
Commission at the time of the staff's review of the Registration Statement.
Those changes were made to the financial statements included in the Registration
Statement. The Company does not consider the amendment to the Prime Purchase
Agreement as material, and the amendment is included as an exhibit to this
report.
2 The Alaskan Cable Purchase Agreement was amended at closing as of the
Closing Date. The amendment consisted in major part of miscellaneous items of
clarification of terms and conditions of the agreement. Those changes were not
included in the Registration Statement. The Company does not consider the
amendment to the Alaskan Cable Purchase Agreement as material, and the amendment
is included as an exhibit to this report.
</FN>
General Communication, Inc. - Form 8-K
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