Exhibit (a)(1)(A)
GENERAL COMMUNICATION, INC.
OFFER TO EXCHANGE
RESTRICTED STOCK
FOR
CERTAIN OUTSTANDING STOCK OPTIONS
THIS OFFER AND YOUR WITHDRAWAL RIGHTS EXPIRE
AT 11:59 p.m., ALASKA DAYLIGHT TIME, ON SEPTEMBER 4, 2009, UNLESS WE EXTEND THE OFFER.
This Offer to Exchange constitutes part of the Section 10(a) Prospectus
Relating to the Amended and Restated 1986 Stock Option Plan of General Communication, Inc.
The Date of this Offer to Exchange is August 6, 2009
General Communication, Inc. (GCI, the Company, we, us or our) is offering eligible officers, employees and stakeholders (participants) the opportunity to exchange, on a grant-by-grant basis, their outstanding eligible stock options that were granted under our Amended and Restated 1986 Stock Option Plan, (as amended, the Plan) whether vested or unvested, for shares of restricted stock of GCI Class A common stock (Common Stock) that we will grant under the Plan. Generally, eligible options include all options issued pursuant to the Plan between January 1, 1999, and February 15, 2009, excluding any options that vest based on EBITDA performance.
The Company has established an Exchange Offer Website through BNY Mellon at the website address http://www.corp-action.net/GCI. You may access your Individual Statement of Options on the Exchange Offer Website or, if you are unable to access the Exchange Offer Website, we will mail you an Individual Statement of Options separate from this Offer to Exchange. Your statement identifies each of the eligible options you currently hold and the exchange ratio that will apply to the option if it meets the requirements for eligibility on the date the offer expires. The exchange ratio represents the number of shares subject to an eligible option that will be canceled, should you choose to tender that option in this offer, for each share of restricted stock that would be granted to you. Your statement also indicates for each of the options listed the number of shares of restricted stock you will receive if the option is exchanged.
We expect to issue the shares of restricted stock on the first business day following the expiration of this offer. Shares of restricted stock issued in this offer will vest as follows: (1) 50% of the shares of restricted stock will vest on December 20, 2011, and (2) the remaining 50% of the shares of restricted stock will vest on February 28, 2012. Until shares of restricted stock have vested, they remain subject to forfeiture if your employment with GCI or one of its majority-owned subsidiaries terminates prior to the vesting date (if you are an officer or employee of GCI), or if you no longer continue to provide services to GCI prior to the vesting date (if you are a consultant or advisor to GCI). All unvested shares of restricted stock will also be subject to restrictions on transfer. If and when the shares vest, they will be free of forfeiture conditions and restrictions on transfer, other than required tax withholding and compliance with applicable securities laws, our securities trading policies and any other legal requirements. All shares of restricted stock will be subject to the terms of the Plan and an award agreement between you and the Company.
i
Participation in this offer is voluntary, and there are no penalties for electing not to participate. If you choose not to participate in the offer, you will not receive shares of restricted stock, and your outstanding options will remain outstanding according to their existing terms and conditions.
Shares of our Common Stock are quoted on the NASDAQs Global Select Market under the symbol GNCMA. On July 30, 2009, the closing price of one share of Common Stock on the NASDAQ Global Select Market was $7.02. We recommend that you get current market prices for our Common Stock before deciding whether to exchange your eligible options.
See Certain Risks of Participating in the Offer beginning on page 16 for a discussion of risks that you should consider before participating in this offer.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed judgment upon the accuracy or adequacy of this offer. Any representation to the contrary is a criminal offense.
We are making this offer upon the terms and conditions described in this Offer to Exchange, the Letter of Transmittal/Withdrawal and the Individual Statement of Options, and the offer is not conditioned on any minimum number of options being exchanged. The offer is, however, subject to conditions that we describe in Section 7 of this Offer to Exchange.
If you want to exchange any of your eligible options, you must indicate which of your eligible options that you wish to exchange on your Letter of Transmittal/Withdrawal and electronically submit the Letter of Transmittal/Withdrawal through the Exchange Offer Website at the website address http://www.corp-action.net/GCI. If you are unable to access the Exchange Offer Website, you may complete, sign and date the form of Letter of Transmittal/Withdrawal that we have provided to you and deliver the Letter of Transmittal/Withdrawal to us according to the instructions contained in the Letter of Transmittal/Withdrawal. Your election to participate in the offer will be effective only if the completed Letter of Transmittal/Withdrawal is received by GCI through the Exchange Offer Website or through the alternative delivery methods set forth in the Letter of Transmittal/Withdrawal before the offer expires.
IMPORTANT NOTICE
Although our Board of Directors has approved this offer, neither we nor our Board of Directors makes any recommendation to you as to whether or not you should tender your eligible options for exchange. Also, GCI has not authorized any person to make any recommendation on its behalf as to whether or not you should accept this offer.
You are strongly encouraged to consult with your advisors, including your tax advisor, before making any decisions regarding the offer.
The statements in this Offer to Exchange concerning the eligible options, the Plan and the restricted stock are summaries of the material terms but are not complete descriptions of the eligible options, the Plan, or the restricted stock. The Plan and the Form of Restricted Stock Agreement have been filed as exhibits to our Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (to which this Offer to Exchange is also an exhibit). See Section 17 of this Offer to Exchange for additional information regarding the Schedule TO.
ii
You should rely only on the information contained in this Offer to Exchange or documents to which we have referred you. We have not authorized anyone to provide you with different information or to make any representations in connection with this offer other than the information and representations contained in this Offer to Exchange or as provided on the Exchange Offer Website. We are not making an offer of the restricted stock in any jurisdiction where the offer is not permitted. However, we may, at our discretion, take any actions necessary for us to make the offer to option holders in any of these jurisdictions. You should not assume that the information provided in this Offer to Exchange is accurate as of any date other than the date as of which it is shown, or if no date is otherwise indicated, the date of this offer. This Offer to Exchange summarizes various documents and other information. These summaries are qualified in their entirety by reference to the documents and information to which they relate.
iii
TABLE OF CONTENTS
|
|
Page |
|
SUMMARY TERM SHEET |
|
1 |
|
How The Option Exchange Program Works |
|
1 |
|
Background And Purpose Of The Offer |
|
8 |
|
Duration Of The Offer |
|
11 |
|
How To Elect To Participate |
|
11 |
|
U.S. Federal Income Tax Considerations |
|
13 |
|
How To Get More Information |
|
16 |
|
CERTAIN RISKS OF PARTICIPATING IN THE OFFER |
|
16 |
|
Economic Risks |
|
16 |
|
Tax-Related Risks |
|
19 |
|
Business-Related Risks |
|
21 |
|
THE OFFER |
|
21 |
|
Section 1. |
Eligibility |
|
21 |
Section 2. |
Number of Shares of Restricted Stock; Expiration Date |
|
21 |
Section 3. |
Purpose of the Offer |
|
24 |
Section 4. |
Procedures for Tendering Options |
|
24 |
Section 5. |
Withdrawal Rights and Change of Election |
|
26 |
Section 6. |
Acceptance of Options for Exchange and Issuance of Restricted Stock |
|
27 |
Section 7. |
Conditions of the Offer |
|
28 |
Section 8. |
Price Range of Our Common Stock |
|
31 |
Section 9. |
Source and Amount of Consideration; Terms of Restricted Stock |
|
31 |
Section 10. |
Information Concerning General Communication, Inc |
|
34 |
Section 11. |
Interests of Officers; Transactions and Arrangements Concerning the Options |
|
36 |
Section 12. |
Accounting Consequences of the Offer |
|
37 |
Section 13. |
Legal Matters; Regulatory Approvals |
|
38 |
Section 14. |
Material U.S. Federal Income Tax Consequences |
|
38 |
Section 15. |
Extension of Offer; Termination; Amendment |
|
41 |
Section 16. |
Fees and Expenses |
|
42 |
Section 17. |
Additional Information |
|
42 |
Section 18. |
Forward-Looking Statements |
|
43 |
APPENDIX A INFORMATION ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF GENERAL COMMUNICATION, INC. |
|
44 |
iv
The following are answers to some questions about our offer. The answers are summaries and do not describe all of the details of the offer. You should read all of this Offer to Exchange, the Letter of Transmittal/Withdrawal, your Individual Statement of Options, the Plan and the Form of Restricted Stock Agreement because they contain the full details of our offer and the terms of the restricted stock, and these details could be important to you. For many of the questions, we have included a reference to the section or sections of this Offer to Exchange where you can find a more complete discussion.
This Summary is presented in question-and-answer format. The questions and answers are grouped into the following categories:
· How the Option Exchange Program Works
· Background and Purpose of the Offer
· Duration of the Offer
· How to Elect to Participate
· U.S. Federal Income Tax Considerations
· How to Get More Information
References in this Offer to Exchange to GCI, the Company, we, us and our mean General Communication, Inc., and references to the time the offer expires mean 11:59 p.m., Alaska Daylight Time, on September 4, 2009, or, if we extend the offer period, any later date that we specify. References to the Offer to Exchange mean this Offer to Exchange and its appendices. References to the offer or the program mean the option exchange program described in this Offer to Exchange.
Q1. What is the Offer?
A1. Beginning on August 6, 2009, and ending at 11:59 p.m., Alaska Daylight Time, on September 4, 2009, unless we extend the offer, each eligible officer, employee and stakeholder (described in Question 2 below) may decide to exchange eligible options (described in Question 4 below) for an award of shares of restricted stock of GCI Class A common stock (Restricted Stock) (described in Question 10 below). The number of shares of Restricted Stock an eligible officer, employee or stakeholder will receive in exchange for an eligible option will be determined by the exchange ratio described in Question 13 below. Restricted Stock issued at the expiration of this offer will vest as follows: 50% of the Restricted Stock will vest on December 20, 2011, and 50% of the Restricted Stock will vest on February 28, 2012.
Participation in this offer is voluntary, and there are no penalties for electing not to participate. If you choose not to participate in the offer, you will not receive Restricted Stock, and your outstanding options will remain outstanding in accordance with their current terms and conditions.
1
Q2. Am I eligible to participate?
A2. Only eligible officers, employees and stakeholders may participate in this offer. If you are an officer or employee of GCI, then you generally are eligible if you were an officer or an employee of GCI on August 6, 2009 and remain an officer or an employee (even if on an approved leave of absence) immediately prior to the expiration of the offer. Officers of GCI who also serve on our Board of Directors are not eligible to participate in this offer. If you are an eligible officer or employee of GCI and you resign or receive a notice of termination at any time before the expiration of the offer, you are not eligible to participate in the offer. If you are a consultant or advisor to GCI and have previously been granted options under the Plan, then you generally are eligible if you continue to be retained by GCI to perform services immediately prior to the expiration of the offer. If you are a consultant or advisor to GCI and you receive a notice that GCI has decided to discontinue the use of your services at any time prior to the expiration of the offer, you are not eligible to participate in the offer. (See Section 1.)
Q3. What happens if my employment terminates, or if I am notified by GCI that my role as a consultant or advisor has been discontinued, before the expiration of the offer?
A3. If you tender options for exchange in this offer, but before the expiration of the offer your position as an officer or employee with GCI terminates for any reason, you submit or receive a notice of termination of employment or you receive a notice that your services as a consultant or advisor to GCI have been discontinued, then your tender will automatically be deemed withdrawn and you will not participate in the option exchange program. You will retain your outstanding options in accordance with their current terms and conditions, and you may exercise them during a limited period of time following your termination of service in accordance with their terms to the extent that they are vested. This offer does not change your status as an at will employee, and your employment may be terminated by us or by you at any time, including before the offer expires, for any reason, with or without cause, subject to any employment agreement you may have with GCI (or one of our subsidiaries or a successor entity, as applicable). If you are a consultant or advisor to GCI, this offer does not guarantee your continued status as a consultant or advisor, nor does it otherwise change the terms and conditions of your provision of services to GCI.
Q4. Which options may I exchange?
A4. Only eligible options may be exchanged under this program. Eligible options are all options issued pursuant to the Plan between January 1, 1999, and February 15, 2009, excluding any options that vest based on EBITDA performance. You should review your Individual Statement of Options, which can be accessed on the Exchange Offer Website or, if you are unable to access the Exchange Offer Website, it will be mailed to you separate from this Offer to Exchange. It lists all of your options that are eligible for exchange. (See Section 2.)
Q5. If I participate, what will happen to my current options?
A5. Eligible options you elect to exchange under this program will be canceled promptly following the expiration of this offer, and you will no longer have those options available for exercise. Any options you do not tender for exchange will not be canceled and will remain outstanding at their existing exercise prices and under their existing terms. (See Sections 2 and 6.)
2
Q6. I have more than one eligible option. Do I have to exchange all of them in order to participate?
A6. No. You may exchange one or more of your eligible options or none at all. For the purposes of this offer, the term option means a particular option grant to purchase a specified number of shares of our Common Stock at a specified exercise price per share. If you decide to tender an option, you must tender the entire unexercised portion of the optiontenders of partial options will not be accepted. (See Section 2.)
Q7. May I tender unvested options?
A7. Yes. Your eligible options do not need to be vested in order for you to participate in the offer.
Q8. May I tender an option that I have already exercised in full?
A8. No. The offer pertains only to outstanding options. It does not apply in any way to shares you have already purchased, whether upon the exercise of options or otherwise, or whether or not you have vested in those shares. If you have exercised an option in its entirety, that option is no longer outstanding and is therefore not eligible for this offer. If you have exercised an eligible option in part, the remaining unexercised portion of that option is outstanding and may be tendered for exchange. Options for which you have properly submitted an exercise notice prior to the date the offer expires will be considered exercised to that extent, whether or not you have received confirmation of exercise for the shares purchased.
Q9. What is a stock option?
A9. A stock option is the right to purchase shares of stock at a specified price, regardless of the actual market price of the stock at the time the option is exercised. Typically, the specified purchase or exercise price is the market price of a share of our Common Stock on the date the option is granted. Due to subsequent fluctuations, at any given time following the grant of the option, the prevailing market price of the stock may be greater than, equal to, or less than the specified exercise price of the option. When the market price is greater than the exercise price of the option (otherwise known as an in-the-money option), the option holder receives value from exercising the option, because he or she is able to buy the stock underlying the option at less than its prevailing market price and then sell the purchased stock for the higher prevailing market price. The holder of an option to purchase stock at an exercise price that is equal to or greater than the prevailing market price (otherwise known as an out-of-the-money or an underwater option) generally would not exercise the stock option. The options eligible for exchange under this program may be both in-the-money or out-of-the-money, and we encourage you to consult with an investment and tax advisor as necessary before deciding to participate in the offer.
Q10. What are shares of restricted stock?
A10. Shares of Restricted Stock granted pursuant to this offer are shares of GCI Class A common stock that will be issued on the date the awards are granted to officers, employees and stakeholders participating in the offer. 50% of the shares of Restricted Stock will vest on December 20, 2011, and the remaining 50% of the shares of Restricted Stock will vest on February 28, 2012. Until shares of Restricted Stock have vested, they remain subject to forfeiture if your employment with GCI or one of its majority-owned subsidiaries terminates prior to the
3
vesting date (if you are an officer or employee of GCI), or if you no longer continue to provide services to GCI prior to the vesting date (if you are a consultant or advisor to GCI). If and when the shares vest, they will no longer be restricted, and you will be free to hold, transfer or sell them, subject to required tax withholding and compliance with applicable securities laws, our securities trading policies and any other legal requirements. (See Section 9.)
Generally, if you participate in the exchange offer, you will forfeit all of the shares of Restricted Stock granted to you in exchange for eligible options if, prior to the vesting dates set forth above, you cease to be an officer or employee of GCI or one of its majority-owned subsidiaries (if you are an officer or employee of GCI), or if you no longer continue to provide services to GCI (if you are a consultant or advisor to GCI). You may not transfer, pledge, or otherwise dispose of unvested restricted stock. The forfeiture provisions, transfer restrictions and other terms of the Restricted Stock are set forth in the Plan and the forms of award agreement included as exhibits to our Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (to which this Offer to Exchange is also an exhibit).
Q11. What is the principal difference between stock options and restricted stock?
A11. The value of a stock option fluctuates based on changes in the market price of our stock to a greater degree than the value of a share of restricted stock of equivalent value. Additionally, stock options have no realizable value when the market price of the underlying shares declines below the option exercise price, as it has in the case of some of the options eligible to participate in this offer. In contrast, restricted stock continues to have value even if the market price of our stock declines below its value at the time of grant. However, your eligible options, because they may be exchanged for a lesser number of shares of Restricted Stock, may have greater value if the market price of our Common Stock increases significantly. On the other hand, the Restricted Stock you would receive if you choose to participate in the offer (because no exercise price is required to be paid) will have greater value if the market price of our Common Stock does not increase significantly, provided you remain an officer or employee of, or a consultant or advisor to, GCI for the applicable vesting period.
Q12. Do I have to pay any money to receive shares of Restricted Stock?
A12. No. You will not be required to pay any money to receive shares of Restricted Stock. However, you will be responsible for paying all applicable taxes in connection with the Restricted Stock and sale of shares of our Common Stock. (See Questions 42 through 44 below and Section 14.)
Q13. If I participate, how many shares of Restricted Stock will I receive?
A13. The number of shares of Restricted Stock that we are offering in exchange for each eligible option is equal to the lesser of (i) a number of shares of Restricted Stock having a fair value (as described below) equal to 100% of the fair value of the eligible options exchanged for shares of Restricted Stock, or (ii) a number of shares of Restricted Stock equal to 40% of the number of shares issuable pursuant to the eligible options surrendered. The fair value of the eligible options will be the current value of the options as calculated by the Black-Scholes value of the eligible stock options. Black-Scholes is a commonly accepted valuation method which takes into account a number of factors in valuing stock options, including the Companys stock price and its volatility, the exercise price of stock options, a risk-free interest rate and the expected remaining term of the stock options. In determining the current value of each eligible option, we used the following assumptions: (i) an exercise price equal to the exercise price of the
4
eligible option; (ii) an assumed per share value of the Companys Class A common stock equal to the closing price per share as reported on the NASDAQ Global Select Market on July 30, 2009; (iii) an expected remaining term of the option equal to the period beginning on February 28, 2009 through the remaining contractual life of the eligible option; (iv) an expected dividend yield of 0%; (v) expected volatility of our Common Stock price equal to 50%; and (vi) an interest rate equal to the interest rate on U.S. Treasury Strips with a five-year maturity.
The number of shares of Restricted Stock that we are offering in exchange for each eligible option is determined by an exchange ratio based upon the exercise price of the eligible option. An illustrative example of the exchange ratio for a representative group of options is shown in the table below. You will receive an Individual Statement of Options identifying the actual exchange ratio for each of your eligible options.
Per
Share Exercise Price of |
|
Share of Restricted Stock |
|
|
|
$7.00/February 28, 2011 |
|
One share of Restricted Stock for every 3.33 exchanged options |
$12.00/February 28, 2015 |
|
One share of Restricted Stock for every 2.81 exchanged options |
$15.00/February 28, 2018 |
|
One share of Restricted Stock for every 2.5 exchanged options |
For purposes of applying the exchange ratios, fractional shares of Restricted Stock will be rounded to the nearest whole share of Restricted Stock on a grant by grant basis (with fractional shares of Restricted Stock greater than or equal to 0.5 rounded up to the nearest whole share of Restricted Stock and fractional shares of Restricted Stock less than 0.5 rounded down to the nearest whole share of restricted stock).
Please note: The exchange ratios apply to each of your option grants separately. This means that the various options you have received may be subject to different exchange ratios. (See Question 23 and Section 2.)
Q14. When will my restricted stock vest?
A14. All Restricted Stock received in exchange for eligible options will vest as follows: (i) 50% of the shares of Restricted Stock will vest on December 20, 2011, and (ii) the remaining 50% of the shares of Restricted Stock will vest on February 28, 2012. If your employment with GCI or one of its majority-owned subsidiaries terminates prior to a vesting date (if you are an officer or employee of GCI), or if you no longer continue to provide services to GCI prior to the vesting date (if you are a consultant or advisor to GCI), then you will forfeit any shares of Restricted Stock that remain unvested on the date your position as an officer or employee terminates or on the date that you are deemed to no longer provide services to GCI, as the case may be.
Q15. When and how will I receive my shares of Restricted Stock?
A15. Stock certificates will not be issued for shares of Restricted Stock that have not vested. Instead, shares of Restricted Stock will be issued and held of record in an account in the name of GCI on the records of our transfer agent. These shares will be held for the benefit of the officers, employees and stakeholders to whom the Restricted Stock was issued until they vest. As and
5
when shares of Restricted Stock vest and all applicable withholdings have been taken into account, your certificates for vested shares will be transferred from our transfer agent to an account in your name at the online broker who administers the Plan and related income and employment tax withholding obligations. If you are an officer or employee and elect to satisfy your income and employment tax withholding obligations that arise in connection with the vesting of your award through a share withholding procedure further described in Question 44 below, the number of shares you retain will be reduced by a number of whole shares whose value is at least equal to the amount of the tax withholding obligation. (See Question 44 below and Sections 9 and 14.)
Q16. What is the source of the Common Stock that will be issued as Restricted Stock?
A16. The Restricted Stock will be issued under the Plan, and will be drawn from the pool of the Companys Common Stock currently authorized for issuance under the Plan. The shares of Common Stock underlying the options exchanged in this offer, which were granted under the Plan, will be returned to the pool of Common Stock currently authorized for issuance under the Plan and will be available for future issuance as an equity award under the Plan.
Q17. What happens if my employment terminates, or if I am notified by GCI that my role as a consultant or advisor has been discontinued, before my restricted stock has vested?
A17. If your options are exchangeable for shares of Restricted Stock and you intend to terminate your employment before the Restricted Stock has vested, you should carefully consider whether or not to participate in the offer. Your eligible options may be fully or partially vested. If you do not exchange them, you may be able to exercise your currently vested options for a period of time after your employment ends (as specified in your stock option agreement). If you participate in the offer, the options you elect to exchange will be canceled and you will forfeit any Restricted Stock that has not vested at the time your employment or service as a consultant or advisor to GCI ends. (See Questions 9 and 14.)
Q18. If I participate, when will I receive my award agreement?
A18. We expect that Restricted Stock awards will be granted on the first business day following expiration of the offer in exchange for all properly tendered options that we accept for cancelation and exchange. We expect to provide you with a restricted stock agreement as soon as practicable following the grant date. You will not receive certificates evidencing the shares of Common Stock until your award vests. (See Question 15.)
Q19. Will my Restricted Stock ever expire?
A19. Unlike stock options, restricted stock does not expire. Instead, if you are still an officer or employee of, or a consultant or advisor to, GCI on the vesting date and you received shares of Restricted Stock in this offer, your shares of Restricted Stock will vest as described in this offer. See also the answers to Questions 14, 15 and 17.
Q20. What happens if GCI is acquired by another company before the offer expires?
A20. If we are acquired by another company before the offer expires, you may withdraw your tendered options and have all of the rights under your options. Further, if we are acquired prior to the offer expiration date, we reserve the right to withdraw the offer, in which case your options will remain outstanding subject to their terms.
6
Q21. Are there risks that I should consider in deciding whether to exchange my options?
A21. Yes. Exchanging your eligible options does have some risks. You should carefully review the discussion of certain of these risks elsewhere in this Offer to Exchange (Certain Risks of Participating in the Offer).
Q22. What happens if GCIs stock price increases during the offer?
A22. If our stock price increases during the offer, you may want to exercise some of your eligible options or even decide not to participate in the offer. If you want to exercise some of your eligible options and still participate in the offer, you can do so by exercising them before you make an election to participate. Once you have submitted an election to participate, you cannot exercise eligible options with respect to which an election to exchange has been made unless you first withdraw your election. If you withdraw and then exercise some of your eligible options and want to exchange the rest, you can do so by again following the procedures described in Section 4.
Q23. Why should I consider participating in the offer?
A23. If your options are exchangeable for shares of Restricted Stock and you participate in the offer, you will surrender eligible options for more shares than the number of shares of Restricted Stock you will receive, as described in the answer to Question 13 and Section 2.
The exchange ratio for each eligible option was approved by our Board of Directors based on a number of factors. The number of shares of Restricted Stock that we are offering in exchange for each eligible option is equal to the lesser of (i) a number of shares of Restricted Stock having a fair value (as described below) equal to 100% of the fair value of the eligible options exchanged for shares of Restricted Stock, or (ii) a number of shares of Restricted Stock equal to 40% of the number of shares issuable pursuant to the eligible options surrendered. The fair value of the eligible options will be the current value of the options as calculated by the Black-Scholes value of the eligible stock options. Black-Scholes is a commonly accepted valuation method which takes into account a number of factors in valuing stock options, including the Companys stock price and its volatility, the exercise price of stock options, a risk-free interest rate and the expected remaining term of the stock options.
The eligible options that you hold might never be in-the-money (see Question 9) and, therefore, may never have any realizable value to you. On the other hand, you should recognize that, while the Restricted Stock has a greater likelihood of having value when (and if) you sell the Restricted Stock after it vests, subject to limited exceptions, you will forfeit any Restricted Stock that has not vested on the day you stop being an officer or an employee of, or discontinue providing services as a consultant or advisor to, the Company.
In evaluating this offer, you should keep in mind that the future performance of our Common Stock will depend upon, among other factors, the overall economic environment, the performance of the overall stock market and companies in our sector, the performance of our business and the risks and uncertainties set forth in our filings with the Securities and Exchange Commission. We recommend that you read our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009, our Definitive Proxy Statement on Schedule 14A for our 2009 annual meeting of stockholders and our Current Reports on Form 8-K filed with the Securities and Exchange Commission on May 7, 2009, and August 6, 2009, all of which are available at the Securities and Exchange Commission web site at www.sec.gov, as well as all other documents incorporated by reference in our Tender Offer Statement on Schedule TO (to which this Offer to Exchange is also an exhibit).
7
Q24. Are there conditions to the offer?
A24. Yes. The offer is subject to a number of conditions that are described in Section 7. The offer is not conditioned on a minimum number of options being tendered for exchange or upon a minimum number of option holders accepting the offer. Participation in the offer is completely voluntary.
Q25. Why is GCI making this offer?
A25. As a result of a general decline in our stock price in recent years, a considerable number of our outstanding options have exercise prices substantially higher than the current and recent trading prices of our Common Stock. We believe that these out-of-the-money options are not achieving the purposes for which they were intended. In addition, because many of the eligible options have been out-of-the-money for extended periods of time, they have remained outstanding and have added to an increase in the overhang of options outstanding in relation to the aggregate number of shares of our Common Stock outstanding. The purpose of this offer is to promote the interests of our stockholders by (i) enhancing our ability to motivate and retain valued officers, employees, advisors and consultants, and (ii) reducing our overhang of outstanding awards by exchanging eligible options under an exchange ratio for a lesser number of shares of Restricted Stock. Because the number of shares of Restricted Stock that will be issued in this offer is less than the number of shares subject to outstanding options and the excess option shares will be available for equity awards under the Plan, the offer will increase the number of shares available to us that we may use for future equity award grants under the Plan, although it will not increase the total number of shares that we may issue under the Plan. (See Section 3.)
Q26. Why did GCI choose to offer this exchange for Restricted Stock rather than repricing eligible options or granting new options?
A26. Our Board of Directors considered a proposal made by management to address the issues of the significant number of out-of-the-money options and the costs to the Company of administering the Plan. Ultimately, the Board of Directors determined that our officers, employees, consultants and advisors could benefit from the opportunity to choose between what we believe is the more certain benefit associated with restricted stock and the potentially more valuable, though less certain, benefit they may realize by retaining their stock options. Additionally, by exchanging stock options according to the terms of this offer, we will reduce the number of shares of stock subject to outstanding equity awards, thereby reducing the near-term potential dilution to our stockholders and our administrative burdens relating to the Plan. (See Section 3.)
Q27. How did GCI determine what we would receive in exchange for our options?
A27. Our Board of Directors considered the potential benefits of the proposal made by management, as well as the related costs of the options to GCI, and determined that the approach reflected in this offer could provide value and incentives in a manner that would further the interests of our stockholders and reduce our administrative burdens relating to the Plan. We realize that many would like an even more favorable program for officers and employees, but we believe that this would be inconsistent with one of the principal goals of our equity compensation programs, which is to align the interests of our officers and employees with those of our stockholders. Similar to our option holders, many of our stockholders have suffered significant declines in the value of their stock in GCI, and there is no way to compensate them for their losses other than through increasing our stock price. We believe this program provides our officers and employees with incentives to accomplish this objective while keeping the cost to GCI at an acceptable level.
8
Q28. Will there be additional equity grants in the future?
A28. The Compensation Committee of our Board of Directors periodically evaluates our compensation programs. At this time, the Committee believes that equity compensation forms an important component of our compensation programs. Future equity awards to directors, officers and employees will be evaluated periodically, subject to the discretion of the Compensation Committee.
Q29. Is it likely that a similar offer to this one will be made in the future?
A29. While our Compensation Committee evaluates GCIs compensation programs periodically, it has no current intention to make any similar offer in the future. You should make your decision on the assumption that, if you do not surrender your eligible options in accordance with the terms of this offer (including the deadlines stated in this Offer to Exchange), you will not have another similar opportunity.
Q30. Does the Compensation Committee or our Board of Directors have a recommendation about this offer?
A30. None of the Company, the Compensation Committee or the Board of Directors is making a recommendation about this offer. Although the Board of Directors recommended the adoption of the amendment to the Plan that allowed the Company to engage in this exchange offer, they recognize that the decision to accept or reject this offer is an individual one that should be based on a variety of factors, including your own personal circumstances and preferences. We encourage you to consult your personal advisors to help you to determine whether to participate.
Although none of the Company, the Compensation Committee or the Board of Directors is making a recommendation about this offer, we are providing you with information on the Exchange Offer Website and we are scheduling workshops to assist you in making your own informed decision. In addition, we have set forth on your Individual Statement of Options the Equivalent Price, which sets forth the per share price of GCI Common Stock at which the value of your eligible options and the shares of Restricted Stock you would receive if you elect to participate in the offer would be considered mathematically equivalent. For example, assume that you hold 100 options to purchase GCI Common Stock at an exercise price of $12.00 per share. If the applicable exchange ratio in the Offer to Exchange was ..40, you would receive 40 shares of Restricted Stock. In this example, the Equivalent Price would be equal to approximately $20.00, as the net proceeds you would receive after selling the Common Stock acquired through the exercise of the options ($2,000 less the exercise price of $1,200, or $800) would be equivalent to the net proceeds you would receive after liquidating your Restricted Stock (40 shares multiplied by the per share price of $20.00, or $800). As long as the per share price of GCI Common Stock is above the Equivalent Price, then the options would be worth more; while during the time that the per share price of GCI Common Stock is lower than the Equivalent Price, the Restricted Stock would be worth more.
9
While you may find the Equivalent Price to be a helpful indicator based on your expectation of the future performance of GCIs Common Stock, there are a variety of other factors that should be taken into account in choosing whether to participate in the Offer to Exchange, including your personal risk tolerance, the applicable vesting dates of your eligible options and the Restricted Stock, and your personal tax situation. You are strongly encouraged to consult with your personal advisors if you have questions about your financial or tax situation. We are not making any recommendation as to whether you should or should not participate in this offer.
Q31. Is there any information regarding GCI that I should be aware of?
A31. Yes. Your decision of whether to accept or reject this offer should take into account the factors described in, but should not be limited to, those risks set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as well as the other information set forth in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009, our Definitive Proxy Statement on Schedule 14A for our 2009 annual meeting of stockholders and our Current Reports on Form 8-K filed with the Securities and Exchange Commission on May 7, 2009, and August 6, 2009. In addition, before making your decision to tender your eligible options, you should carefully review the information about GCI discussed below under the heading Certain Risks of Participating in the Offer and in Section 10 of this Offer to Exchange. This information includes an update on recent events affecting our business and explains where you can find additional information about us.
Q32. What are the accounting consequences to GCI of making this exchange offer?
A32. In connection with the issuance of Restricted Stock in exchange for tendered options that we accept for exchange, we may be required to recognize incremental compensation expense for the excess of the value of the Restricted Stock over the value of the tendered options on the exchange date. Such incremental compensation expense will be recognized over the vesting period when the Restricted Stock vests. Based on our assumptions as of the date we commence this offer, we expect this process to result in a significant book expense as our Black-Scholes valuation is attributing the full remaining term of the options to each officer, employee, consultant and advisor participating in the exchange, while FAS 123R shortens that term, potentially significantly.
As noted above, we are offering participants a number of shares of Restricted Stock having a fair value equal to 100% of the fair value of the eligible options exchanged by the participant (subject to a cap on the exchange of 40% for example, 100 options would convert into no more than 40 shares of Restricted Stock regardless of the value of the options). In determining the fair value of the exchanged options under Black-Scholes, we assumed an expected remaining term of the option equal to the period beginning on February 28, 2009, through the remaining contractual life of the eligible option. However, in determining the fair value of the option under FAS 123R, we are required to assume a shorter remaining life for the exchanged option, which results in a lower valuation of the exchanged option.
10
Q33. How long will this offer remain open? Can the offer be extended, and if so, how will I know if it is extended?
A33. This offer begins on August 6, 2009 and is scheduled to expire on September 4, 2009, at 11:59 p.m., Alaska Daylight Time. No exceptions will be made to this deadline, unless we extend it. Although we do not currently intend to do so, we may, in our sole discretion, extend the expiration date of this offer at any time. If we extend this offer, we will publicly announce the extension no later than 9:00 a.m., Eastern Daylight Time (or 5:00 a.m., Alaska Daylight Time), on the next business day after the last previously scheduled or announced expiration date. (See Section 15.)
Q34. If the offer is extended, how will the extension affect the date on which Restricted Stock will be granted?
A34. If we extend the offer and you elect to participate in it, you must properly tender any eligible option you wish to exchange before the expiration of the extended offer period. Your properly tendered eligible options will be accepted and canceled, and your award of Restricted Stock will be granted, promptly following the extended expiration date.
Q35. What do I need to do to participate in the offer?
A35. If you choose to participate in the offer, you must indicate which of your eligible options that you wish to exchange on your Letter of Transmittal/Withdrawal and electronically submit the Letter of Transmittal/Withdrawal through the Exchange Offer Website at the website address http://www.corp-action.net/GCI on or before September 4, 2009, at 11:59 p.m., Alaska Daylight Time. If you are unable to access the Exchange Offer Website, you may request a paper copy of our Tender Offer Statement on Schedule TO (to which this Offer to Exchange is also an exhibit), your Individual Statement of Options and any other materials that are subsequently posted to the Exchange Offer Website. If you choose to participate in the offer but are unable to access the Exchange Offer Website, you will be required to timely submit your election to participate in this offer by completing, signing and dating the Letter of Transmittal/Withdrawal you will receive in connection with this Offer to Exchange and delivering it to us according to the instructions contained in the Letter of Transmittal/Withdrawal on or before September 4, 2009, at 11:59 p.m., Alaska Daylight Time. You may request an additional copy of the Letter of Transmittal/Withdrawal using the contact information in Section 4. Your election to exchange will be effective only after you have properly submitted a completed Letter of Transmittal/Withdrawal, either through the Exchange Offer Website or according to the instructions contained in the Letter of Transmittal/Withdrawal, before the offer expires. (See Section 4.)
Q36. How do I access the Exchange Offer Website?
A36. You will receive an e-mail communication that will include a unique PIN that you may use to access the Exchange Offer Website and to make the exchange election. The e-mail will also include documents explaining how to access the Exchange Offer Website and the materials posted thereto. If you have any questions about accessing or using the Exchange Offer Website, or if you are unable to access the Exchange Offer Website, please contact Peter Pounds, at (907) 868-6952 or via e-mail to ppounds@GCI.com. If you are unable to access the Exchange Offer Website, we will provide you with a paper copy of our Tender Offer Statement on Schedule TO (to which this Offer to Exchange is also an exhibit), your Individual Statement of Options and any other materials that are subsequently posted to the Exchange Offer Website.
11
Q37. Do I have to complete the Letter of Transmittal/Withdrawal or any other document if I do not want to exchange my options?
A37. No. You do not have to complete or submit any documents to us if you do not wish to exchange your eligible options in this offer. If you do not complete and submit the Letter of Transmittal/Withdrawal (through the Exchange Offer Website or according to the instructions in the Letter of Transmittal/Withdrawal), you will not participate in the option exchange program. This offer is completely voluntary, and there are no penalties for electing not to participate in the offer.
Q38. If I elect to exchange my options by submitting an election to participate, can I change my mind?
A38. Yes. If you decide to participate in the offer and then decide to withdraw or change all or some of the elections you submitted, you may do so at any time before the offer expires. You may withdraw your elections by resubmitting to us a Letter of Transmittal/Withdrawal indicating which eligible options that you would like to exchange and which eligible options that you do not wish to exchange. This subsequent Letter of Transmittal/Exchange should be submitted through the Exchange Offer Website or, if you are unable to access the Exchange Offer Website, by completing and submitting to us the Letter of Transmittal/Withdrawal you will receive in connection with this Offer to Exchange (you may request an additional copy of the Letter of Transmittal/Withdrawal using the contact information in Section 4). For purposes of determining whether or not you have chosen to participate in the Offer to Exchange, the Company will rely on the most recent Letter of Transmittal/Withdrawal actually received before the offer expires. If we have not accepted your tendered options, you will also have the right to withdraw your tendered options after that date and until we accept your tendered options. (See Section 5.)
Q39. How will I know whether you have received my Letter of Transmittal/Withdrawal?
A39. If you opt to submit a Letter of Transmittal/Withdrawal through the Exchange Offer Website, you will receive an automatically generated confirmation immediately after making your election. If you opt to submit a Letter of Transmittal/Withdrawal via e-mail, you will receive an e-mail confirmation, but it will be sent to you within 2 business days of GCIs receipt of your form. If you are unable to access the Exchange Offer Website or if you opt to submit a Letter of Transmittal/Withdrawal via facsimile, regular mail, overnight courier or hand delivery, you will receive a confirmation through the mail, which will be sent to you within two business days of GCIs receipt of your form. The form of each confirmation has been included as an exhibit to our Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (to which this Offer to Exchange is also an exhibit). You should save any confirmation you receive for your records in a safe place for future reference. It is your responsibility to ensure that we receive your Letter of Transmittal/Withdrawal on or before September 4, 2009, at 11:59 p.m., Alaska Daylight Time. If you do not receive a confirmation in a timely manner, please contact Peter Pounds, at (907) 868-6952 or via e-mail to ppounds@GCI.com.
Q40. Will GCI accept all eligible options tendered for exchange?
A40. We will accept all eligible options that are properly tendered for exchange unless the offer is terminated. If we terminate the offer without accepting options for exchange, we will communicate this to you by 9:00 a.m., Eastern Daylight Time (or 5:00 a.m., Alaska Daylight Time), on the first business day after the offer expires (i.e., if the expiration date is September 4, 2009, this communication will be no later than September 8, 2009). The communication may be made orally, by written or electronic notice or by public announcement. (See Sections 6 and 15.)
12
Q41. What happens to my options if I do not accept this offer?
A41. Nothing. If you do not elect to participate in the offer, you will keep all your current options, and you will not receive any Restricted Stock. The offer will not result in any changes to the terms of your current options. (See Section 4.)
Q42. Will I have to pay U.S. federal income taxes at the time of the exchange if I participate in the offer?
A42. We believe that our officers, employees, consultants and advisors who are subject to U.S. federal income taxation will incur no immediate federal income tax consequences solely as a result of either electing to retain their eligible options or electing to exchange their eligible options for shares of Restricted Stock. However, see the response to Question 43 for the U.S. federal income tax consequences of your award of Restricted Sock.
Q43. What are the U.S. federal income tax consequences of my award of Restricted Stock?
A43. Officers, employees, consultants and advisors subject to U.S. federal income taxation should generally recognize no taxable income upon the grant of shares of Restricted Stock (i.e., shares that are subject to a substantial risk of forfeiture and are not transferable). You will, however, recognize ordinary income at the time the shares vest in an amount equal to the fair market value of those shares on the date of vesting. Generally, you will become vested in the shares for purposes of the tax rules at the time you are vested in the shares for all other purposes, as described elsewhere herein. In any event, no later than 30 days after the date on which the shares are granted, you are permitted to file an election under Section 83(b) of the Internal Revenue Code. A participant who properly files a Section 83(b) election will recognize ordinary income in an amount equal to the fair market value of the shares determined on the date on which they are granted rather than on the date on which they vest for purposes of the tax rules. We will determine the fair market value of the shares based on the closing price of our Common Stock as reported on the NASDAQs Global Select Market on the applicable date. The ordinary income resulting from the vesting of shares of restricted stock under the tax rules (or the acquisition of the shares of Restricted Stock if a Section 83(b) election is properly filed) will be reflected in the applicable Form W-2 (in the case of officers or employees) or Form 1099 (in the case of consultants or advisors) reported to the Internal Revenue Service for the year of the vesting or acquisition of the shares, as the case may be. In the case of officers and employees, at the time that you recognize ordinary income, you will have an income and employment withholding tax obligation with respect to that income, much like the obligation that arises when we pay you salary. (See Question 44 and Section 14.)
The decision to make a Section 83(b) election is a highly technical one and should include, among other considerations, the availability to you of cash sufficient to cover the tax obligations before the date on which the shares will vest and you will be permitted to sell them, your assessment of the potential future market value changes in our Common Stock, and the risk that events might prevent your continued employment as an officer or employee or your continued service as a advisor or consultant with GCI and the corresponding vesting date of your
13
shares. In that event, you would have paid tax on shares that are forfeited, and you would not be entitled to a refund of, or an offsetting deduction for, the taxes you paid. You are urged to consult with your personal financial and tax advisors before making a Section 83(b) election. If you decide to make a Section 83(b) election, you must do so through an appropriate filing with the Internal Revenue Service no later than 30 days after the date of grant of your award of Restricted Stock.
Upon any sale of shares acquired under an award of Restricted Stock, any gain or loss, based on the difference between the sale price and the fair market value of the shares on their vesting date (or on their grant date if the participant properly filed a Section 83(b) election), will be taxed as a capital gain or loss. Such gain or loss will be long-term if the participant held the shares for more than one year following their vesting date (or their grant date if the participant properly filed a Section 83(b) election).
Q44. How will U.S. federal income and employment tax be assessed and withheld?
A44. For our officers and employees, when your shares of Restricted Stock vest for purposes of the tax rules (or on the date of grant if you file a Section 83(b) election as described in the answer to Question 43), you will be required to recognize taxable income. For officers and employees, this means that we will have an obligation to withhold income and employment taxes, much like the obligation that arises when we pay you a salary, and until you have satisfied these tax withholding requirements, we will have no obligation to release shares to you.
If you are an employee, we are offering you two alternatives to satisfy your income and employment tax obligations. The alternatives (which are not available to you if you make an 83(b) election) are as follows:
· You may elect to sell a portion of your vested shares on the vesting date in an amount at least sufficient to provide for the required minimum income and employment withholding taxes. If you make this election, we will automatically sell on the vesting date (or on the next business day if the vesting date is not a day on which the markets are open for trading) and on your behalf the required number of shares and withhold from the sale proceeds, net of sale commissions and fees, the required minimum income and employment withholding taxes and remit them directly to the Internal Revenue Service.
· You may elect to pay us, on or before the fifth business day prior to the vesting date, the required minimum income and employment withholding taxes by delivering a personal check to us. You will be prevented from transferring or selling the vested shares until we have received your check. However, if you have elected to pay withholding taxes by check but fail to deliver your check in the correct amount on or before the required date, we will be authorized to sell on your behalf a number of shares as described in the first alternative above sufficient to satisfy your income and employment tax obligation.
You have previously been notified that you are permitted to trade GCI shares only during an open trading window in accordance with our securities trading policies. If you elect to sell vested shares to satisfy your tax obligations, you will be required to establish a written trading plan that complies with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934 and our securities trading policies (unless, prior to the sale, we have in our sole discretion consented to the sale without such a plan). A written trading plan is an agreement between you
14
and GCI to sell on the vesting date (or the next business day thereafter) a specified number of shares which have vested under your award of Restricted Stock. The number of shares specified for sale must be at least that number sufficient to provide for the required minimum income and employment withholding tax obligation arising on the vesting date. You must establish your trading plan at a time when our trading window is open and you are not otherwise in possession of material nonpublic information about GCI or its securities. Once established, your trading plan will remain in effect until all of the tax withholding obligations in connection with your award of Restricted Stock have been satisfied.
Trading plans may not be modified or terminated except in compliance with our securities trading policies. If you elect to sell vested shares to satisfy your tax withholding obligations, you will not be permitted to change this election in order to pay the required withholding taxes by personal check. However, if, as a result of a suspension of your trading plan in compliance with our securities trading policies, shares may not be sold under the trading plan on the vesting date (or the next business day thereafter), we may withhold, in the manner described below, shares that would otherwise be released to you on the vesting date and will withhold from your first paycheck (and subsequent paychecks if necessary) following the vesting date an amount sufficient to satisfy any unsatisfied portion of your tax withholding obligation unless you pay such amount to us by personal check.
You will be required to make a separate election for each award of Restricted Stock you receive in the exchange program by submitting your withholding election through the online broker who administers the Plan and related income and employment tax withholding obligations. Following the completion of the Offer to Exchange you will be provided with additional information regarding when your withholding election must be made. If you do not have a written trading plan in effect before the fifth business day prior to the vesting date, then you may not elect to sell a portion of your shares on the vesting date; rather, you will be required to pay us the required minimum income and employment withholding taxes by delivering a personal check to us.
If you choose to file a Section 83(b) election with respect to an award of restricted Stock, you are required by IRS regulations to submit to GCI a copy of your Section 83(b) election filed with the IRS. If you are an employee, you will also be required to make a one-time cash payment to GCI to cover the income and employment withholding tax due based on the fair market value on the grant date of all of the shares subject to the award of Restricted Stock. Any payment required by the foregoing provisions shall be made by your personal check on or before the third business day following the date of the 83(b) election (unless we notify you prior to the date in question that you must deliver your check on an earlier date).
In addition to the methods described above, and notwithstanding any election you may have made, we may, at our discretion, permit or require satisfaction of the tax withholding requirements by withholding from the number of shares of our Common Stock vesting under your award of Restricted Stock a number of shares (rounded down to the nearest whole share) determined by multiplying the number of shares becoming vested by the combined minimum statutory income and employment tax withholding rates applicable to you.
Regardless of which tax withholding alternative is used, you will also authorize us to withhold from your first paycheck (and subsequent paychecks if necessary) following the vesting date an amount sufficient to satisfy any unsatisfied portion of your required tax withholding.
15
Q45. Who can I talk to if I have questions about the offer?
A45. For additional information or assistance, you should contact either our Chief Financial Officer, John M. Lowber, at (907) 868-5600 or via e-mail to jlowber@gci.com, or Peter Pounds, at (907) 868-6952 or via e-mail to ppounds@GCI.com.
In addition to these resources, we are providing information on the Exchange Offer Website and scheduling workshops to assist you in making your own informed decision. These sessions will not be a solicitation or make any recommendations whatsoever with respect to the offer. For example, we will not be able to answer questions about your personal situation or otherwise provide an assessment of the merits of this offer. You are strongly encouraged to consult your personal advisors if you have questions about your financial or tax situation.
Participation in the offer involves a number of potential risks, including those described below. The risks identified in this section and under the heading entitled Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 highlight the material risks of participating in this offer. Eligible officers, employees, consultants and advisors should carefully consider these risks and are encouraged to speak with an investment and tax advisor as necessary before deciding to participate in the offer. We strongly urge you to read the rest of this Offer to Exchange.
The exchange ratios do not necessarily reflect the actual value of your options.
The valuation methodology utilized to determine the exchange ratios does not necessarily reflect the actual value of the options. The number of shares of Restricted Stock that we are offering in exchange for each eligible option is equal to the lesser of (i) a number of shares of Restricted Stock having a fair value (as described below) equal to 100% of the fair value of the eligible options exchanged for shares of Restricted Stock, or (ii) a number of shares of Restricted Stock equal to 40% of the number of shares issuable pursuant to the eligible options surrendered. Because the exchange ratio is capped at 40% (for example, 100 options would convert into no more than 40 shares of Restricted Stock), participants in the exchange offer may receive less than the fair value of their options.
In determining the fair value of the options eligible for exchange, we utilized the Black-Scholes option pricing model using the following assumptions: (i) an exercise price equal to the exercise price of the eligible option; (ii) an assumed per share value of the Companys Class A common stock equal to the closing price per share as reported on the NASDAQ Global Select Market on July 30, 2009; (iii) an expected remaining term of the option equal to the period beginning on February 28, 2009 through the remaining contractual life of the eligible option; (iv) an expected dividend yield of 0%; (v) expected volatility of our Common Stock price equal to 50%; and (vi) an interest rate equal to the interest rate on U.S. Treasury Strips with a five-year maturity.
You should be aware that option valuation is not an exact science. Although the Black-Scholes model is a standard and accepted model for determining the value of options, the utilization of different assumptions in the Black-Scholes option pricing model can produce significantly different results for the ultimate value of an option.
16
Moreover, even experts can disagree on the correct assumptions to use for any particular option valuation exercise. The assumptions we used for purposes of this offer may not be the same as those used by others and, therefore, our valuation of the options and/or the final exchange ratios may not be consistent with those obtained using other valuation techniques or input assumptions and may not reflect the actual value of these options.
If the price of our common stock increases after the date on which your options are canceled, your canceled options might have been worth more than the shares of Restricted Stock that you received in exchange for them.
Because the exchange ratio of this offer is not one-for-one, it is possible that, at some point in the future, your old options would have been economically more valuable than the shares of Restricted Stock granted to you pursuant to this offer. Assumptions used to demonstrate the economic difference are as follows:
· Option to purchase 1,000 shares currently held with an exercise price of $10.00 per share.
· Option to purchase 1,000 shares convert to 350 shares of Restricted Stock.
· Current stock price of $5 per share of Common Stock.
· Future Common Stock price at option exercise date of $20 per share.
Using the assumptions above, you would receive 350 shares of Restricted Stock for your option to purchase 1,000 shares with an exercise price of $10.00 per share. Using the future common stock price of $20 per share, if you had kept your exchanged options and sold them at $20 per share, you would have realized a pre-tax gain of $10,000, but if you exchanged your options and sold the shares subject to the Restricted Stock grant, you would only realize a pre-tax gain of $7,000.
In addition, you may have paid more taxes for your shares of Restricted Stock than you did for your options. For example, using the same assumptions as above, if you exchange an option to purchase 1,000 shares with an exercise price of $10.00, you would receive 350 shares of Restricted Stock. Assuming you are a U.S. taxpayer, if the option was exercised for $10.00 per share while the fair market value of our common stock was $15.00 per share, you would recognize ordinary income of $5,000 at exercise. If you later sold the shares at $20.00 per share, you would have capital gain of $5.00 per share, which is the difference between the sale price of $20.00 and the $15.00 fair market value of stock as of the exercise date (on which you already paid ordinary income tax). If you held the shares more than twelve (12) months, this would be taxed at long-term capital gains rates (currently a maximum of 15%), and if you held the shares for less than twelve (12) months, this would be taxed at short-term capital gains rates (currently a maximum of 35%). If, instead, you had exchanged your options for shares of Restricted Stock, you would recognize ordinary income (currently at a maximum rate of 35%) on the full fair market value of the shares you receive at the time that they vest. For instance, if you vest in 350 shares of restricted stock on a day when the fair market value of our stock is $20.00 per share, you will recognize ordinary income of $7,000. You then would be subject to additional long- or short-term capital gain, as applicable (depending on the length of time you have held such shares) on any additional gain when you sell the shares. For instance, if you sold the shares at $22.00 per share, you would have a capital gain of $2.00 per share. When analyzing the tax consequences to you, you should keep in mind that you do not pay a cash purchase price for the shares of Restricted Stock, while, in the example above, you would have paid $10.00 per share of post-tax dollars for the shares subject to your options.
17
We have set forth on your Individual Statement of Options the Equivalent Price, which sets forth the per share price of GCI Common Stock at which the value of your eligible options and the shares of Restricted Stock you would receive if you elect to participate in the offer would be considered mathematically equivalent. As long as the per share price of GCI Common Stock is above the Equivalent Price, then the options would be worth more; while during the time that the per share price of GCI Common Stock is lower than the Equivalent Price, the Restricted Stock would be worth more. While you may find the Equivalent Price to be a helpful indicator based on your expectation of the future performance of GCIs Common Stock, there are a variety of other factors that should be taken into account in choosing whether to participate in the Offer to Exchange, including your personal risk tolerance, the applicable vesting dates of your eligible options and the Restricted Stock, and your personal tax situation. We encourage you to speak with your financial and tax advisors to determine whether or not to participate in the Offer to Exchange.
If we are acquired by or merge with another company, your canceled options might be worth more than the shares of Restricted Stock that you receive in exchange for them.
A transaction involving us, such as a merger or other acquisition, could have a substantial effect on our stock price, including significantly increasing the price of our Common Stock. Depending on the structure and terms of this type of transaction, option holders who elect to participate in the offer might receive less of a benefit from the appreciation in the price of our Common Stock resulting from the merger or acquisition. This could result in a greater financial benefit for those option holders who did not participate in this offer and retained their original options.
Furthermore, a transaction involving us, such as a merger or other acquisition, could result in a reduction in our workforce. If your service as an officer or employee terminates for any reason before your shares of Restricted Stock vest, you will not receive any value from your shares of Restricted Stock. If your options have already vested they will not be subject to forfeiture.
Your shares of Restricted Stock will not be vested on the Restricted Stock grant date, and exchanging vested options or options scheduled to vest before the vesting date of the Restricted Stock will have the effect of delaying the date of vesting.
If you exchange eligible options for Restricted Stock, 50% of your shares of Restricted Stock will vest on December 20, 2011, and 50% of your shares of Restricted Stock will vest on February 28, 2012. If you do not remain an officer or employee of, or a consultant or advisor to, GCI through the date your Restricted Stock vests, you will not receive those shares of Restricted Stock. Instead, your unvested Restricted Stock will expire immediately upon your termination as an officer or employee of GCI or, if you are not an officer or employee of GCI, upon your receipt of a notice from GCI that it has decided to discontinue the use of your services prior to the vesting date. As a result, you will not receive full value from your shares of Restricted Stock.
Also, if you exchange eligible options that are vested in whole or in part, the vesting of your eligible options does not carry over to your Restricted Stock. If you exchange a fully vested option grant for Restricted Stock and your service as an officer or employee of, or a consultant or advisor to, GCI terminates prior to the vesting date for your Restricted Stock, your Restricted Stock will expire immediately. If you had not exchanged your fully vested options for Restricted Stock in the offer, your option grant would have continued to be governed by its terms and would have been exercisable for a period following the termination of your relationship with GCI as provided in your option agreement. In that circumstance, you would have been better off not participating in the exchange.
18
This offer is not a guarantee of employment for any period. Your employment relationship with GCI may be terminated at any time by either you or us, with or without cause or notice, subject to any employment agreement you may have with GCI. If you are a consultant or advisor to GCI, this offer does not guarantee your continued status as a consultant or advisor, nor does it otherwise change the terms and conditions of your provision of services to GCI.
If you make an 83(b) election with respect to shares of Restricted Stock you may pay taxes on amounts you never receive.
If you make an 83(b) election with respect to shares of Restricted Stock you receive in exchange for your eligible options you will pay income tax based on the fair market value of the shares at the time you receive the Restricted Stock. For example, if you receive 350 shares of Restricted Stock and the fair market value of a share of Common Stock is $7.00, you will pay ordinary income tax on $2,450 in the year you receive the Restricted Stock. If you forfeit the Restricted Stock (i.e., your employment or service as an advisor or consultant is terminated before the Restricted Stock vests) you will not receive a refund or be eligible for any tax credit with respect to the taxes you paid on the forfeited shares of Restricted Stock with respect to which you made the 83(b) election. If, however, you become vested in your shares of Restricted Stock you will be eligible for capital gains treatment on the change in the value of the shares, if any, between the $7.00 per share you paid taxes on in connection with the 83(b) election and the value of the shares when you ultimately dispose of them. For example, if you ultimately sell the shares at $15.00 per share you will pay capital gains tax on the increase in the value of the shares from $7.00 to $15.00 or $2,800 (i.e., 350 shares multiplied by $8.00). If you had not made the 83(b) election and your Restricted Shares were worth $12.00 at the time they vested, you would have paid tax on ordinary income of $4,200 in the year the Restricted Stock vested and, assuming you held the shares for the appropriate capital gains period and sold the 350 shares at $15.00 per share, you would owe capital gains tax (short-term or long-term, depending on how long you held the shares) on $1,050 when you ultimately sold the shares.
We will not grant Restricted Stock to you if we are prohibited by applicable laws or regulations.
Even if we accept your tendered options, we will not grant Restricted Stock to you if we are prohibited by applicable laws, rules, regulations or policies from doing so. Such a prohibition could result from, among other things, changes in laws, Securities and Exchange Commission rules, regulations or policies or NASDAQ Global Select Market listing requirements or if you move to a jurisdiction in which we are prohibited or prevented from granting Restricted Stock.
General
Upon receipt of Restricted Stock in exchange for your eligible options no income tax generally will be due on account of the initial grant. When the GCI stock granted to you under your Restricted Stock award vests for purposes of the tax rules, you will generally recognize ordinary income equal to the fair market value of the vested shares on the date of vesting. If, however, you properly make a Section 83(b) election for any of your shares of Restricted Stock, then you will generally recognize ordinary income equal to the fair market value of such shares on the date they are granted, even though they have not vested and remain subject to forfeiture.
19
Upon a participants sale of shares acquired under an award of Restricted Stock, any gain or loss, based on the difference between the sale price and the fair market value of the shares on their vesting date determined for purposes of the tax rules (or on their grant date if the participant properly filed a Section 83(b) election), will be taxed as a capital gain or loss. Such gain or loss will be long-term if the participant held the shares for more than one year following their vesting date (or their grant date if the participant properly filed a Section 83(b) election).
Tax Withholding (Employees only)
In most cases, at the time the shares of Restricted Stock vest, if you are an employee, you will be responsible for FICA and other employment taxes. This generally would mean that 7.65% of the fair market value of the Restricted Stock at the time of vesting (determined under the tax rules) would have to be withheld in payment of FICA taxes or you will otherwise have to pay the applicable withholding taxes. In addition, federal income tax and state income tax withholding will also be required. In the case of a vesting event where the withholding is satisfied by withholding shares of the Restricted Stock that has vested, this generally would mean that taxes would have to be withheld as set forth above on the fair market value of the Restricted Stock at the time of vesting (determined under the tax rules). If, during the calendar year, your other wages have exceeded the Social Security taxable wage base for that year ($106,800 for 2009), your FICA tax withholding rate will be reduced for the remainder of the year to 1.45%. In addition, you will have an income tax withholding obligation (both federal and state) with respect to ordinary income you must recognize on the shares vesting date (determined under the tax rules), much like the obligation that arises when we pay you your salary. You may satisfy these tax withholding obligations by one of the methods described in the response to Question 44 and in Section 14. In addition, irrespective of your election, GCI will be authorized under the Plan and your restricted stock agreement to withhold from the number of shares to be delivered to you that number of shares having a fair market value equal to the amount required by law to be withheld or paid with respect to your award of Restricted Stock.
For employees who properly make a Section 83(b) election for any shares of Restricted Stock that are granted to them, FICA tax and income tax withholding requirements will be determined, and must be satisfied, at the time that the Section 83(b) election is made based on the fair market value of the shares for which the election is made on the date the shares are granted, even though they are not yet vested.
The income tax withholding may be insufficient to cover your final income tax liability with respect to your shares. You should consult with your tax advisor to determine whether you should make estimated tax payments for each year in which your shares vest (determined under the tax rules) or, if you properly make a Section 83(b) election, the year in which your shares are granted.
You should review Section 14 carefully for a more detailed discussion of the material U.S. federal income tax consequences of participating in this offer. We recommend that you consult with your personal tax advisor before deciding whether or not to participate in the offer with respect to the tax consequences relating to your specific circumstances.
20
For a description of risks related to GCIs business, please see the discussion of risks associated with our business under the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
Individuals who hold options to purchase shares of Common Stock who are officers or employees of, or consultant or advisors to, GCI on August 6, 2009, and who remain officers or employees (even if on an approved leave of absence) of, or consultant or advisors to, GCI immediately prior to the expiration date (as defined below) are eligible to participate in this offer. Notwithstanding the foregoing, officers of GCI who also serve on our Board of Directors are not eligible to participate in this offer. If at any time before the expiration of the offer your position as an officer or employee with GCI terminates for any reason, you submit or receive a notice of termination of employment or you receive a notice that your services as a consultant or advisor to GCI have been discontinued, then you are not eligible to participate in the offer.
We are offering to exchange all outstanding eligible options to purchase our Common Stock under the Plan that were granted prior to February 15, 2009, excluding any options that vest based on EBITDA performance (eligible options), for shares of Restricted Stock that we will grant under the Plan. Shares of Restricted Stock are shares of our Common Stock that will be issued to a participant in the exchange offer promptly following the expiration of the exchange offer and that will be subject to vesting. Our offer is subject to the terms and conditions described in this Offer to Exchange and the Letter of Transmittal/Withdrawal.
As of July 30, 2009, options to purchase approximately 7,033,396 shares of our Common Stock were outstanding under the Plan. Of these, options to purchase approximately 6,084,146 shares of our Common Stock are potentially eligible to participate in this offer. Assuming all such options remain eligible to participate in the offer and are properly tendered for exchange, we would issue approximately 2,239,195 shares of Restricted Stock.
You may tender for exchange any or all of your eligible options. For the purposes of this offer, the term option means a particular option grant to purchase a specified number of shares of our Common Stock at a specified exercise price per share. In other words, you must exchange all of the unexercised portion of a particular option grant if you wish to exchange any of that particular option. An exchange of a portion of an outstanding unexercised option will not be permitted.
If you elect to tender some or all of your options you will receive shares of Restricted Stock in the exchange. The number of shares of Restricted Stock you will receive in exchange for a canceled eligible option will be determined by the applicable exchange ratio. An exchange ratio represents the number of shares subject to an eligible option that will be canceled in exchange for the grant of one share of Restricted Stock under this exchange program. The Restricted Stock will be granted under, and will be subject to the terms and conditions of, the Plan and an award agreement between GCI and the eligible optionholder.
21
You may access your Individual Statement of Options on the Exchange Offer Website or, if you are unable to access the Exchange Offer Website, we will mail you an Individual Statement of Options separate from this Offer to Exchange. This statement identifies each of the options you currently hold which are eligible for exchange and the exchange ratio that applies to each option. If you cannot access the Exchange Offer Website, or if you did not receive or have misplaced your Individual Statement of Options, you may request another copy of your statement by contacting either our Chief Financial Officer, John M. Lowber, at (907) 868-5600 or via e-mail to jlowber@gci.com, or Peter Pounds, at (907) 868-6952 or via e-mail to ppounds@GCI.com.
The number of shares of Restricted Stock that we are offering in exchange for each eligible option is determined by an exchange ratio based upon the exercise price of the eligible option. An illustrative example of The exchange ratio for a representative group of options is shown in the table below. You will receive an Individual Statement of Options identifying the actual exchange ratio for each of your eligible options.
Per
Share Exercise Price of |
|
Share of Restricted Stock |
|
|
|
$7.00/February 28, 2011 |
|
One share of Restricted Stock for every 3.33 exchanged options |
$12.00/February 28, 2015 |
|
One share of Restricted Stock for every 2.81 exchanged options |
$15.00/February 28, 2018 |
|
One share of Restricted Stock for every 2.5 exchanged options |
For purposes of applying the exchange ratios, fractional shares of Restricted Stock will be rounded to the nearest whole share of Restricted Stock on a grant by grant basis (with fractional shares of Restricted Stock greater than or equal to 0.5 rounded up to the nearest whole share of Restricted Stock and fractional shares of Restricted Stock less than 0.5 rounded down to the nearest whole share of Restricted Stock). For example, if an officer or an employee elects to exchange an eligible option to purchase 1,000 shares of our Common Stock and the exchange ratio applicable to that option is 16 to 1 (meaning that one share of Restricted Stock will be issued for each 16 shares subject to the canceled option), that officer or employee will receive a total of 63 shares of restricted stock (i.e., 1,000 divided by the exchange ratio is 62.5 shares, which rounded to the nearest whole number is 63 shares).
Please note: The exchange ratios apply to each of your option grants separately. This means that the various options you have received may be subject to different exchange ratios.
The exchange ratio was determined based on a number of factors, including the value of outstanding eligible options based on the Black-Scholes valuation methodology. The Black-Scholes option pricing model is a widely-used method for valuing stock options and uses the following factors: (i) stock price, (ii) the exercise price of the option, (iii) the expected remaining term of the option, (iv) the volatility of the stock price, (v) a risk-free interest rate, and (vi) the expected dividend yield of the stock. Some of these factors are objectively determinable, while others, such as appropriate volatility measures, require some judgment. For purposes of this calculation, the Company has used the following assumptions:
22
· Stock price: the closing stock price of our Common Stock on July 30, 2009, or $7.02 per share.
· Exercise price: the exercise price of the eligible option.
· Expected remaining term of the option: an expected remaining term of the eligible option equal to the period beginning on February 28, 2009 through the remaining contractual life of the eligible option.
· Volatility: 50%.
· Risk-free interest rate: an interest rate equal to the interest rate on U.S. Treasury Strips with a five-year maturity.
· Expected dividend yield: zero.
In applying the Black-Scholes option pricing model to value the eligible options, the assumptions that varied from option to option were their exercise prices and remaining term, while the assumptions for our stock price, its volatility, a risk-free interest rate and expected dividend yield were common to our valuation of all eligible options. These values are similar to those that we have used in valuing our options for purposes of determining our earnings in our financial statements.
The number of shares of Restricted Stock that we are offering in exchange for each eligible option is equal to the lesser of (i) a number of shares of Restricted Stock having a fair value (as determined in accordance with the Black-Scholes option pricing model described above) equal to 100% of the fair value of the eligible options exchanged for shares of Restricted Stock, or (ii) a number of shares of Restricted Stock equal to 40% of the number of shares issuable pursuant to the eligible options surrendered. The Board of Directors approved the exchange ratios to (i) improve employee motivation and ownership, and (ii) reduce significantly the overhang of outstanding awards of our stock under our equity plans and potential dilution to our stockholders. Because the number of shares of Restricted Stock that will be issued in this offer is less than the number of shares subject to outstanding options, it will also increase the number of shares available that we may use for future equity award grants under the Plan, although it will not increase the total number of shares that we may issue under the Plan. Because option valuation is inherently speculative and imprecise, in addition to considering the relationship between the value of your options and the value of any Restricted Stock that you would receive pursuant to this offer, you also should consider the other matters discussed or referenced in this Offer to Exchange as part of your overall decision whether to participate in the exchange.
This offer will expire on the expiration date. The term expiration date means 11:59 p.m., Alaska Daylight Time, on September 4, 2009 unless we, in our sole discretion, extend the period of time during which the offer will remain open. If we extend the period of time during which the offer remains open, the term expiration date will mean the latest time and date at which the offer expires. See Section 15 for a description of our rights to extend, delay, terminate and amend the offer.
23
We are making this exchange offer (i) to motivate and encourage option holders who are our officers, employees, consultants and advisors to continue to build stockholder value, and (ii) to reduce the overhang of outstanding stock options. Because the number of shares of Restricted Stock that will be issued in this offer is less than the number of shares subject to outstanding options and the shares of Common Stock underlying exchanged options will be returned to the pool of Common Stock available under the Plan, it will also increase the number of shares available to us that we may use for future equity award grants under the Plan, although it will not increase the total number of shares that we may issue under the Plan.
We granted options under the Plan to provide our officers, employees, consultants and advisors an opportunity to acquire or increase their proprietary interest in GCI, thereby creating a stronger incentive to expend maximum effort for our growth and success, and encouraging such participants to continue their service with GCI. However, in light of the decline in the market price of our Common Stock in recent years, a considerable number of our officers, employees, consultants and advisors are holding options that have exercise prices higher than the current and recent trading prices of our Common Stock. We believe that these out-of-the-money options are not achieving the purposes for which they were intended. By making this offer we expect to be able to provide better performance incentives for our officers, employees, consultants and advisors and more closely align the interests of such participants with those of our stockholders in maximizing stockholder value.
In addition, many of the eligible options have been out-of-the-money for extended periods of time and, therefore, have remained outstanding. Coupled with periodic grants of options to new and continuing officers, employees, consultants and advisors, the number of shares subject to outstanding options has steadily increased as a percentage of our total shares of Common Stock outstanding, creating a significant stock option overhang. Under this offer, participants will receive fewer shares of Restricted Stock than the number of shares subject to options that are canceled in the exchange. Shares subject to the canceled options will be canceled; however, these shares will be available for the future grant of awards under the Plan.
Although our Board of Directors has approved this offer, it recognizes that the decision to accept or reject the offer is an individual one that should be based on a variety of factors. Accordingly, you are strongly encouraged to consult with your personal advisors if you have questions about your financial or tax situation. None of the Company, our Compensation Committee or our Board of Directors is making any recommendation to you as to whether you should elect to exchange your options. The Restricted Stock we are offering may end up being worth less than your existing options. You must make your own decision whether to exchange your options.
Proper Tender of Options.
To properly tender your options for exchange, you must indicate which of your eligible options that you wish to exchange on your Letter of Transmittal/Withdrawal and electronically submit the Letter of Transmittal/Withdrawal through the Exchange Offer Website at the website address http://www.corp-action.com/GCI, or submit an election to participate by completing, signing and dating the Letter of Transmittal/Withdrawal provided to you in connection with this Offer to Exchange and delivering it to us according to the instructions contained in the Letter of
24
Transmittal/Withdrawal. You may request an additional copy of the Letter of Transmittal/Withdrawal using the contact information in this Section 4. The Letter of Transmittal/Withdrawal must be delivered via the Exchange Offer Website, electronic delivery, facsimile, regular mail, overnight courier or hand delivery as follows:
Through the Exchange Offer Website: Complete and submit your Letter of Transmittal/Withdrawal through the procedures set forth on the Exchange Offer Website.
Via Electronic Delivery: Scan the completed and signed Letter of Transmittal/Withdrawal and e-mail it to tenderoffer@gci. com.
Via Facsimile: To General Communication, Inc., Attn: Peter Pounds, facsimile number (907) 868-5676.
Via Regular Mail, Overnight Courier or Hand Delivery: To General Communication, Inc., Attn: Peter Pounds, 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503.
Your election to exchange will be effective only after you properly submit a completed Letter of Transmittal/Withdrawal before the offer expires.
Your proper and timely submission of an election to participate or an election to withdraw from participation will constitute a submitted election. To be timely, your election must be RECEIVED by us before the offer expires by delivery of a Letter of Transmittal/Withdrawal as described above.
The method of delivery of your Letter of Transmittal/Withdrawal is at your election and risk. Your Letter of Transmittal/Withdrawal will be effective upon receipt. In all cases, you should allow sufficient time to ensure we receive it in time. We intend to confirm our receipt of your submitted Letter of Transmittal/Withdrawal within two (2) business days of receipt. If we fail to notify you of our receipt of your Letter of Transmittal/Withdrawal, it will NOT affect the validity of your Letter of Transmittal/Withdrawal. If you do not receive confirmation of our receipt, it is your responsibility to ensure that we have received your election.
Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects.
We will determine, in our discretion, all questions as to the number of shares subject to eligible options, and the validity, form, eligibility (including time of receipt) of submitted elections (including any changes of elections) and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. We may reject any submitted elections or any options tendered for exchange to the extent that we determine they are not properly completed or to the extent that we determine it is unlawful to accept the options for exchange. We may waive any defect or irregularity in a submitted election. No eligible options will be properly tendered for exchange until all defects or irregularities have been cured by the option holder or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in any submitted election, and no one will be liable for failing to give notice of any defects or irregularities.
25
Your Choosing to Participate and Our Accepting Your Options Constitute an Agreement.
If you elect to exchange your options by submitting a Letter of Transmittal/Withdrawal in accordance with the procedures described above, you will have accepted the terms and conditions of our offer. If we accept the eligible options that you properly tender for exchange, there will be a binding agreement between us and you on the terms and subject to the conditions of this Offer to Exchange and the Letter of Transmittal/Withdrawal. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of this offer all properly tendered eligible options that have not been validly withdrawn.
Effect of Exchange on Options.
If you elect to exchange your eligible options and we accept such options for exchange, effective on our acceptance, the eligible options you tendered for exchange will be canceled and the stock option agreement(s) evidencing them will be deemed null and void. You will be required to enter into an award agreement governing the terms of your Restricted Stock award. If you do not elect to exchange your eligible options or you properly withdraw a previously submitted election, you will not participate in the offer with respect to such options, and you will retain your options at their current exercise price(s) and subject to their current terms.
Questions About the Offer.
You can ask questions about this offer or request assistance, additional copies of the exchange offer documents and copies of the Letter of Transmittal/Withdrawal by contacting either our Chief Financial Officer, John M. Lowber, at (907) 868-5600 or via e-mail to jlowber@gci.com or Peter Pounds, at (907) 868-6952 or via e-mail to ppounds@GCI.com.
Section 5. Withdrawal Rights and Change of Election.
You may only withdraw your tendered options or change your election in accordance with the provisions of this Section 5.
If you decide to participate in the offer and then decide to withdraw or change all or some of the elections you submitted, you may do so at any time before 11:59 p.m., Alaska Daylight Time, on September 4, 2009. If we extend the offer beyond that time, you may withdraw your tendered options at any time until the extended expiration date. We expect to accept and cancel all properly tendered eligible options promptly following the expiration of the offer. However, if we have not accepted and canceled your properly tendered options by 11:59 p.m., Alaska Daylight Time, on September 4, 2009, you may withdraw your tendered options at any time after that date and until your tendered options have been accepted.
Any of the options you tender for exchange that were granted after February 15, 2009, or that vest based on EBITDA performance will be ineligible to participate and automatically excluded from the offer. Such excluded options will remain outstanding and will be exercisable in accordance with their terms.
To withdraw any or all of your tendered options, you must resubmit to us a Letter of Transmittal/Withdrawal indicating which eligible options that you would like to exchange and which eligible options that you do not wish to exchange. The subsequent Letter of Transmittal/Withdrawal must be delivered via the Exchange Offer Website, electronic delivery, facsimile, regular mail, overnight courier or hand delivery as follows:
26
Through the Exchange Offer Website: Complete and submit your Letter of Transmittal/Withdrawal through the procedures set forth on the Exchange Offer Website.
Via Electronic Delivery: Scan the completed and signed Letter of Transmittal/Withdrawal and e-mail it to tenderoffer@gci. com.
Via Facsimile: To General Communication, Inc., Attn: Peter Pounds, facsimile number (907) 868-5676.
Via Regular Mail, Overnight Courier or Hand Delivery: To General Communication, Inc., Attn: Peter Pounds, 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503.
Your election to withdraw previously tendered options from the option exchange offer will be effective only after you properly submit a subsequent Letter of Transmittal/Withdrawal indicating that the previously tendered options should not be exchanged before the offer expires. For purposes of determining whether or not you have chosen to participate in the Offer to Exchange, the Company will rely on the most recent Letter of Transmittal/Withdrawal actually received before the offer expires.
If you later decide to make a new election to tender eligible options in this offer, you must submit a new Letter of Transmittal/Withdrawal by following the instructions in Section 4. Please see Section 4 for the contact information you should use to request additional copies of the Letter of Transmittal/Withdrawal, if needed. The final change to your elections that you submit to us prior to the expiration of the offer will be binding, and you will not be permitted to make any further withdrawals or elections after the offer expires.
You may not rescind any withdrawal, and options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options by delivering a new properly completed and executed Letter of Transmittal/Withdrawal before the offer expires.
Neither we nor any other person is obligated to give notice of any defects or irregularities in any Letter of Transmittal/Withdrawal, and no one will be liable for failing to give notice of any defects or irregularities. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of Letters of Transmittal/Withdrawal. Our determinations of these matters will be final and binding.
To be timely, your election to withdraw previously tendered options from this offer must be RECEIVED by us before the offer expires by delivery of a subsequent Letter of Transmittal/Withdrawal as described above.
The method of delivery of your Letter of Transmittal/Withdrawal is at your election and risk. Your Letter of Transmittal/Withdrawal will be effective upon receipt. In all cases, you should allow sufficient time to ensure we receive it in time. We intend to confirm our receipt of your submitted Letter of Transmittal/Withdrawal within two (2) business days of receipt. If we fail to notify you of our receipt of your Letter of Transmittal/Withdrawal, it will NOT affect the validity of your Letter of Transmittal/Withdrawal. If you do not receive confirmation of our receipt, it is your responsibility to ensure that we have received your election.
27
Section 6. Acceptance of Options for Exchange and Issuance of Restricted Stock.
Upon the terms and subject to the conditions of this offer and promptly following the expiration date, we will accept for exchange all eligible options properly tendered and not validly withdrawn before the expiration of the offer. All options accepted by us pursuant to this offer will be canceled as of the date of acceptance, and you will no longer have any rights under those options. We expect that Restricted Stock awards will be granted on the first business day following expiration of the offer in exchange for all properly tendered options that we accept for cancelation and exchange. We expect to provide you with a restricted stock agreement as soon as practicable following the grant date. If we accept and cancel options properly tendered for exchange after September 4, 2009, or if we extend the date by which we must accept and cancel options properly tendered for exchange, the time in which the Restricted Stock awards will be granted will be similarly delayed.
For purposes of the offer, we will be deemed to have accepted for exchange eligible options that are validly tendered and not properly withdrawn when we give notice to option holders of our acceptance. We will give notice of our acceptance, which may be by e-mail, facsimile or press release, promptly following the expiration date.
All Restricted Stock awards will be granted under our Plan and will be subject to the terms and conditions of an award agreement between you and GCI. Promptly after the grant date, we will send you an award agreement (in the appropriate form filed as an exhibit to our Tender Offer Statement on Schedule TO but with all the blanks filled in). This agreement will be effective from and as of the grant date.
If you are not an eligible officer or employee of GCI immediately prior to the expiration date, or if you are notified by GCI prior to the expiration date that your role as a consultant or advisor to GCI has been discontinued, your election to exchange your options will automatically be deemed to have been withdrawn as of the date of your termination and our offer will not affect the terms of your existing options.
It is possible that, prior to the cancelation of options tendered for exchange and the grant of Restricted Stock, we might effect or enter into an agreement for a merger or other similar transaction in which we are acquired by another company. If there is a sale of all or substantially all of our assets or stock or we merge with another company before the expiration of the offer, you may withdraw your tendered options and have all the rights afforded you to acquire our Common Stock under the existing agreements evidencing those options. Further, if we are acquired prior to the expiration date, we reserve the right to withdraw the offer, in which case your options and your rights under them will remain intact subject to all of their terms and conditions.
Section 7. Conditions of the Offer.
Subject to rules of the Securities and Exchange Commission and notwithstanding any other provision of the offer, we will not be required to accept for exchange any options and may terminate or amend the offer or postpone the acceptance of any options, if at any time on or after commencement of the offer and before the expiration date of the offer any of the following events shall have occurred (or shall have been determined by us to have occurred) that in our reasonable judgment makes it inadvisable to proceed with the offer or with acceptance for exchange:
· there has been threatened or instituted or is pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, the issuance of restricted stock in exchange for options, or otherwise relates in any manner to the offer; or that, in our reasonable judgment, could materially affect the business, condition (financial or other), income, operations or prospects of us and our subsidiaries, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries or materially impair (such as by increasing the accounting or other costs of the offer to us) the contemplated benefits of the offer to us;
28
· there has been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the offer or us or any of our subsidiaries, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly:
· make the acceptance for exchange of, or the issuance of restricted stock for, some or all of the options illegal or otherwise restrict or prohibit consummation of the offer or otherwise relates in any manner to the offer;
· delay or restrict our ability, or render us unable, to accept for exchange, or issue restricted stock for, some or all of the tendered options;
· materially impair (such as by increasing the accounting or other costs of the offer to us) the contemplated benefits of the offer to us; or
· materially affect the business, condition (financial or other), income, operations or prospects of us and our subsidiaries, taken as whole, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries;
· there has occurred:
· any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market;
· the declaration of a banking moratorium or any suspension of payments in respect of banks (whether or not mandatory);
· the commencement of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States;
· any limitation (whether or not mandatory) by any governmental, regulatory or administrative agency or authority on, or any event that, in our reasonable judgment, might affect the extension of credit by banks or other lending institutions;
· any significant change in the market price of our shares of Common Stock or any change in the general political, market, economic or financial conditions in the United States or abroad that could, in our reasonable judgment, have a material effect on our business, condition (financial or other), operations or prospects or on the trading in our Common Stock;
29
· any change in the general political, market, economic or financial conditions that could have a material effect on our business, condition (financial or other), operations or prospects that, in our reasonable judgment, makes it inadvisable to proceed with this offer;
· in the case of any of the foregoing existing at the time of the commencement of the offer, a material acceleration or worsening thereof; or
· any change in generally accepted accounting principles or interpretations of generally accepted accounting principles which could or would materially and adversely affect the manner in which we are required for financial accounting purposes to account for the offer;
· a tender offer with respect to some or all of our common stock, or a merger or acquisition proposal for us, has been proposed, announced or made by another person or entity or has been publicly disclosed, or we have learned that:
· any person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of our Class A or Class B common stock, or any new group has been formed that beneficially owns more than 5% of the outstanding shares of our Class A or Class B common stock (other than any such person, entity or group who has filed a Schedule 13D or Schedule 13G with the Securities and Exchange Commission on or before the commencement date of the offer);
· any person, entity or group who has filed a Schedule 13D or Schedule 13G with the Securities and Exchange Commission on or before the commencement date of the offer has acquired or proposed to acquire beneficial ownership of an additional 2% or more of the outstanding shares of our Class A or Class B common stock; or
· any person, entity or group has filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public announcement reflecting an intent to acquire us or any of our subsidiaries or any of their respective assets or securities; or
· any change or changes shall have occurred in our business, condition (financial or other), assets, income, operations, prospects or stock ownership or that of our subsidiaries that, in our reasonable judgment, has or may have a material adverse effect on us and our subsidiaries, taken as a whole.
The conditions to the offer are for our benefit. We may assert them at our discretion prior to the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other conditions to the offer. Our failure at any time prior to the expiration date to exercise any of these rights will not be deemed a waiver of any rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed to be a waiver with respect to any other facts and circumstances. Any determination or judgment we make concerning the events described in this section will be final and binding upon all persons.
30
Section 8. Price Range of Our Common Stock.
Our Common Stock is currently quoted on the NASDAQ Global Select Market under the symbol GNCMA. The following table sets forth the range of high and low closing prices for our Common Stock as reported on the NASDAQ Global Select Market for the periods indicated.
|
|
High |
|
Low |
|
||
Fiscal Year ended December 31, 2009 |
|
|
|
|
|
||
Third Quarter (through July 30, 2009) |
|
$ |
7.21 |
|
$ |
6.41 |
|
Second Quarter |
|
$ |
8.06 |
|
$ |
6.32 |
|
First Quarter |
|
$ |
8.61 |
|
$ |
3.78 |
|
|
|
|
|
|
|
||
Fiscal Year ended December 31, 2008 |
|
|
|
|
|
||
Fourth Quarter |
|
$ |
8.87 |
|
$ |
5.32 |
|
Third Quarter |
|
$ |
10.78 |
|
$ |
6.82 |
|
Second Quarter |
|
$ |
8.31 |
|
$ |
6.03 |
|
First Quarter |
|
$ |
8.44 |
|
$ |
5.09 |
|
|
|
|
|
|
|
||
Fiscal Year ended December 31, 2007 |
|
|
|
|
|
||
Fourth Quarter |
|
$ |
12.25 |
|
$ |
7.52 |
|
Third Quarter |
|
$ |
13.66 |
|
$ |
11.29 |
|
Second Quarter |
|
$ |
15.19 |
|
$ |
12.65 |
|
First Quarter |
|
$ |
16.10 |
|
$ |
13.69 |
|
On July 30, 2009, the closing price per share of our Common Stock as reported by the NASDAQ Global Select Market was $7.02.
Our stock price has been, and in the future may be, highly volatile. The trading price of our Common Stock has fluctuated widely in the past and is expected to continue to do so in the future, as a result of a number of factors, some of which are outside our control. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market prices of many companies similar to us, and that have often been unrelated or disproportionate to the operating performance of these companies.
We recommend that you obtain the current market price of our Common Stock before deciding whether to elect to exchange your options.
Section 9. Source and Amount of Consideration; Terms of Restricted Stock.
Consideration.
The number of shares of Restricted Stock to be granted in exchange for each eligible option will be determined based upon the applicable exchange ratio. Each eligible participant will receive an Individual Statement of Options identifying the options held by the participant which are eligible for exchange and how the exchange ratio will apply to each such option.
We will not issue any fractional shares of Restricted Stock. Accordingly, any exchange that would result in a fractional share of Restricted Stock under the applicable exchange ratio will be rounded to the nearest whole number of shares of Restricted Stock (with fractional shares of Restricted Stock greater than or equal to 0.5 rounded up to the nearest whole share of Restricted Stock and fractional shares of Restricted Stock less than 0.5 rounded down to the nearest whole shares of Restricted Stock).
31
As of July 30, 2009, options granted under our Plan were issued and outstanding to purchase an aggregate of approximately 7,033,396 shares of GCI Common Stock, of which 421 options eligible for exchange in this offer were outstanding to purchase approximately 6,084,146 shares of our Common Stock. The number of shares subject to eligible options held by eligible participants equal approximately 11.5% of the total number of shares of our Common Stock issued and outstanding as of July 30, 2009. Assuming we receive and accept for exchange all such outstanding options, we would issue approximately 2,239,195 shares of Restricted Stock, representing a number of shares equal to approximately 4.23% of the total number of shares of our Common Stock issued and outstanding as of July 30, 2009.
Terms of the Restricted Stock.
For each award of Restricted Stock granted in the offer, we and the participant will enter into a restricted stock agreement. Promptly after the grant date, we will send you a completed restricted stock agreement. The terms and conditions of the Restricted Stock awards will vary from the terms and conditions of the options tendered for exchange. You must sign and return the award agreement. This agreement will be effective from and as of the grant date. The following description of the restricted stock awards to be granted under the Plan is a summary of the material terms of these awards.
Important Note: The description below of the Plan and the Restricted Stock awards to be granted in this offer is merely a summary and does not purport to be complete. Any statements are subject to, and are qualified in their entirety by reference to, all provisions of the Plan and the applicable form of agreement evidencing the Restricted Stock award. These documents have been included as exhibits to our Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (to which this Offer to Exchange is also an exhibit).
· General. The Plan was adopted by our Board of Directors and approved by our stockholders in 1986. It has been subsequently amended from time to time, the most recent amendment and restatement of which was approved by our stockholders on June 27, 2005. An Amendment No. 1 to the Plan was approved by our stockholders on June 25, 2007. An Amendment No. 2 to the Plan was approved by our stockholders on June 29, 2009, a copy of which has been filed as an exhibit to our Tender Offer Statement on Schedule TO filed with the Securities and Exchange Commission (to which this Offer to Exchange is also an exhibit). The Plan permits the Compensation Committee of our Board of Directors to grant a variety of equity-based awards, including the awards of Restricted Stock to be granted in this offer.
· Purpose. The purpose of the Plan is to (a) attract and retain persons eligible to participate in the Plan; (b) motivate participants in the Plan, by means of appropriate incentives, to achieve long-range goals; (c) provide incentive compensation opportunities that are competitive with those of other similar companies; and (d) further identify interests of participants in the Plan with those of our other stockholders through compensation that is based on our Common Stock; and thereby promote our long-term financial interest and that of our subsidiaries, including the growth in value of our equity and enhancement of long-term stockholder return.
32
· Administration. The Plan is administered by the Compensation Committee of our Board of Directors. Subject to the provisions of the Plan, the Committee selects the individuals eligible to be granted awards under the Plan, the types of awards granted, the time(s) at which awards may be granted, the number of shares or options subject to each award and all of the terms and conditions of each award. The Committee has the authority to interpret the Plan and to make all other determinations relating to the Plan.
· Nature of Restricted Stock. Each Restricted Stock award consists of shares of GCI Class A common stock that are issued to the participant at the time the award is granted. The applicable award agreement will provide that we may issue shares to a participant by delivering evidence of book entry shares held of record by GCI and credited to the participants account. Between the date on which a Restricted Stock award is granted and the date on which shares subject to the award vest, the value of the award will fluctuate based on the market price of our Common Stock, although you will have no right to sell or otherwise transfer such shares until they have vested. No monetary payment (other than applicable tax withholding, if any) will be required as a condition of being granted shares of Restricted Stock.
· Vesting. All Restricted Stock received in exchange for eligible options will vest as follows: 50% of the shares of Restricted Stock will vest on December 20, 2011 and 50% of the shares of Restricted Stock will vest on February 28, 2012. We will grant Restricted Stock awards promptly following the expiration of the offer in exchange for properly tendered options. If your service as an officer or employee of, or a consultant or advisor to, GCI terminates before your Restricted Stock has vested, you will immediately forfeit any shares of Restricted Stock that remain unvested on the date of such termination.
· Delivery of Common Shares. Upon vesting of Restricted Stock, the shares of vested stock will be transferred to you.
· Termination of Service. If you cease to be an officer or an employee of, or a consultant or advisor to, GCI or any of our majority-owned subsidiaries at any time prior to the vesting of your Restricted Stock, all unvested Restricted Stock at the time of termination of service will be forfeited.
· Transfer Restrictions. Until they have vested, your shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, other than by will or the laws of descent and distribution.
· Voting and Dividend Rights. If you are granted shares of Restricted Stock, you will have the right to vote and to receive any dividends we may pay with respect to such shares beginning as of the grant date.
· Adjustments Upon Certain Events. As provided in the Plan, in the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock, appropriate adjustments will be made in the number and kind of shares subject to Restricted Stock awards, as determined by the Compensation Committee of our Board of Directors in its discretion. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger
33
or consolidation (other than a merger or consolidation in which the Company survives but its outstanding shares are converted into securities of another corporation or exchanged for other consideration), any Restricted Stock award granted under the Plan shall pertain and apply to the securities which a holder of the number of shares of Common Stock then subject to the Restricted Stock award should have been entitled to receive. Under the Plan, the Compensation Committee may, in its discretion, make such adjustments in the terms of any award of Restricted Stock to reflect any changes in capital structure of the Company or distributions as it deems appropriate, including modification of any performance criteria or performance period applicable to such award.
· Amendment or Termination of the Plan. The Company has the authority to amend, suspend or terminate the Plan at any time, provided that no such amendment, suspension or termination may materially and adversely affect any then outstanding Restricted Stock or other awards under the Plan without the consent of the participant unless expressly authorized by the Plan or necessary to comply with any applicable law, regulation or rule.
· Registration of Shares. The shares of GCI Common Stock issuable in connection with the exchange have been registered under the Securities Act of 1933 on a registration statement on Form S-8 filed with the Securities and Exchange Commission. Unless you are considered an affiliate of GCI, and subject to insider trading laws, you will generally be able to sell the vested Restricted Stock free of any transfer restrictions under applicable United States securities laws.
· Tax Consequences. You should refer to Section 14 for a discussion of the material U.S. federal income tax consequences of the acquisition, holding and vesting of shares of Restricted Stock under this offer. We strongly urge you to consult with your tax advisor to determine the tax and social security consequences of this transaction under the laws of the country in which you live and work.
Section 10. Information Concerning General Communication, Inc.
General. GCI is incorporated in the State of Alaska. Our principal executive offices are located at 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503, and our telephone number at that address is (907) 868-5600.
GCI is Alaskas leading provider of long-distance, cable television, data and Internet services, as measured by revenues, we are the second largest local access provider, as measured by local access lines, and we are the third largest wireless service provider as measured by lines in service. A pioneer in bundled service offerings, we provide local and long distance voice, cable video, Internet and data communication services, consulting services, network and desktop computing outsourced services, and wireless telephone services, to consumer, network access, commercial and managed broadband customers under our GCI brand. We provide wireless telephone services over our own facilities under the Alaska DigiTel and Alaska Wireless brand names. We provide Internet services under the Alaska Wireless Internet brand name. We provide facilities-based local voice services and local exchange carrier services in the Yukon-Kuskokwim Delta region under the brand names of United Utilities and United-KUC. We also provide long-distance voice, wireless telephone service, and Internet service in the Yukon-Kuskokwim Delta region under the Unicom brand name.
34
The Companys Common Stock is traded on the NASDAQ Global Select Market under the ticker symbol GNCMA.
Subject to the foregoing, and except as otherwise disclosed in this Offer to Exchange or in our filings with the Securities and Exchange Commission, we presently have no specific plans or proposals that relate to or would result in:
· |
|
an extraordinary transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries; |
|
|
|
· |
|
any purchase, sale or transfer of a material amount of our assets or the assets of any of our subsidiaries; |
|
|
|
· |
|
any material change in our present dividend rate or policy, our indebtedness or capitalization; |
|
|
|
· |
|
any change in our present board of directors or management, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any vacancies on the board or to change any material term of the employment contract of any executive officer; |
|
|
|
· |
|
any other material change in our corporate structure or business; |
|
|
|
· |
|
our common shares being delisted from the NASDAQ Global Select Market; |
|
|
|
· |
|
our common shares becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; |
|
|
|
· |
|
the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934; or |
|
|
|
· |
|
any change in our certificate of incorporation or bylaws, or any actions which may impede the acquisition of control of us by any person. |
We cannot assure you that we will not plan, propose or engage in negotiations with respect to the above noted matters during or after the expiration of this offer.
Certain Financial Information. The financial information included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2008 and in our Quarterly Report on Form 10-Q for our fiscal quarter ended March 31, 2009, is incorporated herein by reference. Please see Section 17, Additional Information, for instructions on how you can obtain copies of our Securities and Exchange Commission filings, including filings that contain our financial statements.
35
Ratio of Earnings to Fixed Charges. The following table sets forth our ratio of earnings to fixed charges for the periods specified:
|
|
Fiscal Year Ended |
|
|
|
||
|
|
December 31, |
|
December 31, |
|
Three Months Ended |
|
Ratio of earnings to fixed charges |
|
1.39 |
|
0.98 |
|
1.05 |
|
The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For the purposes of computing the ratio of earnings to fixed charges, earnings consist of income before provision for income taxes plus fixed charges, excluding capitalized interest. Fixed charges consist of interest expensed and capitalized, plus amortization of debt discounts and issuance costs related to indebtedness, plus the estimated portion of rental expense deemed by GCI to be representative of the interest factor of rental payments under operating leases.
Book Value. We had book value per share of $4.95 on March 31, 2009 (calculated using the book value as of March 31, 2009, divided by the number of outstanding shares of our Class A and Class B common stock as of March 31, 2009). Our Class B common stock converts to Class A common stock on a on-for-one basis.
For information regarding the accounting consequences of our offer, see Section 12.
Section 11. Interests of Officers; Transactions and Arrangements Concerning the Options.
A list of our executive officers is attached to this Offer to Exchange as Appendix A, which is incorporated by reference herein. For information with respect to the beneficial ownership of our Class A and Class B common stock by those executive officers who were beneficial owners of our common stock as of May 18, 2009, please refer to our proxy statement filed on May 18, 2009.
All of our executive officers who hold eligible options have preliminarily indicated that they plan to exchange all or a portion of their eligible options for shares of Restricted Stock in the exchange offer. Our directors are not eligible to participate in the exchange offer, even if such directors are also executive officers of the Company.
Other than as described below and other than transactions in our securities in the ordinary course with persons who are neither executive officers nor directors of GCI, neither GCI nor our executive officers, directors or affiliates have effected transactions in options to purchase GCI Class A or Class B common stock, in shares of GCI Class A or Class B common stock, or in other securities convertible into or exercisable for shares of GCI Class A or Class B common stock during the 60 days prior to August 6, 2009.
· On June 23, 2009, Gregory W. Pearce, Vice President and General Manager, Commercial Services, exercised options to acquire 1,770 shares of Class Common Stock at $3.25 per share. On the same day Mr. Pearce sold 1,770 shares of Class A common stock at an average price of $6.5312 per share.
36
· On June 30, 2009, Natalie W. Blaylock, Vice President General Manager, Network Access Services, was granted options to acquire 12,500 shares of Class A common stock at an exercise price of $8.00 per share, which options vest in full on April 1, 2010. The options expire on June 30, 2019, although the options may expire on April 1, 2010 if certain company performance criteria are not met.
· On June 30, 2009, Dana L. Tindall, Senior Vice President Legal, Regulatory and Governmental Affairs, was granted 10,000 restricted shares of Class A common stock. The shares vest in full on June 30, 2012.
Except as described in this Offer to Exchange and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and other than outstanding options and other awards granted from time to time to certain of our employees (including executive officers), directors and consultants under our compensation and incentive plans, neither we nor any person controlling us nor any of our directors or executive officers, is a party to any contract, arrangement, understanding or relationship with any other person relating, directly or indirectly, to this Offer to Exchange with respect to any of our securities (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations).
In connection with the issuance of Restricted Stock in exchange for tendered options that we accept for exchange, we may be required to recognize incremental compensation expense for the excess of the value of the Restricted Stock over the value of the tendered options on the exchange date. Such incremental compensation expense will be recognized over the vesting period when the Restricted Stock vests. Based on our assumptions as of the date we commence this offer, we expect this process to result in a significant book expense as our Black-Scholes valuation is attributing the full remaining term of the options to each officer, employee, consultant and advisor participating in the exchange, while FAS 123R shortens that term, potentially significantly.
As noted above, we are offering participants a number of shares of Restricted Stock having a fair value equal to 100% of the fair value of the eligible options exchanged by the participant (subject to a cap on the exchange of 40% for example, 100 options would convert into no more than 40 shares of Restricted Stock regardless of the value of the options). In determining the fair value of the exchanged options under Black-Scholes, we assumed an expected remaining term of the option equal to the period beginning on February 28, 2009, through the remaining contractual life of the eligible option. However, in determining the fair value of the option under FAS 123R, we are required to assume a shorter remaining life for the exchanged option, which results in a lower valuation of the exchanged option.
Any compensation expense will be determined at the time Restricted Stock is granted to participants following the expiration of the Offer to Exchange. The amount of this charge will depend upon a number of factors, including the number of options that are tendered by eligible participants, the per share price of GCI Common Stock on the date of the exchange, and the difference between the Black-Scholes value of the options utilized in the exchange and the final accounting value of the options determined under FAS 123R. Since these factors cannot be predicted with any certainty at this time and will not be known until the date on which the Restricted Stock is issued, we cannot predict the exact amount of the charge that will result from the Offer to Exchange. Any such incremental compensation expense will be recognized over the service period of the Restricted Stock awards. If any portion of the new Restricted Stock awards is forfeited by the participants prior to the applicable vesting dates, then the compensation cost for the forfeited portion of the award generally will not be recognized.
37
Section 13. Legal Matters; Regulatory Approvals.
We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by this offer, or of any approval or other action by any government or regulatory authority or agency that is required for the acquisition or ownership of the Restricted Stock or the disposition or exchange of the options as described in this Offer to Exchange. If any other approval or action should be required, we presently intend to seek that approval or take that action. This could require us to delay the acceptance of options returned to us. We cannot assure you that we would be able to obtain any required approval or take any other required action. Our failure to obtain any required approval or take any required action might result in harm to our business. Our obligation under the offer to accept exchanged options and to issue restricted stock is subject to the conditions described in Section 7.
Section 14. Material U.S. Federal Income Tax Consequences.
The following is a general summary of the material U.S. federal income tax consequences of the offer. This discussion is based on the Internal Revenue Code of 1986, as amended (which we refer to in this Section as the Code), its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all the tax consequences that may be relevant to you in light of your particular circumstances and it is not intended to be applicable in all respects to all categories of option holders.
You are urged to consult your tax advisor with respect to the federal, state and local consequences of participating in the offer, as well as any tax consequences arising under the laws of any other taxing jurisdiction.
Option Exchange and Grant of Restricted Stock. We believe that you will not be subject to current U.S. federal income taxation if you elect to keep your eligible options. We do not believe that there will be any immediate U.S. federal income tax consequences solely as a result of your receipt of a Restricted Stock award in exchange for your eligible options if you are subject to U.S. federal income taxation. We believe, however, that you will recognize ordinary income at the time the shares vest for purposes of the tax rules or if you file an election under Section 83(b) of the Code, each as described below.
38
Vesting of Restricted Stock. When shares of restricted stock granted to you vest, you will generally recognize ordinary income equal to the fair market value of the shares that become vested. We will determine the fair market value of the shares based on the closing price of our Common Stock as reported on the NASDAQ Global Select Market on the vesting date, or if not reported on such date, on the last day prior to the vesting date on which such closing price was reported. Generally, we will be entitled to a tax deduction equal to any amount recognized as ordinary income by you with respect to your vested Restricted Stock. Generally, you will become vested in the shares for purposes of the tax rules at the time you are vested in the shares for all other purposes.
Election under Section 83(b). You may elect to be taxed at the time that shares of Restricted Stock are granted to you as if the shares were not subject to vesting conditions by filing an election with the Internal Revenue Service under Section 83(b) of the Code no later than 30 days after the date of grant of the shares. If you properly file a Section 83(b) election, you will generally recognize ordinary income equal to the fair market value of all of the shares determined on the date of grant. Generally, we will be entitled to a tax deduction at that time.
Subsequent Sale of Shares. Your tax basis in the shares granted to you will be equal to the fair market value on the date of vesting (that is, equal to the amount of ordinary income you recognize), and the capital gain holding period will commence upon the day following the date on which the shares vested. However, if you filed a Section 83(b) election, your tax basis will be equal to the fair market value of the shares on the date they were granted to you, and the capital gain holding period will commence on the date of grant. Your subsequent disposition of the stock will ordinarily result in a capital gain or loss in an amount equal to the difference between the amount you realize on the disposition and your tax basis in the shares that are disposed of. If you dispose of shares of Common Stock after you have held the shares for more than one year (measured from the date of vesting, or in the case of a Section 83(b) election, from the date of the grant), such capital gain or loss will be long-term capital gain or loss. Long-term capital gains recognized by individuals are subject to a more favorable rate of tax (currently, a maximum rate of 15%) than ordinary income. There are limitations imposed on the ability of individuals to deduct capital losses against their ordinary income.
Income Recognition and Withholding Taxes. If you are an employee, at the time you recognize ordinary income, we will have an income and employment tax (e.g., FICA) withholding obligation with respect to that income, much like the obligation that arises when we pay you your salary or a bonus. This ordinary income resulting from the vesting of your Restricted Stock (or acquisition of the shares if you file a Section 83(b) election) will be reflected on your year-end Form W-2 reported to the Internal Revenue Service. The income tax withholding may be insufficient to cover your final income tax liability with respect to the shares issued to you. You should consult with your tax advisor to determine whether you should make estimated tax payments for the year in which you recognize ordinary income under your Restricted Stock award. If you are a non-employee consultant or advisor, no withholding should be required but you will be required to recognize ordinary income on the vesting of your Restricted Stock (or the acquisition of the shares if you file a Section 83(b) election) and such amount will be reported on your year-end Form 1099 reported to the Internal Revenue Service.
As a condition to our delivering shares of Common Stock to you, you must make arrangements with us to satisfy all tax withholding obligations. If you are an employee, we are offering you two alternatives (unless you file a Section 83(b) election) to satisfy your income and employment tax obligations. The alternatives are as follows:
· You may elect to sell a portion of your vested shares on the vesting date in an amount at least sufficient to provide for the required minimum income and employment withholding taxes. If you make this election, we will automatically sell on the vesting date (or on the next business day if the vesting date is not a day on which the markets are open for trading) and on your behalf the required number of shares and withhold from the sale proceeds, net of sale commissions and fees, the required minimum income and employment withholding taxes and remit them directly to the Internal Revenue Service.
39
· You may elect to pay us, on or before the fifth business day prior to the vesting date, the required minimum income and employment withholding taxes by delivering a personal check to us. You will be prevented from transferring or selling the vested shares until we have received your check. However, if you have elected to pay withholding taxes by check but fail to deliver your check in the correct amount on or before the required date, we will be authorized to sell on your behalf a number of shares as described in the first alternative above sufficient to satisfy your income and employment tax obligation.
If you elect to sell shares in accordance with the first alternative described above, you will be required to establish a written trading plan that complies with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934 and our securities trading policies (unless, prior to the sale, we have in our sole discretion consented to the sale without such a plan). You must establish your trading plan at a time when our trading window is open and you are not otherwise in possession of material nonpublic information about GCI or its securities. Once established, your trading plan will remain in effect until all of the tax withholding obligations in connection with your award of Restricted Stock have been satisfied.
You will be required to make a separate election for each award of Restricted Stock you receive in the exchange program by submitting your withholding election through the online broker who administers the Plan and related income and employment tax withholding obligations. Following the completion of the Offer to Exchange you will be provided with additional information regarding when your withholding election must be made. If you do not have a written trading plan in effect before the fifth business day prior to the vesting date, then you may not elect to sell a portion of your shares on the vesting date; rather, you will be required to pay us the required minimum income and employment withholding taxes by delivering a personal check to us.
If you choose to file a Section 83(b) election with respect to a Restricted Stock award, you are required by IRS regulations to submit to GCI a copy of your Section 83(b) election filed with the IRS and, if you are an employee, you will also be required to make a one-time cash payment to GCI to cover the income and employment withholding tax due based on the fair market value on the grant date of all of the shares subject to the Restricted Stock award. Any payment required by the foregoing provision must be made by your personal check on or before the third business day following the date of the 83(b) election (unless we notify you prior to the date in question that you must deliver your check on an earlier date).
In addition to the methods described above, and notwithstanding any election you may have made, we may, at our discretion, permit or require satisfaction of the tax withholding requirements by withholding from the number of shares of our Common Stock vesting under your Restricted Stock award a number of shares (rounded down to the nearest whole share) determined by multiplying the number of shares becoming vested by the combined minimum statutory income and employment tax withholding rates applicable to you.
Regardless of which tax withholding alternative is used, you will also authorize us to withhold from your first paycheck (and subsequent paychecks if necessary) following the vesting date an amount sufficient to satisfy any unsatisfied portion of your required tax withholding.
40
Section 15. Extension of Offer; Termination; Amendment.
We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event set forth in Section 7 (Conditions of the Offer) of this Offer to Exchange has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any options by giving oral, written or electronic notice of such extension to the option holders or making a public announcement thereof.
We also expressly reserve the right, in our reasonable judgment, prior to the expiration date of the offer to terminate or amend the offer and postpone our acceptance and cancelation of any options that you elect to exchange upon the occurrence of any of the conditions specified in Section 7 of this Offer to Exchange by giving oral, written or electronic notice of such termination or postponement to you or by making a public announcement thereof. Notwithstanding the foregoing, we will pay the consideration offered or return the options elected for exchange promptly after termination or withdrawal of this offer.
Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in Section 7 has occurred or is deemed by us to have occurred, to amend this offer in any respect.
Amendments to this offer may be made at any time and from time to time. In the case of an extension, the amendment will be issued no later than 9:00 a.m., Eastern Daylight Time (or 5:00 a.m., Alaska Daylight Time), on the next business day after the last previously scheduled or announced expiration date. Any amendment of this offer will be disseminated promptly in a manner reasonably designed to inform option holders of the change. Without limiting the manner in which we may choose to disseminate any amendment of this offer, except as required by law, we have no obligation to publish, advertise, or otherwise communicate any dissemination.
If we materially change the terms of this offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer. Except for a change in the amount of consideration or change in percentage of securities sought, the amount of time by which we will extend the offer following a material change in the terms of the offer or information concerning the offer will depend on the facts and circumstances, including the relative materiality of the information. If we decide to take any of the following actions, we will notify you and extend the expiration date to the tenth business day after the date of the notice (unless the expiration date as originally scheduled is already on or after the tenth business day):
· we increase or decrease the per share exchange value of the options (i.e., increase or decrease what we will give you in exchange for your options);
· we change the type of options eligible to be tendered for exchange in the offer; or
· we increase the number of options eligible to be tendered for exchange in the offer such that the common shares underlying the increased options exceed 10% of the common shares issuable upon exercise of the options that are subject to the offer immediately prior to the increase.
A business day means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Alaska Daylight Time.
41
Section 16. Fees and Expenses.
We will not pay any fees or commissions to any broker, dealer or other person for asking option holders to exchange options under this offer.
Section 17. Additional Information.
With respect to this offer, we have filed with the Securities and Exchange Commission a Tender Offer Statement on Schedule TO, of which this Offer to Exchange is a part. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that, in addition to this Offer to Exchange, the Letter of Transmittal/Withdrawal, your Individual Statement of Options, the Plan and the Form of Restricted Stock Agreement, you review the Schedule TO, including its exhibits, before deciding whether or not to exchange your options. We are subject to the informational filing requirements of the Securities Exchange Act of 1934 and, in accordance with that act, are obligated to file reports, proxy statements and other information with the Securities and Exchange Commission (the Commission) relating to our business, financial condition and other matters. Such reports, proxy statements and other information include the following, which are incorporated herein by reference:
· General Communication, Inc. Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2009, which is incorporated herein by reference;
· General Communication, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 2008, which is incorporated herein by reference;
· General Communication, Inc. Definitive Proxy Statement on Schedule 14A for its 2009 annual meeting of stockholders, which is incorporated herein by reference;
· General Communication, Inc. Current Reports on Form 8-K filed with the Commission on May 7, 2009, and August 6, 2009, which are incorporated herein by reference; and
· the description of our common stock contained in the General Communication, Inc. Registration Statement on Form S-8 filed with the Commission on August 7, 2008, which is incorporated herein by reference.
Any amendment or report filed for the purpose of updating such descriptions may be examined, and copies may be obtained, at the Securities and Exchange Commissions public reference room in Washington, D.C. You may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-732-0330. Our filings are also available to the public on the Securities and Exchange Commissions Internet site at http://www.sec.gov.
Our common stock is quoted on the NASDAQ Global Select Market under the symbol GNCMA, and our filings with the Commission can also be read at the offices of The Nasdaq Stock Market.
42
We will also provide without charge to each person to whom a copy of this Offer to Exchange is delivered, upon the written or oral request of any such person, a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). You may request by writing to Peter Pounds, or telephoning at (907) 868-6952 between the hours of 9:00 a.m. and 5:00 p.m., Alaska Daylight Time.
As you read the documents listed in this Section 17, you may find some inconsistencies in information from one document to another. Should you find inconsistencies between the documents, or between a document and this Offer to Exchange, you should rely on the statements made in the most recent document.
The information contained in this Offer to Exchange about the Company should be read together with the information contained in the documents to which we have referred you.
Section 18. Forward-Looking Statements.
Our reports filed with the Securities and Exchange Commission referred to above include forward-looking statements which reflect our views as of the time of the filing of the respective reports with respect to future events and financial performance. All statements other than statements of historical or current facts, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as may, will, expect, intend, estimate, anticipate, believe or continue or the negative thereof or variations thereof or similar terminology. All forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, achievements, plans and objectives to differ materially from any future results, performance, achievements, plans and objectives expressed or implied by these forward-looking statements.
In evaluating those statements, you should specifically consider various factors, including those identified under Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and elsewhere in this Offer to Exchange. Those factors may cause our actual results to differ materially from any of our forward-looking statements. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
You should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement, and the related risks, uncertainties and other factors speak only as of the date on which they were originally made and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement to reflect any change in our expectations with regard to these statements or any other change in events, conditions or circumstances on which any such statement is based. New factors emerge from time to time, and it is not possible for us to predict what factors will arise or when. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
August 6, 2009 |
|
General Communication, Inc. |
43
The directors and executive officers of General Communication, Inc., their positions and offices as of August 6, 2009 are set forth in the following table:
Name |
|
Positions and Offices Held |
Stephen M. Brett |
|
Chairman, Director |
Ronald A. Duncan |
|
President, Chief Executive Officer and Director |
John M. Lowber |
|
Senior Vice President, Chief Financial Officer, Secretary, and Treasurer |
G. Wilson Hughes |
|
Executive Vice President and General Manager |
William C. Behnke |
|
Senior Vice President Strategic Initiatives |
Natalie W. Blaylock |
|
Vice President General Manager, Network Access Services |
Gina R. Borland |
|
Vice President, Product Management Voice and Messaging |
Martin E. Cary |
|
Vice President General Manager, Managed Broadband Services |
Gregory F. Chapados |
|
Senior Vice President Federal Affairs and Business Development |
Richard P. Dowling |
|
Senior Vice President Corporate Development |
Paul E. Landes |
|
Vice President and General Manager, Consumer Services |
Terry J. Nidiffer |
|
Vice President, Product Management Data and Entertainment |
Gregory W. Pearce |
|
Vice President and General Manager, Commercial Services |
Dana L. Tindall |
|
Senior Vice President Legal, Regulatory and Governmental Affairs |
Richard D. Westlund |
|
Senior Vice President, Network Access Services |
Jerry A. Edgerton |
|
Director |
Scott M. Fisher |
|
Director |
William P. Glasgow |
|
Director |
Mark W. Kroloff |
|
Director |
Stephen R. Mooney |
|
Director |
James M. Schneider |
|
Director |
The address of each director and executive officer is General Communication, Inc., 2550 Denali Street, Suite 1000, Anchorage, Alaska 99503. The telephone number for each director and executive officer is (907) 868-5600.
44